Ladies and gentlemen, thank you for standing by, and welcome to the Kering 2020 first quarter revenue conference call. At this time, all participants are on a listen-only mode. There will be a presentation followed by question and answer session. At which time, if you wish to ask a question, you will need to press star and one on your telephone keypad. I must advise you, the call is recorded today, on Tuesday the 21st of April 2020. I would now like to hand over to your speaker today, Mr. Jean- Marc Duplaix, chief financial officer. Thank you.
Good evening, and thank you for joining our first quarter revenue presentation. We've all gone through an unprecedented quarter, personally as well as professionally. I hope you are all doing well, in good health, and keeping safe. On slide three, you see the heavy impact COVID-19 has had on our top line. At EUR 3.2 billion, it was down slightly above 15% reported and 16% comparable, implying an FX tailwind of one percentage point. Our luxury houses contribute the bulk of our revenue, and I will elaborate further shortly. Our Corporate segment mostly includes Kering Eyewear, which delivered a commendable performance in the quarter, virtually unchanged from Q1 last year. A quarter that had benefited from the launch of the Balenciaga and Montblanc licenses.
Our luxury houses declined by 17% comparable, heavily impacted in retail by the gradual closure of the store network as the quarter progressed, first in mainland China, then in Western Europe and America. At the end of the quarter, all our stores in mainland China had reopened, and a vast majority of them in Asia-Pacific. By then, however, all stores in Western and Eastern Europe, the Middle East, North and Latin America had shut down. Overall, 63% of our stores were closed at March 31st, and more than half of the stores that were open were operating on reduced schedules. The situation has not improved since the end of March, with additional closures in Japan and Southeast Asia. As a result, roughly two-thirds of all stores were closed last week. Switching to slide four and five, more details on our luxury houses.
To start, it's worth highlighting the extreme swing in monthly performances. January started on a very high note, up double digits across all our main brands. In February, we witnessed the impact of store closures in Asia-Pacific, mostly mainland China, and the consequences of travel restrictions on tourism spending in the region and in Europe. In March, as the pandemic further spread, the situation worsened as our store network gradually shut down in all Europe and America while it started reopening in most of Asia-Pacific. In this context, retail revenue from our luxury houses declined 19% in Q1, with Asia-Pacific down 30%. In other words, looking at slide five, two-thirds of the drop in absolute terms comes from this region, with Hong Kong the first contributor to the loss, heavily penalized by lack of traffic.
In mainland China, we observed a gradual and steady recovery since late February, early March, as the rates of decline narrowed week after week. In the past few days, some of our brands have gotten back to growth and others are nearly there. Despite logistical constraints, e-commerce posted a strong quarter, and its penetration increased to 9% of retail sales,3 percentage points higher than last year. E-commerce sales were especially dynamic in mainland China, with a triple digit increase, and to a lesser extent in Japan. I would like to underscore that our brand differentiated performances in the quarter were largely dependent on their relative sales exposures to Asia-Pacific, to the Chinese consumer worldwide, and also to the share of Chinese consumption in their domestic market versus abroad. These differences are amplified by the brand's respective comparison bases and channel mix.
As a reminder, on top of high comps in Q1 last year, Gucci combined the highest exposure to Asia Pacific and to the Chinese consumer. In that quarter, nearly half of all purchases by Chinese customers were made in their home market, and another 30% in Asia Pacific, mainly in Hong Kong back then. Of course, repatriation of spending, a trend already at play last year, is accelerating and is likely to further progress in coming quarters. A few words on wholesale, down 7% on a combination of factors, including ever more selective distribution to enhance brand exclusivity and some order adjustments, both to reallocate products to our retail operations and to limit exposure to weak credit quality accounts. The closure of the central logistics hub at the end of the quarter also penalized wholesale shipments.
Our own e-commerce operations have also been impacted by the temporary shutdown of some warehouses and logistics facilities. This wholesale performance is the main explanation for the gap between our actual Q1 revenue and the first estimate we provided on March 20. I will now make some rapid comments by house. Let's turn to Gucci on slide six. After an excellent start to the year in all regions, Gucci was particularly impacted in the quarter due to its strong positions in Asia Pacific and high penetration on mainland Chinese customers worldwide. The closure of Gucci production facilities in Italy mid-March also negatively impacted the brand's ability to optimize its offer in the countries where stores were still open. Finally, comparison to a very strong first quarter 2019 didn't help. As a result, retail, which accounts for 85% of sales, was down 24% year-on-year.
