Gucci China Discounts Prompt Lines as Bagmaker Clears Stock

Gucci is offering discounts of as much as 50 percent in China as the Italian fashion house seeks to clear out merchandise designed by its former creative director, prompting lines of shoppers to form since sunrise.

The sales, which started Wednesday, are a normal end of season practice and unrelated to China’s decision to cut import taxes, a spokesman for Kering SA’s biggest brand said Tuesday. A store assistant at a Gucci outlet in Shanghai’s Pudong financial district, who asked not to be identified, said the sale lasts until next month, but wasn’t sure of the exact date.

Gucci Chief Executive Officer Marco Bizzarri is accelerating efforts to reposition the maker of logoed handbags and $725 loafers amid falling demand in Asia. Earlier this year, he promoted Alessandro Michele to creative director, replacing Frida Giannini. The designer’s first full collection will hit stores later this year.

“Bizzarri is clearing inventory from the previous collection, as Gucci is looking forward to turning the page on Frida Giannini,” Luca Solca, an analyst at Exane BNP Paribas, said by e-mail. “Gucci needs a new direction and some correction -- I consider this inevitable.”

The discounts coincide with China cutting import tariffs for some clothes, shoes and skincare product by an average of more than 50 percent from June 1 in a bid to boost domestic consumption. They also follow moves by luxury companies such as Chanel to reduce prices in China because of a weakening euro.

About 50 people were waiting in line outside the Gucci store at the International Finance Centre’s shopping mall in Shanghai before the outlet opened at 10 a.m. At the head of the queue, Meng Linghao said he had been waiting since 6 a.m. after he heard about the discounts.

‘Big Sale’

“The big sale here makes prices more or less in line with those in Hong Kong,” said the 26-year-old, who walked out of the store minutes later with a 2,450 yuan ($395) Gucci wallet.

The timing of today’s sale is “similar to past years and there is no connection with the recent decision of the Ministry of Finance,” a Gucci spokesman said Tuesday. He declined to confirm the length of the discount period in China or sales in other countries, saying only that they vary according to local policies and regulations.

While Gucci’s efforts to clean up inventory are necessary, “heavy discounts never help the perception of exclusivity of your brand” said Mario Ortelli, an analyst at Sanford C. Bernstein. Out of season sales in outlets are “less dilutive.”

Kering was little changed at 162.4 euros at 11:45 a.m. in Paris, giving the maker of Puma sneakers and Saint Laurent dresses a market value of 20.5 billion euros ($22.4 billion).

Rebalancing Prices

Companies including Chanel and Burberry Group Plc have adjusted prices in recent months as the gap between the price of items sold in China and Europe has widened, prompting Chinese consumers to buy abroad. The euro has fallen more than 9 percent against the yuan and the dollar this year.

“Currency fluctuations have led to unsustainable pricing gaps between Europe and Asia and intra-Asia,” according to analysts at Nomura.

Kering said in April it would rebalance some prices, adding that any changes would be on a case-by-case basis. Gucci reported its weakest quarterly performance in more than five years last month.

Before it's here, it's on the Bloomberg Terminal.