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The end of luxury? Gucci slowdown sends alarms: ‘Turned itself into a streetwear brand but later…’

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Fears of a slowdown among Chinese shoppers have dogged the luxury industry for the better part of a year. Last week the scale of the problem hit home for one of fashion’s biggest but most exposed brands, Gucci.

People walk past the Gucci store on Fifth Avenue in New York City. French luxury group Kering, owner of Gucci, had its shares drop 14% after the announced that Gucci sales are set to fall 20% year-on-year in Q1, amid declining Asia transactions.(AFP)
People walk past the Gucci store on Fifth Avenue in New York City. French luxury group Kering, owner of Gucci, had its shares drop 14% after the announced that Gucci sales are set to fall 20% year-on-year in Q1, amid declining Asia transactions.(AFP)

French group Kering SA saw $9 billion wiped off its market value after warning that sales of the Italian label’s products in China have slumped this quarter. The slowdown is also starting to show up in other corners of the luxury industry.

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A separate report showed Swiss watch exports to the country — a leading destination for high-end timepieces — tumbled last month. Analysts, meanwhile, are predicting China’s luxury demand will cool further this year.

The spate of sobering news provides the latest evidence that an anticipated surge in spending by well-heeled Chinese freed from the world’s strictest Covid lockdowns is failing to materialize. While some luxury companies are managing the fallout better than others, the rest could be forced to rethink how they do business in China — starting with Kering.

“I haven’t bought any Gucci bags myself for years,” said Wu Xiaofang, a 34-year-old banker living in Shanghai who was once so enamored with the brand she bought three bags during a trip to Italy in 2016. “The new designs are bad.”

Wu is among a generation of Chinese luxury shoppers that has grown more selective about where to spend its cash. Rising unemployment and a property downturn have hurt consumer confidence, while deflationary pressures are fueling concern about growth in one of the world’s largest consumer markets.

The bar to entice Chinese shoppers has therefore risen. Gucci has seen a significant drop in Chinese online sales in recent months — including from its official website and e-commerce platform on Tmall, said a person familiar with the situation who asked not to be identified discussing confidential matters.

Sabato De Sarno, who became Gucci’s creative director last year, has adopted a more minimalist aesthetic than the flamboyant designs of his predecessor, Alessandro Michele. It’s too soon to say whether his sleeker and more subdued fashions will resonate with Chinese customers, as they’ve only recently appeared in stores.

Yet some shoppers may find them less distinctive than before, said fashion consultant Mark Liu, and too similar in style to the likes of Valentino, Prada and Celine. Kering said early ready-to-wear products from the latest Ancora collection by De Sarno have been well received.

Gucci has long been one of the most volatile of the major luxury brands, its fortunes rising and falling based on buzz around designers like Michele and a predecessor, Tom Ford. That makes Kering highly vulnerable to shifts in taste, especially as the Italian brand accounts for about half of its sales and more than two-thirds of profit.

Gucci “seemed to have turned itself into a streetwear brand for a while, then tried to shift back to a high-end brand,” said Wu. “Now I don’t know who it wants to target.”

Plunging Shares

Kering stunned investors with its March 19 announcement that Gucci sales have fallen nearly 20% this quarter, led by the Asia-Pacific region. The share price fell the most in three decades.

The group started taking action to boost its struggling label two years ago when it named a new fashion head for Gucci in China and Hong Kong. Gucci then parted ways with Michele and hired De Sarno, a lesser-known designer from Valentino. Next, Kering replaced Marco Bizzarri, who’d headed Gucci for about eight years, with Jean-Francois Palus, a longtime lieutenant of Pinault.

More changes could be needed to reassure investors.

“Despite Kering’s insistence that Jean-Francois Palus is the right interim CEO for Gucci, the market does not agree,” wrote RBC Capital Markets analyst Piral Dadhania in a note Friday. “With financial performance deteriorating, the case for appointing a new figurehead with a proven track record would be welcome in our view, as it may enable faster pace of change and new external ideas.”

Kering didn’t respond to a request for comment.

The slowdown in China is affecting brands aside from Gucci as well, if not as dramatically. While top luxury houses such as Rolex, Hermes, Chanel and Louis Vuitton saw double-digit growth in 2023 in Hong Kong — a popular destination for Chinese shoppers — those sales slowed as early as October, said a person familiar with the matter, with second-hand prices for premium watches plunging 40% in January from the year before.