For its part, wholesale decreased 20% as Gucci takes an ever more selective approach to this channel in order to further tighten control over distribution, both offline and online. Gucci will further streamline its wholesale footprint throughout the year, reducing the number of accounts and intensifying retailization. In retail, the disparity across regions, ranging from Asia Pacific, down 32%, to North America, down only 11%, very much mirrors the timing of the network shutdown and drop in tourism.
Everywhere, Gucci's performance was outstanding until it came to a halt, confirming the brand's underlying might and our confidence in its ability to rebound swiftly as each market reopens. The double-digit increase in North America in the January-February period is particularly noteworthy, and we are also comforted by the steady pace of sales growth in mainland China from the day we started reopening our stores. In Europe, performance was solid until mid February.
E-commerce was a bright spot for most of the quarter, that stopped with the closure of most of our European logistics operations in late March. Gucci is ideally positioned to take advantage of the recovery of the Chinese market and actively fostering sales wherever its stores are reopened, reallocating inventory across regions. It is also making sure its capabilities are fully ready for a return to normal operations as soon as that occurs. Moving to slide seven, Yves Saint Laurent saw some downside protection in the first quarter due to its geographic mix. Retail, which accounted for nearly two-thirds of sales, was down 18%. The fact that the house's network has not yet reached full maturity in Asia and in mainland China in particular, limited the drop.
In addition, in North America, Saint Laurent ended the quarter unchanged, thanks to the strong sales it generated in the first two months. Western Europe also delivered a good performance through the end of February, fueled by local customers. Despite the lack of an online site in mainland China, which should come live this year, penetration of Saint Laurent e-commerce is intensifying. In wholesale, Saint Laurent recorded a limited decline of 6%. All in all, Saint Laurent showed good resistance in the quarter, and we have plenty of reasons to be confident, starting with the strong growth potential the house still enjoys in mainland China. On slide eight, Bottega Veneta bucked the trend, thanks to the relative immunity the house's successful reinvention is providing. Comparable revenue was up nearly 9%. For its part, retail was just about stable, a strong show of support under current market conditions.
This was largely driven by the house appeal with local clienteles in Western Europe and North America, where it recorded solid double-digit increases, notwithstanding the closing of the network in March. In Asia Pacific, much of the revenue decline comes from Hong Kong, where the brand exposure is significant. Excluding Hong Kong, retail in the region is down only 9% in the quarter, notably thanks to the strong support from the local clientele in Korea. In Japan, in addition to the COVID-19 impact, the brand is still working on broadening customer reception for its new aesthetics. Thanks to the strength of the spring/summer collection with third-party buyers, wholesale rose 55%, despite the logistics issues encountered in the final days of the quarter.
While it is clear that this performance cannot be sustained now that our North American and European store networks are under lockdown, we can see even under these circumstances that the appetite for the brand and its new products is building up unabated. On slide nine, revenues from our other houses were down over 5% comparable with a somewhat resilient wholesale and a more contrasted retail. On the soft luxury side, Balenciaga and Alexander McQueen were shielded to some extent by their relative underexposure to Asia-Pacific, while benefiting as well from higher space contribution from last year's openings and from recent wholesale-to-retail conversions. Their retail performances in North America and Western Europe came close to compensating for the shortfall in Asia-Pacific and Japan. Wholesale was still up in couture and leather goods, despite the turmoil at the end of the quarter.
Conditions were tougher in hard luxury, which faced significant disruption in wholesale, a major channel for this division. In addition, on the retail front, both Boucheron and Pomellato are heavily dependent on Western Europe, where the closing of their networks had a severe impact in the last weeks. On the bright side, we need to note the strong top-line showing at Qeelin, which benefited from collaboration with new distribution partners and had a sharp rebound in its mainland China stores in March. To end my presentation, I would like to first stress Kering's priorities, commitments, and initiatives in the face of COVID-19. The group and its houses have all been strongly mobilized to support and protect our associates, our consumers, and society. Corporate responsibility is one of our most fundamental values, driving and uniting our actions. You see on slide 10 some of the initiatives we have taken.
