Kering has put out an early warning of declining YoY sales for Q1 in 2024 for Gucci, but I don't think it's a Gucci only problem.

In fact, it will not be surprising to see others following suit in crafting a softer landing to investors by creating an expectation of decline.I wrote about H1 2024 being a bumpy ride for luxury two weeks ago, but to re-hash some of the reasons behind this apparent slump see below:

🚩 Last year in Q1, the China context must be considered. We had just emerged from a three year period of restriction, which was backended by the worst disruption. The shift was sudden, but not complete. It was still hard to travel internationally and many consumers were still not willing to give it a go. The result - trapped spending in China domestic market with a pent up consumer ready to spend ahead of a strong recovery.

🚩This year, the context is different. Instead of the hoped "V-shaped" recovery, it looks more likely that the recovery will be optimistically - "swoosh" shaped, or pesimistically "L-shaped". This has led to an increased caution across the board on luxury spend.

🚩This caution translates to a revenue impact that is double-fold for Chinese consumers. Domestic spending decreases, with only a handful of resilient brands that have fostered loyalty and equity in the market managing to drive growth. We have heard figures ranging from 5% growth to 40% decline for specific brands across the whole of China.

🚩This also impacts global markets. The much talked about resumption of travel has been stated to have returned to 98% that of 2019 levels, but this doesn't mean the spending patterns are the same. SE Asia was poised for a travel boom during CNY, with that hope that luxury spending would follow - while the feet were on the ground, the cash did not flow. Instead, more spend on experiential above product.

🚩This is not a Q1 only problem. We expect that Q2 will also see some significant turbulence with two key milestones to keep an eye out for - 5.20 and 6.18 festivals.As I mentioned at the start, I do not think this is a Gucci only problem. It may represent a floor for expectations, but it is not unrealistic to imagine similar warnings being released by other brands (akin to Burberry's in Q4 last year) with the roof on expectations being significantly lower than previous quarters.

Interestingly, this has not stymied Gucci's interest in the market, and the recent Ancora events in Shanghai, Chengdu, Hongkong and Taipei last week signify a doubling down on the market. Will this significant marketing spend translate into a reversal of fortunes in Q2? We shall see.