(Bloomberg Opinion) -- Will fashionistas embrace ostentatious outfits and logo-heavy handbags with as much gusto as the coronavirus crisis unfolds?
This is a question that all luxury groups must grapple with. But it’s an especially pertinent one for Gucci, the superstar brand owned by luxury behemoth Kering SA. Gucci has had nothing short of a miraculous turnaround under creative director Alessandro Michele, who embraced maximalism in everything from shoes to streetwear, setting fashion on a whole new aesthetic course.
Consumers may shy away from the most conspicuous consumption with hospital staff risking their lives on the front lines of the Covid-19 battle. Especially as the pandemic shines a harsh light on how poorly paid essential workers are, from nurses to supermarket cashiers, making very showy purchases look out of place.
Add in the fact that in leaner times, luxury tends to become more discreet and that’s a worry for those brands that have made the logo, such as Gucci’s double G, a key element of their look.
Late on Tuesday, Kering said Gucci’s sales excluding currency movements, acquisitions and disposals fell by 23.2% in the three months to March 31. Shares in Kering fell as much as 6.9% on worries that the brand, which has so far proved remarkably resilient, is finally losing momentum. By contrast, French archrival LVMH, owner of Louis Vuitton and Dior, saw its fashion and leather goods sales in the quarter decline by a better-than-expected 10%.
Gucci has obviously been hurt by the disruption to the Chinese market, where Covid-19 first struck. The brand generates 37% of its sales from Asia, but it is particularly popular in China, with millennials sporting Gucci T-shirts (not always the real thing) and carrying immediately distinctive handbags like the Dionysus with its snake clasp.
Before the outbreak, Kering said Gucci had enjoyed strong demand in all markets, and it faced a difficult comparison with the year earlier period when comparable sales had surged an impressive 20%. The division was also hurt by the temporary closure of its production facilities in Italy, where the pandemic first hit hard in Europe.
There is good news in Chinese shoppers flocking back to their local Gucci stores since they reopened. The brand returned to positive sales growth in China in April, and was leading Kering’s revival there. But as my colleague Nisha Gopalan has noted, the pent up demand unleashed after the lockdown may not last, particularly if the country’s slowing economy starts to affect luxury goods buyers’ spending. Meanwhile, continued store closures in the U.S. and Europe, and the absence of Chinese tourists once they reopen, will mean that sales elsewhere remain subdued.
The prospect of shifting tastes layers another concern on top of the immediate dislocation from the virus.
Michele has already toned down the look, but the Gucci logo is still prevalent. He may need to streamline it further to tune into the new mood, as well as keep designs fresh. The same goes for Kering’s smaller Balenciaga brand, whose recent success has been built on streetwear emblazoned with its name.
Still, Kering is well placed in that it has historic French fashion house Yves Saint Laurent, which is more subtle. Another holding, Bottega Veneta, is the epitome of discreet luxury. The house best known for its woven leather handbags is enjoying a renaissance under its new creative director Daniel Lee, whose minimalist designs have already struck the right note with top-end buyers. Bottega Veneta’s underlying sales rose 8.5% in the first quarter.
But right now, Gucci is Kering’s powerhouse, accounting for 61% of group sales and 83% of operating profit in 2019. Up until Tuesday’s close, shares in Kering had fallen about 16% this year, outdoing the MSCI Europe Textiles, Apparel and Luxury Goods Index. But if the Gucci story looks like it’s starting to fray, that performance could be tested.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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