Many are aimed at supporting with donations in kind or in cash the work of healthcare workers in affected countries. All our houses are pitching in, putting their resources and capabilities at work. This will continue as long as required. Our top priority is to guarantee business continuity in this troubled period, to work on the short term, and make sure we are as prepared as we can be to restart our operations. We want to overcome this crisis as an ever more agile, more flexible, and more relevant organization. On slide 11, we have summarized our key areas of focus. Starting with supply chain and logistics.
We are managing the spring-summer collection to ensure the best sell-through and reallocate inventories to the relevant regions and channels as efficiently as possible. Our brands are also working to extend the life of some of the assortment and adapting their upcoming collections in terms of volume and merchandising, focusing on fast-moving items, reducing the number of SKUs, and optimizing product allocation. This will be instrumental to match supply and demand, and to manage our overall level of inventory, keeping in mind that we maintain good coverage so far, even with our production capacities closed since mid-March. On the cost side, we are working hard to reduce our fixed cost base, and thus, to limit operating leverage while continuing to invest in our brands. All key lines have been reviewed, from rent and store expenses to A&P, SG&A, and payroll.
Of course, we are also postponing non-critical projects, delaying some CapEx related to store refurbs and openings. We are not making any significant change to the scope and schedule of our major projects, including the new logistics hub, digital and e-commerce capability, and IT. We are carefully managing our cash and are comfortable with our liquidity level. You know we had a solid financial structure at the end of last year, with low leverage and EUR 3 billion of undrawn credit line. We have no major short-term bond redemption. Our debt maturity schedule is well-balanced over the coming years. We enjoy strong support from our banks and will extend our credit lines. All our teams are on deck. They are preparing to resume operations from production facilities to logistics and store reopening as soon as it is safe and the authorities give us the all clear.
We know we will face a very difficult second quarter and a challenging year overall. I can assure you that we are not only adapting to these unexpected circumstances, we are also using these lessons to improve our efficiency, resilience, and agility to emerge better prepared for the future. This ends my remarks. We can move to the Q&A.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press the star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, you can use the hash key. Once again, that's the star and one if you wish to ask a question. Your first question comes from the line of Edouard Aubin from Morgan Stanley.
Yeah. Good afternoon, Jean-Marc and Claire. Three questions from me. On Gucci, Jean-Marc, you mentioned that some of your brands, if I understood correctly, were up in China year-over-year in April, and some of them were not. Would Gucci be in the camp of the brands which have been up so far in April? That's my first question. The second question is, your wholesale performance was better than your retail performance at both Gucci and Saint Laurent. Sorry if I missed it, could you just come back on why that was the case? That would be quite helpful. These are basically my two questions. Thank you.
Good evening, Edouard. Indeed, as we said, we see that there are some obvious signs of improvements in APAC, thanks to Mainland China, principally. As you know, we have reopened stores gradually in March, and therefore, in some cities, we have just resumed retail operations very recently. It's very difficult to see a global trend in China because the situation is still very contrasted from one city to another one. You know that there are still some restrictive controls, for example, in Beijing, which is an important city, of course, for our business. Globally, we saw a steady improvement in sales in many cities. First and foremost, in the southern and eastern part of the country, and it's starting to materialize also in the western and northern parts, despite, as I said, more contrasted trends.
Our stores may record in some cities double-digit growth of their sales compared to last year. It can happen in certain cases. Clearly, Gucci, being the largest brand, is clearly in that trend, and we are back to positive since the beginning of April for Gucci and for most of the brands. For sure, Gucci is leading the pack in Mainland China. E-commerce is still very positive in China, as I said before. Regarding wholesale, that's quite logical because we had a phasing of deliveries. Despite the decision, we had to start to rationalize even more drastically, the distributions or wholesale distribution at Gucci. Still, we had some orders that we tried to deliver in due time.
Despite the disruption, especially at the end of March with the closure of the central warehouse we have in Switzerland, we have been able to ship according to the phasing of deliveries, which had been agreed with the distributors. That it does explain why, of course, wholesale has been probably impacted, as we can see now, with what is happening with the U.S. distributors. Still we have delivered the products, during Q1.
