Italian fashion house Dolce & Gabbana expects sales in China to fall in the current fiscal year after a slowdown in 2018-19, in a sign the brand is still struggling to shake off the fallout from a controversial advertising campaign in the country.
Chinese customers account for more than a third of spending on luxury products worldwide, and are increasingly shopping for these in their home market rather than on overseas trips.
Dolce & Gabbana’s overall revenues in the year ended March 2019 grew 4.9% to 1.38 billion euros ($1.54 billion), more than half of which came from sales in shops and outlets, the group said in a filing to Italy’s Chamber of Commerce seen by Reuters.
But the Asia-Pacific market shrank to 22% from 25% of total turnover and the group expects sales in Greater China to decline in the current fiscal year, ending in March 2020, the filing said.
Dolce & Gabbana, which does not publicly disclose its results, was not immediately available for a comment.
Last November the group was forced to cancel a marquee show in Shanghai amid a spiraling backlash against an advertising campaign that was decried as racist by celebrities and on social media and led to Chinese e-commerce sites boycotting D&G products.
Users reacted angrily to a series of adverts showing a Chinese woman struggling to eat pizza and spaghetti with chopsticks. The blunder was compounded when screenshots were circulated online that appeared to show co-founder Stefano Gabbana making negative remarks about China, even though the designer said his account had been hacked.
Gabbana and co-founder Domenico Dolce later asked for China’s “forgiveness” in a video posted on China’s Twitter-like platform Weibo, trying to salvage a crucial market for the luxury brand.
The company’s results filing does not mention the ad controversy but refers to global trade tensions and a slow down in China’s economy as clouding the overall outlook.
Recent protests in Hong Kong have also been cited by global fashion brands as a negative factor. The slowdown in Asia contrasted with the Americas, where sales increased to 16% of 2018-19 turnover from 13 percent a year earlier. Other markets remained stable, with Italy accounting for 23% of revenues, Europe 28% and Japan 5%.
Overall sales are expected to increase slightly in the current fiscal year but with costs at almost 60% of revenues,profitability is suffering. In the last fiscal year, Ebitda – earnings before interest, tax, depreciation and amortisation – fell by more than 40% to 87.2 million euros, with a contraction in margins to 6.3% from 12.2% of sales.
However, the group said things could improve in the second part of the 2019-2020 year.
“The good start of the Fall/Winter retail season could be the sign of a better than expected second half of the year,” it said. The latest industry 2019 outlook, released by consultancy Bain in June – at the onset of the Hong Kong protests – forecasta 4% to 6% increase in global sales of luxury goods at constant currencies thanks largely to booming Chinese demand.
Mainland China is expected to rise 18-20%.