China’s Income Inequality Crackdown

• Kering reports quarterly results on Oct. 19, while Hermès reports on Oct. 21
• The biggest luxury brands quickly bounced back from the pandemic, but face questions on China sales amid government pledges to counter inequality
• Kering and Hermès shares are down since mid-August when Chinese leaders called for curbs on “excessive incomes”

The last time luxury brands reported sales three months ago, it was mostly blue skies. The biggest labels had fully recovered from the pandemic and then some, with Hermès leading the pack with a 33 percent increase in quarterly sales over the same period in 2019. Kering’s stable was only up 11 percent in that time, but the company could point to renewed heat at Balenciaga and Alexander McQueen, plus signs that Gucci, by far its biggest brand, is on the rebound.

The outlook darkened a bit in August when Chinese president Xi Jinping called for “common prosperity” amid a crackdown on big tech companies and some of the country’s richest citizens. Luxury brands thrive on the wealth gap and have relied on China’s nouveaux riches to supply much of their growth over the last decade. But they also sell large volumes of more accessible products. There’s little evidence that China’s new course is denting sales of luxury goods so far, and LVMH executives noted last week that their core customer in the country is upper middle class, rather than the elites directly targeted by new government policies. Further complicating the picture is the Delta variant, which is depressing spending worldwide, and delaying the return of Chinese tourists to international shopping destinations.

The Bottom Line: At this point, no one can say with certainty how the new course set by China’s leadership will play out. It’s not hard to imagine scenarios where luxury labels are unaffected. On balance, the acquisition of luxury goods is a sign of growing prosperity in China, a trajectory the country’s leadership is eager to underscore. On the other hand, it’s possible that government pressure could force conspicuous overconsumption out of fashion.

Bottega Heads for the Motor City

• Bottega Veneta’s spring 2022 show will be held in Detroit on Oct. 21
• Daniel Lee’s Bottega has taken to debuting collections in “secret” shows that bolster the brand’s exclusive image
• Bottega is one of a few major labels that did not return to Paris Fashion Week this season

Luxury brands showing new clothes in exotic locations is nothing new. But Detroit is off the beaten path for a major label. Bottega has turned unconventional choices into a marketing strategy; the brand’s last collection was shown at Berlin nightclub Berghain, an event that generated plenty of headlines but no official images of the clothes themselves until months later. Bottega has also wiped its Instagram account, launched a digital zine, placed a rooftop advertisement below the flight path of planes landing at Los Angeles International Airport and opened temporary retail spaces far from traditional luxury avenues in hipster enclaves like New York’s Williamsburg and London’s Shoreditch. The gonzo marketing efforts are reflected in and reinforced by the clothes themselves. Each collection contains pieces in part designed to be posted and reposted, from enormous puddle boots to jeans covered in thousands of brightly coloured feathers.

The Bottom Line: These attention-grabbing efforts keep the hype around Bottega alive, even as Lee begins his fourth year at the brand. The results are likely to be on display when Kering reports third-quarter results this week. In the first half of 2021, Bottega’s sales hit $707.6 million, a 29 percent increase from the same period in 2019, far exceeding the growth of bigger brands like Gucci and Saint Laurent.

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