Okay. Thank you so much.
Thank you. Your next question comes from the line of Thomas Chauvet from Citi.
Good evening, Jean-Marc and Claire. I have three questions, please. The first one on your Italian manufacturing capacity, how do you balance the reduction in inventory inflow for winter, while also perhaps needing to be ready to capture the rebound in future demand if it picks up, let's say, in the run-up to Christmas? How quickly can you resume a return to more full capacity? I saw the ArtLab was reopening, I think today or yesterday as a first sign, maybe that Italy's reopening. Secondly, on your OpEx management, if there are three or four months where roughly half of your stores are closed and your employees are on temporary unemployment, how much of that heavy OpEx base are you able to recoup in the form of rent relief from the landlords, or government support for employees in countries like France or Italy, and the rest of Europe?
Thirdly, on travel, you've got a pretty high share of tourist demand in Europe, in Asia, for certain brands like Gucci or BV. You talked about the continuation of repatriation phenomenon. If we think longer term, do you feel that this crisis will be maybe an opportunity to review your physical store network, consider maybe closures in markets where you have historically a lot of tourists like Hong Kong, Macau, some European capitals, especially as your e-commerce penetration is increasing? Thank you.
Thank you, Thomas, for your questions. First of all, as regards the production, it's true that, we, respecting completely the instructions and the regulation in Italy, we started to close our production facilities as well, and the suppliers also closed their operations. We had to close Gucci ArtLab, which is, as you know, a development center. It had an impact, in fact, because we are not always, let's say, able to produce as we would have expected some carryover items. Today, sometimes we may miss a little bit some products in some key markets. We had a quite good level of inventories. We have been able also along the quarter to redirect some deliveries from one region to another, and still recently, despite the closures of some activities in Europe, we have been able to ship some products from European stores to Asia.
As regard the collections, as you can imagine, it started with the summer collection, the summer part of the spring-summer collection, for which we have been able to adapt a little bit, the volumes and the production to focus more on, let's say bestsellers, carryover lines and fast moving items. As regard the fall-winter, the pre-fall was already quite well at a good level of manufacturing, of production. It's true that when it comes to the winter part, we may have some delays. Globally speaking, if we think about inventories management, probably, we will, let's say, postpone some deliveries, and we will have a longer period, in terms of sales for the spring-summer collection. We will focus also on the carryover lines. It will be clearly a priority for us to capitalize on our bestsellers and our evergreen products, to rebound.
Let's say that you're right to mention that we have reopened Gucci ArtLab since yesterday after having received the approval of the authorities and after discussion with the trade unions. We are able to start to develop again some new products and to conceive new products, especially for the cruise collection. Let's say that we don't feel that we have a major delay in terms of production. We are not able to recoup. There will be clearly an adaptation of the calendars this year. I think also that if we consider the expectation of our consumers, we don't feel that it should be a major issue. I think there is still an appetite for buying spring-summer products, because our consumers have not been able to buy them.
I think that to have globally an adaptation of the calendar this year, it's manageable, so that we will be able, with some two weeks to four weeks of delay across the board, not only for Gucci, but across the board for all the brands, to deliver the products in all stores and to wholesale partners. As regard the OpEx, of course, like all the other luxury groups and brands, we are working to adapt the cost base and to work on the cost base, especially on the fixed part of the cost base. It does require a lot of discussions with not only landlords, but also more globally speaking, with all partners, suppliers, and so on, and vendors.
I think that we have obtained already some good results in our negotiations when it comes to reduction of the minimum guarantee in the countries where rent are mostly variable, or reduction of the fixed part in the more mature economies, even if we are just at the beginning of the negotiations. As you can imagine, there is a time to adapt the cost base. I think that we have a lot of measures as regards, for example, the personnel cost. I think all the measures that have been of support by the government are not the ones we will create the most of the savings. It's more about cost control, hirings freeze, merit increase freeze, and so on, that will have an impact. Principally, that will play more during the second half.
