PPR CEO upbeat on luxury goods market
(Photo: Jacopo Raule, Getty Images for Gucci)
- French luxury goods maker is still growing, just not as fast
- Gucci growing at 8% as tourism in Europe offsets weak local demand
- Luxury brands appeal to young consumers in China, Latin America and India
5:16PM EST November 18. 2012 - As chairman and CEO of luxury empire PPR, Francois-Henri Pinault runs a multibillion-dollar franchise in luxury and sports including brands such as Gucci, Yves Saint Laurent, Bottega Veneta and Puma. He has a great window into the global economy and is betting population growth, luxury and sports will liven up an already strong business. He and I talked economy, style, sports and 75% tax rates in his home country of France that have prompted many wealthy individuals to leave the country. Our interview follows, edited for clarity and length.
Q: What are you seeing in business in luxury retail?
A: When we compare ourselves with last year, when we had the most exceptional year in history of our brand, we have a slowdown. But in China, in the third quarter, we posed a 12% increase in sales. Even the biggest brand, Gucci, which is very much influenced by the worldwide economy, was still growing at 8%, which is very strong. When it comes to more mature markets, for Western Europe, we are still growing in double digits, mostly because of the impact of tourist purchases on luxury brands in the main cities — Paris, London, Milan, Rome. And this offsets a flattish trend on local customers for Western Europe. The impact of tourism in America is less even if quite important in cities like Los Angeles or New York, but there the local customers are doing better than Western Europe. So we don't see any slowdown in America on our local customers. We still have very decent growth in America. And with real estate prices going up again, the fact that it's a presidential election year, I'm confident the U.S. market will be consistent next year and will grow next year.
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Q: Everyone is talking about the "fiscal cliff," when tax cuts and spending programs expire on Dec. 31. Are you worried the uncertainty will cause inaction by companies who would otherwise be hiring?
A: Being French and living in Western Europe, the cliff is even higher here, and we are even closer to the edge. I was impressed and a little depressed, by the Simpson-Bowles report that was brought to the president at the end of last year. It was a very consistent set of measures, a practical approach put in place by the two parties, but it was not implemented. You have a very strong action plan, and I'm confident the new team in charge in Washington would be very eager to move forward. I'm not sure that Western Europe is at that stage of practical approach of problem solving. We're still very much a prisoner of ideologies.
Q: Is the consumer holding up in the face of the debt crisis?
A: No, globally the local consumption is very depressed. We still have some retail operations in Western Europe, and those activities are tough. The French stores are hit to the extent of negative 5%. The apparel market globally in France is around minus 8% to 10% over the last nine months. It's even worse in Spain and Portugal and Italy. So we are in a big depression when it comes to consumption.
Q: How are you repositioning PPR in terms of geographies, and luxury and sports?
A: It's important in retail to have a strong domestic market. But if the market is mature and not growing, it's a concern. So we wanted to be more international, and it's not feasible by staying only in the retail business, We had the opportunity to make the acquisition of Puma in 2007, which was the cornerstone of the strategy of building a second pillar in the consumer goods world based on the strong brand.
Q: Why is luxury is doing well even in the face of austerity and weakness all around the world?
A: The strong long-term trend in the world is the new population coming up. They are the young people in China, Latin America, India — and those young people aspire to consume products and they're attracted to brands. Being young, sports is very appealing to them, and those markets are by size very important. The entrepreneurs of those countries are becoming rich much faster than we used to have in the small and old countries of Western Europe. When you are a young entrepreneur in China and you're dealing with 1.3 billion potential consumers, the probability of your business growing fast, becoming big, and you becoming rich quite fast is a high probability compared with the same entrepreneur in France in the '60s.
Q: Meanwhile, all around the world, governments are in need of money and we're seeing tax rates go higher. Particularly in France, where a 75% tax on the highest earners has triggered many rich people to move out. What is your take on that?
A: The French government is putting the focus on raising more revenue from the tax. The 75% is hitting a few people in France, and it's for two years. It will be otherwise unconstitutional to maintain such a tax. What is even more important is the capital gains, which include gains on real estate and gains on all dividends. All that revenue from capital will be taxed at the same rate as the revenue, which is the biggest increase in that field. Dividends used to be taxed at 31% in France. They're going to be taxed at 44%. So it's a huge, huge impact, and I'm not talking only about big corporations like mine, but small or midsize entrepreneurs are very deeply affected by those measures.
Q: Why is sports growing so fast? Is this a bigger opportunity than elsewhere?
A: We think so, and one reason is those emerging markets and young people who are attracted to brands and sports. And then when you look at Latin America and India or in Asia, the future of sports brands with the extension in the lifestyle is very important.
Maria Bartiromo for USA TODAYShare