Actress Li Bingbing was Gucci’s China brand ambassador till last November
When it comes to salacious corporate histories, there are few better than Sara Gay Forden’s The House of Gucci: A Sensational Story of Murder, Madness, Glamour and Greed. (If that title doesn’t hook you, nothing will.)
Aside from being a page-turning account of destructive family rivalries, it’s also an excellent business book. It traces Gucci’s growth from its shopfloor roots to the apex of glamour in the 1960s. However, it is at its best when the author depicts how the family firm ossified and lost its cachet in the 1980s.
There is a telling anecdote, for instance, about a staff meeting called by Paolo Gucci. “My cousin Maurizio has come up with a crazy idea. He wants to hire an outside designer. He keeps talking about this guy called Armani. Who is he? We don’t need him.”
Needless to say Giorgio Armani went on to rapidly grow his business, while the Gucci clan ran theirs into the ground. As Forden points out: “The Gucci name had been cheapened. The canvas handbags with their interlocking Gs were everywhere. By the late 1980s, Gucci sneakers had even become status symbols for drug dealers.”
Gucci fell from family control into the hands of private equity, and was rescued thanks to the talents of Tom Ford, a designer who helped rebuild it and make the brand chic and edgy again. After a subsequent IPO, the Italian fashion icon was later acquired by PPR, the luxury conglomerate now known as Kering (and still Gucci’s owner).
Fast forward to present day China, and some in the media think that history is repeating itself. “Gucci arrives again at a decennial period of adjustment and change,” a luxury business insider told CBN, referring to past makeovers. Another industry expert in China put it more bluntly: “Over the past two years this brand has been in decline”.
CBN decided to visit the county-level city of Zhuji in Zhejiang province to see if this was the case. Zhuji has plenty of wealthy people, it observes, mostly owning small businesses making socks or catering to the tourist industry. But even in this “fifth-tier” city it discovered that the local rich were increasingly cosmopolitan in their brand choices, travelling abroad and buying from the likes of Marc Jacobs and Alexander McQueen.
When asked about Gucci, CBN reports, the response was disdainful. “I do not buy it. It is too low end,” one consumer commented, while the offspring of a Zhuji real estate developer dismissed Gucci as no longer exclusive or prestigious enough.
What seems to have put the rich folk of Zhuji off is the prevalence of cheaper Gucci-branded wares in the market. CBN suggests that Gucci has become over-reliant on the sales of the canvas goods that appeal to less savvy, logo-hungry buyers. Such goods can be very profitable – they’re less expensive to make – and their production can also be scaled up in a way that handmade leather products simply cannot. But if – as was the case in America in the 1980s – such products become too ubiquitous, the side-effect is to associate Gucci with a less wealthy demographic and erode brand equity. CBN says that a rise in cheap counterfeit versions of Gucci’s canvas products has worsened matters too.
In an attempt to stem stuttering revenues last year, Gucci began introducing cosmetics in China (such as high margin skincare products, lipsticks and nail polish). But in the first quarter Gucci’s sales still fell 7.9% globally, with China being viewed as a key reason why.
Haunting firms like Gucci: the continued vigilance of Wang Qishan’s anti-graft campaign. Indeed, while pricier items like crocodile skin handbags were the sort of purchases Chinese tourists’ opted to make in Milan or Florence, Gucci’s China boutiques turned over a higher proportion of items designed to be given as gifts. So with government officials now fearful of being seen clutching anything with a big logo, Gucci is one of the brands that has been impacted by the clampdown.
(Though it’s far from alone in suffering such a setback: this week the CEO of a leading Swiss watch brand told the Financial Times that before the anti-corruption campaign as many as 65 of every 100 of his watches were sold in China. Today it is just 25 out of 100.)
ThePaper.cn reckons that Gucci has already acknowledged China’s luxury goods market is transitioning to a less welcome “new normal”. Its stores in Shanghai, Chengdu and Nanjing unveiled big price cuts in late May, offering leather bags that had retailed for Rmb15,000 ($24,000) at Rmb7,500. Shoes, clothing, belts and other items were also marked down 50% at a store ThePaper.cn visited on Shanghai’s Nanjing West Road, a busy shopping area.
Of course, some of Gucci’s peers have cut prices at their Chinese stores too (Chanel cut prices by 27% in March). The reason? A weak euro has made price tags for luxury goods in China dramatically steeper than those a Chinese tourist can expect to pay for the same items in Europe. Reducing the prices for the same goods in renminbi merely acknowledges that websites in China – staffed by local fashion bloggers – have made such differentials more transparent and less tenable.
However, the scale of Gucci’s recent price reductions also suggests the firm likely faced an inventory glut in its (relatively large) Chinese retail network. And while cutting prices by half did lure queues of bargain hunters, this type of sales strategy is only likely to confirm higher-end Chinese consumers in their view that Gucci’s brand image is struggling. After all, whoever heard of a Hermès boutique selling a Birkin bag at half price?
Gucci’s management looks to be cognisant that changes are required too. Indeed its reinvention strategy looks to have kicked off in February with the departure of its designer Frida Giannini, who had held the role for 10 years. The New York Times says her more recent collections have confused consumers: “At a certain point it became very hard to identify what Gucci stood for, aesthetically, anyway, aside from bamboo-handled, made-in-Italy leather goods.”
The brand is also seeking to boost its appeal among younger female consumers with the announcement that its new brand ambassador for Asia is South Korea’s Jun Ji-Hyun. That could be a canny move: the actress starred in You Who Came from the Stars, a drama that proved enormously popular in China.
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