If we look at the Q2 and the comment I made previously about the trends, we can expect if we do all our math about the situation in the mature countries for Q2, we can imagine that H1 margin will be hit by the fact that this adaptation of the OpEx base is taking time. When it comes to savings on the rent, that's a good achievement, and I'm very happy by what has been done by the real estate team and by the brands. Of course, you can imagine that it's not enough to offset the loss of growth margin. Your comment about the travel and tourism is very interesting because I think the conviction we have at Kering is that some trends which were at play already in the past few quarters, will be confirmed and will be amplified to a certain extent.
We saw an acceleration of the online business. The trend to the repatriation of the purchases on the domestic market in China is obvious. For example, Shenzhen is a city which benefits a lot from this repatriation to a certain extent. I think that also, there will be more and more local consumption, including in the European countries. Of course, you're right. It will push us to reconsider our store network. It's too early, of course, at this stage to be precise and to provide you more information, more colors about what we will decide. It will lead to clearly a reshuffling of the distribution, even if we are still encouraged by the fact that among the travel retail objectives we had, we are targeting to expand, in some domestic airports, or in some railway station as it can happen in Japan.
Clearly it will be a trend that will continue to be confirmed, probably.
Thank you.
Thank you. Your next question comes from the line of Louise Singlehurst from Goldman Sachs.
Hi, good evening, Jean-Marc and Claire. Thank you for taking my questions. Just following up on the working capital, and the inventory question. I wonder if you can just help us understand your plans and thoughts around, obviously, the unsold stock, particularly for Gucci, for spring-summer. Just following up on the distribution channel. It sounds as though the contraction of the wholesale channel will probably very likely be accelerated this year. Is that the plan to shift more of that online or to recoup that within the own retail operations? Finally, obviously good news pre-COVID-19 on the pickup in the U.S. for Gucci on a normalized environment. I know nearly impossible to talk about a normalized environment given the circumstances, can you just tell us about how that's worked in the U.S. for Gucci, in January? Thank you.
Thank you, Louise. I will make a general comment about working cap, because I want to be very clear also on the fact that we will respect strictly all the terms and conditions of the contracts we have with the suppliers. You won't see any impact on the payables because I think it's really the responsibility, the duty of a large group like Kering not to play on that side. We have decided to, on the contrary, to support clearly our suppliers and our vendors. When it comes to receivables also, we should not expect any improvement. You know that it's a quite difficult environment for many of our clients. We are very careful about the situation. Also here again, we are ready to help our best-in-class clients, and to reconsider when needed, terms and conditions to support them.
The core, in a way, of the issue when it comes to working cap, it's about inventories. We have some objectives in terms of inventories for the end of the year. Normally, of course, we have made some projections for the second half so that we are working on adapting the open to buy, and I think that we can keep a quite good sell-through ratio because we have adapted clearly the open to buy. For sure at the end of H1, we should have a peak in terms of days of inventories. That's obvious. I think that with the extension of the spring-summer period, it will help to improve the sell-through. Of course, you can imagine that we will have also some actions in terms of sales and discount, markdown activities to boost the sales, and it will be probably across the board.
As usual, we will do it in a very smart way, and we won't, of course, have any markdown activities on the bestsellers, the carryovers. It will be on selected items. Of course, more on the seasonal items that will have markdown activity. For sure, compared to last year, you can expect that across the board, not only for Gucci but also globally more speaking for all the brands of the group, we will have an extension of the markdown compared to last year. On off sale also, I would like to be very clear. I think it's really a good occasion and an opportunity for Gucci especially to reconsider its distribution at a time when exclusivity will be even more paramount than before.
I think that, of course, you know that the priority of Gucci was very clear and very clearly stated by Marco Bizzarri a few years ago about the need to increase the share of the retail distribution and to push to retailization in online. We are starting some discussions with our partners whether to adapt the volumes or to push to retailization. We are not afraid to close some doors if needed. It will be a comprehensive review of the partnerships we have at Gucci, and you can expect a decrease of off sale in 2020 for Gucci. Of course, the objective is to redirect the traffic whether to our gucci.com or our retail network. I think it's another wave of rationalization to maintain a high level of exclusivity at Gucci.
I think we are very encouraged by the trends we saw in the past quarter when it comes to online directly operated by Gucci with the very good figures we had across the board, especially in China. When it comes to the pickup we saw in the U.S., in fact, the U.S. market was the last one to enter into the crisis because the closures happened later compared to the other regions. In fact, if we combine January and February, we had a double-digit increase of sales for Gucci. What was very positive, it was across the board, across the different categories. It was not specifically driven by one category. I think it was very well-balanced, and I think it's really the result of all the investments we made in the past few months in terms of marketing, in terms of clienteling.