Few luxury goods are more exposed to changes in Chinese consumer sentiment than Swiss watches. Exports to China plunged by 25% in February from the year before, the Federation of the Swiss Watch Industry said last week, while shipments to Hong Kong dropped by 19%.

Together, exports to those two destinations surpass the US, the biggest single market for Swiss timepieces.

“There is a slowdown,” said Nick Hayek, the chief executive officer of Swatch Group AG, whose brands include Omega and Tissot. China accounted for a third of the company’s sales in 2023.

Shoppers in China and Hong Kong are visiting Swatch Group brand stores but they’re more hesitant to pull the trigger on a major purchase, the CEO said. “They have the money, but they are more critical on when to spend and how to spend it.”

Representatives for Rolex and Chanel declined to comment, while LVMH and Hermes didn’t immediately respond to requests for comment.

Slowing Growth

The ills aren’t limited to China. After a recent two-week trip to Asia, HSBC luxury analysts led by Erwan Rambourg said in a note Friday that the demand situation in China is “proving tough.” But disappointment also came from lackluster trends in Hong Kong, Macau and Singapore as Chinese tourists, although coming in greater numbers, don’t seem to be spending much, they wrote.

Some brands may be forced to find ways to reduce their reliance on China. Growth in luxury sales there this year is forecast to slow to the mid-single-digits, compared with 12% in 2023, according to a report from Bain & Co., a consulting firm. But that growth will be driven by high-net-worth individuals, or those with investable assets of more than 10 million yuan ($1.4 million).

Some luxury labels have bucked the slowing trend. Prada SpA, which owns the brand Miu Miu, saw retail sales rise 32% in the Asia-Pacific region, excluding Japan, in the fourth quarter. Earlier this month, Andrea Guerra, the Italian group’s CEO, said he was satisfied with trends in January and February. Hermes International SCA also saw double-digit growth rates in the fourth quarter.

In uncertain times, Chinese consumers tend to prefer luxury items that are more likely to maintain their value over time, said Bruno Lannes, a co-author of the Bain report. That’s why brands with those products fared better than those rolling out seasonal goods, he said.

American cosmetics giant Estee Lauder Cos., which owns labels including La Mer and Tom Ford, is continuing to bet big on China because of its long-term growth prospects and to avoid ceding ground to local upstarts. The volatility will eventually ease as the expansion of the Chinese middle class keeps pushing per capita consumption higher over time. “That trend is not changing,” CEO Fabrizio Freda said at a UBS conference in New York this month.

Some luxury brands, however, are reconsidering their Asia strategy to look beyond China for future growth, said Angelito Perez Tan, Jr., co-founder and CEO of RTG Group Asia, which operates businesses including a luxury consultancy. India, Southeast Asia and the Middle East are seen as having great potential in the longer term, he said.

“Executives have looked at it more holistically in terms of that there’s more to Asia than just China,” said Tan. “Luxury brands in general have realized that some of them were too reliant on the Chinese consumer. They realized that they can’t put all their eggs into one basket anymore.”



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Nikhil Kamath alerts investors on ‘hand-picked stocks’ WhatsApp scam: ‘Use common sense’

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Zerodha co-founder Nikhil Kamath informed investors that he has never had any WhatsApp group where he shares “hand-picked” stocks as advertised by a group. The group claims to assist people in picking the right stocks and Nikhil Kamath said that “this is obviously not from me” as he urged people to use a little “common sense”.

Zerodha co-founder Nikhil Kamath alerted investors about a scam on Whatsapp.
Zerodha co-founder Nikhil Kamath alerted investors about a scam on Whatsapp.

“Scam alert, this is obviously not from me, I have never had or have any WhatsApp groups, nor do I give tips etc. Please report these… Also to all the brands who reach out, I don’t do paid promotions/collaborations/ads/paid speaking engagements of any kind. Please stop spamming, and everyone use a little common sense please,” he said along with an image of the fake advertisement.

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What did the scam advertisement claim?

The scam advertisement showed that the WhatsApp group had details of stocks handpicked by Nikhil Kamath that would rise in April. The ad asked investors to join the WhatsApp group which would share their picks of reliable stocks every day as it said, “First 1,000 members get it for free.”

