Kering comes in, as expected, at -10% for Q1 2024.

"Sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our topline we now expect to deliver sharply lower operating profit in the first half of this year.Taking into account the deterioration of its revenue trends, the Group now anticipates a decline of 40 to 45% in first-half 2024 recurring operating income compared to the first half of 2023."François-Henri Pinault

Across the group:

Gucci: -18%

Saint Laurent: -7%

Bottega Veneta: +2%

Other Houses: -6%

Eyewear: +8%

Where does this sit in context?:

LVMH: +2%

Golden Goose: +12% (coupled with the appointment of Marco Bizzari, ex-Gucci CEO, to their board of directors)

Zegna Group: +8%

Brunello Cucinelli: +16.5%

L'Oréal: +9.4%

What are the potential implications of all these numbers for China?:China vs Chinese consumers:

🔻China, as a market, is struggling, but Chinese consumers are driving consumption outside of China (Japan performed strongly likely due to this), with recovery of flights and hotel bookings exceeding 100% in Q1 for destinations versus 2023 AND 2019.

🔺Japan, Thailand, Indonesia, Malaysia, Turkey, UAE, Spain and UK all saw strong recovery. Investments toward the Chinese consumer experience in mind in these markets will drive global growth.

The hourglass:A way of visualizing the polarization of the market.

🔹Top end brands enjoy resilience from HNWI, and also see uptick from consumers consolidating purchases (Frequent/low price > Infrequent/high price). This is supported by the performance of Ermenegildo Zegna Group and Brunello Cucinelli.

🔹The mid-price tier brands are exposed to consumer trading down (Same frequency/Lower price). The strong performance of L'Oréal (likely dichotomized against The Estée Lauder Companies Inc.), but also the strong performance of Kering Eyewear (“Gucci sunglasses instead of bags”) and Golden Goose (“Instead of buying Gucci sneakers, I went down a price point to Golden Goose”) supports this.

🔹Brands that have been consistently raising prices (Saint Laurent’s Niki Medium: 18,700 RMB in Q2 2021 > 23,600 RMB in Q2 2024 – +26%), as well as brands that did not adapted their portfolio through new product launches supported with cut-through marketing, are at risk to fall foul of the hourglass.

What can brands do?:

⏳Top of the hourglass

➡️Continue to activate in China, because there are others waiting to steal consumers away from your brand

➡️Ensure global consistency to continue to serve Chinese consumers outside of the Chinese market.⏳Middle of the hourglass

➡️Interrogate the benefits of price increases on existing products

➡️Leverage your portfolio to offer a product safety net for trade downs

➡️Listen closely to the consumer⌛️Bottom of the hourglass

➡️Potential to premiumize with new offerings at higher price points. Upgrading existing consumers, but capturing trade down.