I think it was a confirmation that the brand is still very strong in all the markets. More globally speaking, I would say that if we look at the performance of Gucci in January, it was positive across all regions and very sound in terms of quality of the sales.
Super. Thank you.
Thank you. Your next question comes from the line of Thierry Cota from Societe Generale.
Yes. Good evening, Jean-Marc and Claire. Three questions for me. First, you mentioned potentially low margins in H1. Is there a rule of thumb that you could give us where this need to drop for the group to be around breakeven at the EBIT level? I would say, is 30%-40% range a good estimate with the cost base that we have today? Secondly, on online, if I'm not wrong, I think the growth rate of online in Q1 was not very different from that of the earlier quarters. Now, you did mention that there was technical issues with logistics. Do you think this is the only reason, or would there be other reasons in a context where, if I'm not wrong, you're not the only brand or group in that situation?
Lastly, I was wondering whether you were formally using the state-sponsored partial unemployment schemes across Europe where they exist, and notably in France and in Italy. Thank you.
As you can imagine, Thierry, it was a good try. I want to answer to your first question. As a reminder, let's try to help to a certain extent. You know that we have approximately, depending on the brand, 70%-75% of the costs which are fixed. Of course, all of them can be managed. If we think about communication, you can imagine that we have reduced, by definition, all A&P costs because a lot of activities have been stopped. If you consider the drop of sales we could expect, and you can modelize for H1, you can imagine that we won't cut fixed cost at the same level in terms of percentage, despite all what we do, it's almost impossible. Otherwise, it would be a restructuring activity, which benefits will be, in any case, rather in the long run.
I think it's too soon to consider any form of restructuring, which is a good transition to me for the last question, and then I will come back to your second question. The priority of the group today is to protect the employment, the job. It is to safeguard the level of remuneration of our employees, including the ones working in the stores. Two, we have the commitment to pay 100% of the fixed salary and in certain conditions, we are also compensating so far part of the variable package that our sales associates are not receiving because stores are closed. The priority for us, at this stage, even if we have frozen all the recruitments, is to safeguard the employment. The reason why, case by case, country by country, depending on the situation, we could apply for some unemployment or partial employment measures.
Once again, it's case by case, country by country, brand by brand. Sometimes it's a regulation which can be local, so you cannot just make a general rule. By chance, in France, we have a very centralized state. Also in France, we won't use any scheme regarding partial employment. We won't use any scheme for our brands, for our headquarters, our retail activities, for production or, in most of the production activities, we won't use them. Don't expect any major savings on this side, and especially in France, where it should be close to zero on that side. Of course, it's obvious, but it's important to remind it, of course, we have not asked for any support when it comes to cash management, and we are paying all our obligations, including income tax, on due time, and we have not asked for deferred payment.
I think that concerning the situation of Kering, it would be, of course, insane. As regards the online business, I think that what you need to understand is that we have a contrasted situation in online. Overall, the online business was very good in January. It was booming in January. It was, as usual, above the pace of growth in the retail, in the offline business. In February, it continued to be very strong, especially in China, where we had triple-digit increase of online sales, so that now China, at least for Gucci, became the second market after the U.S. in proportion, just before the U.K. It's something new. Now, in a way, because of the specific situation we had in China, the share of online business in China was quite comparable to the average of Gucci.
What happened is that in March, I think the consumer confidence in the U.S. and in Europe, especially more in Europe, was not so good, they didn't buy or they rather reduced their purchases online, we had an impact on the online business. On top of that, we had to close some warehouses and logistics facilities during the last week of March, even if we have not completely missed all the sales at the end of March because we have been able just to ship from some stores and some which were still open. In any case, we had a very weak last week of March in online on a worldwide basis, more or less, even if we had enough inventories in the U.S. or in China locally to serve our clients.
In Europe, which is still an important market for online, if we consider that U.K. is still very important and Germany also grew quite rapidly in the recent months, we have lost some sales in the last week of March.
Okay, great. Thank you.
