Alexis Babeau has run the luxury division of PPR, which has been renamed “Kering,” since 2011. He believes he has the promotion of high-end goods down to a science. “It’s about managing exclusivity and growth,” he said.
As China’s rise enters a new phase, where the middle class is expanding rapidly, Kering, whose Chinese name, “Kai Yun,” means open sky, or good luck, will need more than just luck to succeed.
Luckily, the group boasts plenty of business savvy. Kering’s most recognizable brands are a mix of big – like Gucci – and small. In December, the group bought Qeelin, a jewelry maker that boasts a fusion of Chinese and European techniques to design and sales. Co-founder Guillaume Brochard said that, before the transaction, it was hard to retain Chinese staff, who wanted to work for big companies or start their own. After the deal with Kering, inquiries rose 15-fold.
But while growing out local companies has proved successful, Kering will have to draw on its unique, de-centralized decision-making strategies to ensure big brands like Gucci do not saturate the market. HSBC analyst Antoine Belge said Kering must strike a balance between “a consistent approach for the brand as a whole [and] the specificity of the local market.” As Di Marco himself has said: “The higher you go up the ladder, the more sophisticated you have to be.”
Many consumers no longer want to see products with logos. Gucci’s CEO, Patrizio di Marco, recalled how the shift from logos to discreet markings on luxury goods took 10 to 15 years to occur in Japan. “In China, it’s happening over three, four or five years,” he said.
“We constantly ask ourselves, ‘Are there things we’re not doing for the brands that could be worth doing, or things [we are doing] where we’re destroying value?’” said Babeau. Most at the company agree that Kering’s strongest asset are the meticulous reporting processes it keeps in place, which enables the company to draw very detailed data across all its brands in China and to share best practices. This will serve it well as the group begins to refine strategies to reflect regional preferences as the middle class expands.
Gucci, for instance, will start categorizing stores by zone, reflecting for instance what areas prefer logo-ed products and which are tired of the double-G insignia. Di Marco is working hard to ensure that the perception of Gucci as an “industrial company” is broken. It means the brand works harder to win customers, even inviting them abroad to meet the company’s craftsmen and experience the high-quality manufacturing process.
Its other most valuable resource to share? Manpower.
Financial Times reports Kering keeps 200 senior managers in its roster. Rather than experiencing a “brain drain,” the company benefits when its top talent moves from brand to brand within the group rather than going externally. For example, Frederick Lukoff is the CEO of Stella McCartney, which is half-owned by Kering. His predecessor was Marco Bizzarri, who now manages Bottega Veneta. And before Bizzarri, there was Patrizio di Marco, who now is the CEO of Gucci. The autonomy that Kering offers its subsidiaries is what François-Henri Pinault, CEO and lead family shareholder, calls “freedom within a framework.”
Excluding Japan, the Asia-Pacific region makes up about one-third of Kering’s annual $8 billion revenue from luxury goods. Despite the large amount of income from that part of the globe, Asia hosts relatively few of Kering’s employees; just 98 people work directly from the Kering Hong Kong office, while the 14 luxury brands in the group employ over 3,300.