SHANGHAI, China – Gucci’s blockbuster growth is going to last “forever.” So says the president and chief executive of the Italian luxury juggernaut, which surpassed €6 billion ($6.9 billion) in sales for the first time in 2017, up 45 percent on a comparable basis from the year previous. This year, first half comparable sales rose 44 percent.
Marco Bizzarri was speaking, tongue somewhat in cheek, at last week’s BoF China Summit in Shanghai, where he also opened up about an internal company video leaked the week prior, which showed him reassuring staff about the inevitable slowdown in growth for the brand.
Contrary to the message that staff should expect harder times to come for Gucci, Bizzarri says his intention was to reassure staff that a dip in year-on-year growth, after enjoying such a boom for so long, is bound to happen, given the percentages are now off a higher base, but should not be cause for concern.
“We doubled the business in three years, so of course we could have shops that are slowing down a little bit but frankly I am not worried,” he says.
The candid interview with BoF founder and chief executive Imran Amed included pointed remarks about China’s major e-commerce platforms, and was held in front of major players in the local fashion industry, including executives from Alibaba’s Tmall and other tech giants driving the Middle Kingdom’s e-commerce boom. It is worth remembering that 42 percent of all e-commerce transactions on earth happen in China, according to data from McKinsey Global Institute.
“Listen, it is very much sooner or later we're going to end up working with these platforms. [But] at the moment, we are in a situation of wait and see,” Bizzarri says.
Sooner or later we're going to end up working with these platforms [but] at the moment, we are in a situation of wait and see.
“Frankly speaking, [on] most of the platforms, there’s a lot of counterfeiting and I don’t want to certify counterfeiting because I belong to these platforms.”
Bizzarri was quick to explain that his problem with counterfeiting has less to do with any potential impact to Gucci’s revenue and more to do with the conditions in which counterfeit products are produced, often by cheap and unregulated labour markets, a practice he is unwilling to support.
Gucci and its parent company, Kering, have had a tumultuous relationship with China’s e-commerce platforms over the years.
In 2014 and 2015, Kering filed lawsuits against local e-commerce market leader Alibaba, over the prevalence of counterfeit goods on its sites. Last year, in a major PR victory for Alibaba, Kering dropped the suits and agreed to partner with the Chinese behemoth to establish a task force and share information with the shared aim of protecting Kering’s brands.
This détente coincided with Alibaba’s push to attract more luxury brands and a greater share of China’s luxury consumers — who account for 32 percent of luxury spending worldwide, according to Bain & Co. — by opening a dedicated “Luxury Pavilion” for invited brands and customers within its existing e-commerce apps.
The pavilion has partnered with more than 60 luxury brands since its inception just over a year ago, but if Bizzarri has his way, it seems unlikely that Gucci will be among its next round of brand partners, even if it means missing out of the treasure trove of big data on 600 million Chinese consumers that Alibaba promises to luxury allies.
“I don't think that being the first mover is going to create a competitive advantage for us. So in this case, instead of taking a risk, I’ll wait,” he says.
Shortly after Bizzarri’s interview at the BoF China Summit, several stories broke about the latest challenges facing China’s luxury sector.
A crackdown by customs officials limiting the amount individual Chinese travellers can bring back from abroad is being more strictly enforced. Since Chinese consumers account for 32 percent of the worldwide total of luxury sales and about one third of them shop abroad, this is worrying. Then there is the continued issue of daigou (grey market shopping agents) and the bigger picture. China's economy is growing at its slowest pace since the financial crisis.
“I control what I can control. [If] the Chinese authorities decide to stop the daigou, what can I do?” Bizzarri said. “Currency fluctuations, traffic flows, daigou duties. It is something we cannot control as a company, so as a CEO I need to control what I can. I hope that the Chinese customers are now going to spend more in China so we'll do our best to increase their shopping experience here.”
Earlier this year, Bizzarri said that Gucci’s eventual target is to achieve €10 billion ($11.6 billion) in annual revenues. Given the company’s current growth trajectory, it seems possible to reach that level within the next few years. But where will future growth come from for the company? The answer lies in the beauty and fragrance categories, which Bizzarri categorised as currently “super tiny for Gucci.”
According to Bizzarri, Gucci’s current beauty business, which accounts for less than 7 percent of overall revenue, is dwarfed by other luxury players. Perhaps part of the reason behind this is the red tape involved in Gucci’s beauty product licencing, which was initially a part of the P&G stable, when it launched a beauty line to great fanfare in 2014, before it was sold to Coty in 2016.
Just last month, Gucci launched a new Instagram account (@guccibeauty) curated by creative director Alessandro Michele, another signal of the company’s renewed interest in the sector.
“Also, I don't think that we are still capped in the other product categories,” Bizzarri adds, claiming sustainable growth in the long-term for the brand will depend on continued creativity, fostering its talent pool and taking risks.
“It is not just a matter of how much you grow, but the way in which you grow,” he says.
It is not just a matter of how much you grow, but the way in which you grow.
When prompted by Amed to explain Gucci’s strong China market performance (it has doubled since 2015), Bizzarri identified a crucial change among Chinese consumers. While traditional touchstones around luxury like heritage were very important to Chinese shoppers, now they “are not so relevant.”
“I think in China [the] ‘here and now’ is more important than the past and that resonates a lot from what we started doing three years ago in Gucci [by] focusing on the future and not on the past, and moving from rational values that are typically quality and craftsmanship, to emotional values [and] something that is more related to experience, connection and communities.
"So that has been true as a strategy for the brand from the very beginning, but in China the younger generation has been the first one in catching these new trends of Gucci, it has been even more relevant,” he added.
But it was Bizzarri’s perspective on localisation that was the one that caught most of the attention in the room. Suggesting that localisation goes beyond product and marketing, he explained that trust in his local China team is what will propel the brand forward the furthest and the fastest.
“We listen a lot to our Chinese team because luckily, they are super talented and then we need to use them. It was Steve Jobs who would say that there's no [point] to hire talent in your company if you then you tell them what to do…The more we go forward, the more we need to reduce the control freak attitude that is typical of the Western managers.
“I mean that is a fake control [anyway]. You don't control anything because at Gucci we have 14,000 people. How can I think of controlling 14,000 people? Impossible. You need to rely on the personalities and the strengths of the people that work for you and try to retain them. And you can [only] retain them, especially if they are talented, if they have autonomy [and let them] take risks and make [some] mistakes [along the way].”
The Savannah College of Art and Design (SCAD) is a Partner of the BoF China Summit.
Shanghai Fashion Week is the Strategic Partner of the BoF China Summit.
HKRI Taikoo Hui is the Venue Partner of the BoF China Summit.
Yu Holdings is the Principal Partner of the BoF China Prize.