Thank you. Your next question comes from the line of Omar Saad from Evercore.
Thank you for taking my question. Good evening. I have two questions. I wanted to ask maybe a little bit further on what you're seeing in the China sales and consumer behavior recovers there. Are you seeing a differentiation between younger and older consumers? Are indoor centers behaving differently than the outdoor centers? Obviously, digital versus stores you've talked about. Are you seeing any signs of pent-up demand? Would you expect a similar recovery curve in the U.S. and Europe? Then, my second question, I'd love to know how you think about the company's portfolio of brands is so well known for fashion, innovation. Given this potentially more prolonged subdued environment, how do you think about fashion and fashion innovation in this environment? Is there an opportunity to use data and AI to help you figure out some of these equations that we've never seen before? Thanks.
I think regarding your first question. It's important to remind that, as I said, we started to resume some operations in some cities only at the end of March. That, in a way, if we take a step back, we have only 15 days with all the stores open in China, and still with some restrictions in some cities, sometimes with restricted schedules. Someone would try to, based on that, extrapolate what could be the shape of the recovery, what could be the speed of the recovery, what could be the change in terms of consumer behaviors. I think it's very early. I'm not very confident in doing such predictions. I would remain very modest, very cautious when it comes to that. What we can see and what we can expect is that globally, the emerging countries' economies should recover quicker.
We feel that the consumer confidence is higher compared to probably the mature countries. We feel that there is an appetite for purchasing again. It's not obvious that there is a difference in terms of behaviors or in terms of consumption patterns age by age. I think we need to have more, let's say, visibility and maybe more one month or two months of activity to have a better assessment of the situation. We can only see that we are very encouraged by the signs we see, by the steady increase of traffic in the stores. We believe that in China, but once again, it's a very early statement, we don't expect a major inflection in terms of consumption patterns except about what I've mentioned about repatriation and acceleration of the online business.
When it comes to your second question, I think that first of all, sorry to be very down to earth, the priority, as we said, is to be prepared to restart operations. Before thinking about artificial intelligence, you know that we have some development there, we have some investments in that area, we will continue, by the way. It's typically an area we don't want to stop our investments. The priority today just is to restart the operations with ensuring the safety, the health, and protecting the health of our clients and our sales associates. You may know that it's a struggle today on the market to buy masks, to buy protection for our people. That's a priority.
Of course, I think you're right that to have a relevant offer, to be smart in terms of merchandising, to be accurate in terms of deliveries, to be accurate in terms of assortment and replenishment would be very instrumental. I think our brands are well prepared, and we will continue once again to invest. We have decided not to cut the CapEx when it comes to innovation, when it comes to logistics, you know that we have a big program in terms of logistics upgrade. We'll continue to invest, definitely.
Yeah. Hello.
Thank you, Jean-Marc.
Thank you, Omar.
Hello, Omar. Yes, Claire, just wanted to say we're probably going to take our last question because we would like to end at 7:00 P.M. sharp Paris time. Thank you.
Thank you. The next question comes from the line of Mélanie Flouquet from JP Morgan.
Yes, good evening. Thank you for taking my questions. The first one would be regarding the warehousing issues that you experienced at the end of March. Would you have any visibility, I know it's hard, but as to when those might reopen and smooth, or do you feel that now you're better prepared to reshuffle from the stores and have smoothed this impact anyway in another way? My second question is regarding wholesale, which, in particular outside of Gucci, was down a lot less than retail. There may be a situation of wholesale partners having too much stock on the back of this quarter one. Are you considering retaking some of the stocks from your partners, or do you think you'll smooth this with the quarter two orders? My third question is on CapEx.
Would you be able to share with us what's your plan for this year, if that's not too early yet? LVMH mentioned down 40% for full year 2020, so maybe you have a broad idea already yourselves as to what the decline will be on here. Sorry, I squeeze in a last one. How does the current situation change your M&A agenda, please? Thank you.
Thank you, Mélanie, for the last question, the last but not the least. You have the right to the three questions, so I won't answer to the fourth question. Of course, I will do. When it comes to warehouse, in fact, we are preparing First of all, to be precise, in fact, we had to close the logistic activities in Italy, where we have the warehouse on the logistic operations of Yoox Net-a-Porter, serving some of the brands in e-commerce. We had to close partially, some operations we have started to do from Italy for all the free trade agreements part. Of course, we had also to close the activities of Gucci e-commerce, which are based in Italy, and also because of the proximity, the Ticino County in Switzerland, had also to close the operations. Overall, most of the operations from Europe were closed.