See Nikhil Kamath’s post here:

Earlier Nikhil Kamath advised fellow entrepreneurs in India to not open franchises of global brands in India but try to take Indian brands to the world.

He said, “To all my entrepreneur buddies, the future may be to take Indian brands global, not franchise global brands in India. The Indian narrative is getting cool globally, we have mystique, royalty, history, artisan, handmade, exotic, and so much more to sell.”

He added, “What was yesterday a garment manufactured in India called John, Peter and Louis something and marketed by western models, could be tom Subko, Hatti Kaapi, 11.11 etc sold in New York with the faces of Indian artisans who spent hours on each product individually.”



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RBI ban on Bank of Baroda World app: Finance ministry’s likely plan on frauds

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Union finance ministry may propose stricter measures to protect citizens from cyber fraud, it was reported. This comes after an increase in incidents of frauds, including the Bank of Baroda World app scam, the Times of India reported citing sources who “mentioned a recent inter-ministerial meeting focused on bolstering cybersecurity and tackling financial fraud”, it noted.

A security official walks past an emblem of the Reserve Bank of India at the RBI headquarters, in Mumbai.
A security official walks past an emblem of the Reserve Bank of India at the RBI headquarters, in Mumbai.

What was RBI’s action on Bank of Baroda World app?

In October 2023, the Reserve Bank of India (RBI) stopped Bank of Baroda from onboarding new customers on its mobile app ‘BoB World’ citing material supervisory concerns. The bank said in response that it had already carried out corrective measures to address the concerns.

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“The Reserve Bank of India has, in exercise of its power, under Section 35A of the Banking Regulation Act, 1949, directed Bank of Baroda to suspend, with immediate effect, any further onboarding of their customers onto the ‘bob World’ mobile application,” RBI said in a statement.

“Any further onboarding of customers of the bank on the ‘bob World’ application will be subject to rectification of the deficiencies observed and strengthening of the related processes by the bank to the satisfaction of RBI,” it added.

What report said on steps Finance Ministry could take?

The report claimed that Finance ministry could be in support of stricter Know Your Customer (KYC) procedures and due diligence by banks and financial institutions while onboarding new merchants. This applies to Business Correspondents (BCs) as they may be more vulnerable to security breaches, as per the report.

Additionally, the ministry’s proposal also stresses on the need for improved data security and data protection practices at the merchant and Business Correspondents level. The report claimed that the RBI may ask banks to review concentration of Business Correspondents in areas with a high incidence of cyber fraud.



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Sakuma Exports shares to trade ex-rights today: Check price, allotment, ratio here

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Sakuma Exports rights issue 2024: The rights issue of Sakuma Exports Ltd will open on April 25 and will close on May 13. The rights issue record date is April 15 and the company will offer 78,984,298 equity shares at a price 25.3 per share. The issue size is 199.83 crores while the entitlement ratio is 33:98 which means 33 rights share for every 98 fully-paid equity shares held on the record date.

Sakuma Exports rights issue 2024: The rights issue record date is April 15 and the company will offer 78,984,298 equity shares at a price <span class=
Sakuma Exports rights issue 2024: The rights issue record date is April 15 and the company will offer 78,984,298 equity shares at a price 25.3 per share.

Sakuma Exports: What is rights issue?

In the rights issue, a company grants existing shareholders the right to buy new shares at a discount to the current trading price. The issue gives existing shareholders securities called rights while companies give shareholders a chance to increase their exposure to the stock at a discount price.

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Sakuma Exports: What to expect?

The Board of Directors of the company declared rights issue of equity shares for the eligible shareholders and said in a stock exchange filing that “the issue of 7,89,84,298 equity shares of face value of Re. 1 each (Equity Shares) to Eligible Equity Shareholders aggregating up to Rs. 19983.03 lakhs in accordance with applicable laws, including the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (SEBI ICDR Regulations).”

“The Board of Directors, in accordance with Regulations 30 and Regulation 42 of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015, as amended and Regulation 68 of the SEBI ICDR Regulations, at its meeting held today ie., April 8, 2024, has considered and approved April 15, 2024 as the record date for the purpose of determining the Eligible Equity Shareholders who are eligible to apply for the Rights Equity Shares, in the Issue (Record Date),” it added.



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