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Slowdown ‘not a setback, an opportunity’
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The boss of Paris-based Kering, the upmarket clothing and accessories group, seems unruffled by the sluggish growth that marked the luxury market in China this year.
After years of double-digit growth, the market for top fashion brands expanded at just 2.5 percent amid a government crackdown on spending by public officials and the use of gifts to buy favors.
In an interview in Paris with Shanghai Daily, Francois-Henri Pinault, president and CEO of Kering, declined to comment on the business effects of China’s anti-corruption campaign. He preferred to attribute weaker luxury spending to slower growth in the Chinese economy — a situation he expects to be temporary.
“The cooldown is not a setback but an opportunity for Kering because we can now devote more time to training staff and cultivating customer loyalty in China,” he said.
“Our brands need to focus more on the exclusivity of their products, use more sophisticated designs, more leather, more precious skins.”
Kering owns such prestigious brands as Gucci, Bottega Veneta, Saint Laurent and Balenciaga.
“America has a per capita GDP of around US$25,000 to US$30,000, compared with the equivalent of about US$8,000-US$9,000 in China,” he said. “Why shouldn’t China have the ambition to reach the same level as the US?”
According to Kering, by the end of 2012, brands in the company stables had opened 118 shops on the Chinese mainland, 29 in Hong Kong and eight in Macau, in addition to 49 franchise stores. Gucci alone operates more than 60 shops in China, its largest retail base in the world.
One challenge for Kering, Pinault said, is to keep pace with the changing tastes of Chinese consumers.
“China has become the fastest-changing market in the world and a laboratory for brands,” he said. “Nowhere in the world are consumers changing that fast, from discovering luxury, to buying luxury, to changing their aspirations for luxury. It is a country where you need to cope with very exclusive consumers and newcomers at the same time.”
He said Chinese tourists who buy luxury goods while traveling overseas, where they are often cheaper than in China, buttress corporate profits.
“If we consider Chinese consumers buying our brands in France, the United Kingdom and Italy, in addition to buying at home, we are still growing very fast,” Pinault said.
His view is supported by a report from consulting firm Bain & Co that showed China surpassed the US this year to become the world’s biggest luxury spender, with a 29 percent share of global sales. The Chinese now buy two-thirds of their luxury goods abroad.
Euromonitor, a market-tracking firm based in London, says China’s luxury spending will grow 72 percent in the next five years as incomes expand. It said China has the second-largest number of rich people, defined as earning over US$150,000 a year, after the US.
So important is public image in China to its business that last April Pinault donated to the Chinese government two bronze animal heads looted by French and British troops in 1860. The heads of a rat and rabbit were among 12 zodiac sculptures that had surrounded a fountain at the Yuanmingyuan Palace.
The Pinault family, which also owns the auction house Christie’s, returned the bronze heads in a major public relations exercise aimed at lifting Kering’s profile among Chinese people.
Kering is a family-owned, Paris-listed company that was founded in 1963 as Pinault-Printemps-Redoute by Pinault’s father. The company was later renamed PPR, and then, last June, renamed again as Kering. Since taking over the helm from his father in 2005, Pinault has transformed the company from a retailer with its origins in the wood business to a group focused on luxury and sports brands.
After years of acquisitions and sales of less profitable assets, including the Printemps department store chain, Kering has assembled a portfolio that includes UK fashion labels Christopher Kane and Stella McCartney, Italian menswear label Brioni, French jeweler Boucheron, Italian shoemaker Sergio Rossi and sportswear brand Puma. Last year it added Hong Kong jewelry brand Qeelin to target Chinese customers.
Pinault said he is not at all bothered about China’s current anti-corruption campaign.
“Fighting corruption is always one of prerequisites for the long-term growth of an economy,” he said.
“The fact that the Chinese government is implementing this policy gives worldwide investors a good sign that this country will be ruled by law. We certainly don’t want to build our brands in a corrupt market.”
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