It was not the case of the operations we have in the U.S. We have been able to continue to operate at reduced pace, but still. In Asia, our logistic activities were not so impacted since we have reopened. In fact, we are preparing the reopening. The online business of Gucci is restarting again already. We have the authorizations and also, of course, once again, a discussion with the trade unions, and we are preparing the gradual reopening of Switzerland. I think also that Yoox Net-a-Porter is working on the reopening of their activities. In the coming days or weeks, quite rapidly, I think, we will be able to restart normally the operations. The point is just to be sure, because you saw what happened to Amazon in France, so we want to be very careful about the health and safety conditions we have in place.
We prefer to defer a little bit the reopening and the restart, but just to be well-prepared. Of course, as it will be in all activities, it will be a very gradual restart, and we won't be at full speed in the coming days. When it comes to wholesale, I think that if you look at the performance of our brands and especially of Gucci, in fact, Q1 has been managed quite carefully to avoid, let's say, too many deliveries to certain partners. We have a very centralized approach when it comes to shipments to wholesale and depends on the credit management, which is under my responsibility. If we are above certain thresholds, we don't ship without my authorization. I think we had a quite cautious approach. Still, we had experience when Barneys went to Chapter 11.
It's true that the challenge we have with some partners is not so much about the receivables but about the inventory situation. We are not yet in a situation where we want to or we are prepared to buy back some products. However, it's a global negotiation. I mentioned the retailization or the objective of retailization we have. I've mentioned the fact that we want to be more and more selective and to operate directly with some concessions, so it can be part of the game, but it will depend also on the flexibility on the wholesale partner side. CapEx. I think that our friends at LVMH have provided a lot of figures. In our case, I would like just to say that we have a very drastic approach at brand level, and we are reviewing all the projects we had.
By definition, we have been obliged to postpone some projects because all construction companies were stopping their activities. Naturally, there is a cut in terms of CapEx. When it comes to brands, of course, it's a strong double-digit decrease we can expect in terms of CapEx. I won't quantify them. In terms of magnitude, let's say that it's quite significant, especially compared to the budget, at least. Still, as I mentioned before, there is still the ambition to pursue some strategic projects we have at group level. I mentioned logistics. It's the case when it comes to IT, CRM, and innovation. That at group level, we are making some savings in terms of CapEx, but not to the same extent as we can do when it comes to store network. It means that overall, we can expect significant cuts.
At the end of the day, the objective is to stay in the range of 6%-7% in terms of CapEx to sales. That does remain an ambition. Ideally, to be just in the middle of that range would be ideal, and we are working in that direction. Of course, it will depend on the evolution of the sales, which is very difficult to predict so far. When it comes to your last question about, I was not expecting this one, but it came in any case. I think that, again, the priority for us is to focus on the operations to be ready to restart. Once again, I mentioned in my speech that we were quite confident about and comfortable in terms of liquidity level of the group.
Once again, and I share with Jean-Jacques Guiony the fact that we don't know and nobody knows what will be the evolution of the situation in the coming months. To talk about M&A and opportunities, it's clearly not the right moment. It's not a priority so far. You know that we are open in the long run, but short term, the priority is about managing operations and ensuring the health and safety of our employees and our clients.
Thank you very much.
Just to conclude, thank you all for joining us this evening, for your continued interest in Kering, and for all your very good questions. We have shared with you, I think as candidly as we can, our views on the few certainties we do have, but also on the main uncertainties we have also. Among the certainties is that each one of us at Kering, in our brands, is working really hard to mitigate the impact of the situation, both on the company and on all its stakeholders, and to be absolutely ready for all future scenarios. As always, but if you don't mind, from their respective homes, Claire and her team will be around to answer whatever questions we were not able to get to tonight. I wish you a good evening. Stay safe, keep healthy, take care.
Thank you. Ladies and gentlemen, that does conclude your call for this evening. Thank you all for participating. You may now disconnect.