Good evening to all of you. I'm pleased to welcome you to this call and review with you our sales in the third quarter of 2014. I will provide you with a bit more background on revenue trends at group level and in our major brands. Jean-François Palus, the Group Managing Director, and I will be available to answer any questions you may have. On slide four, you will find a summary of group sales in the quarter. Revenues were up 4.4% on a comparable basis and 3.3% in reported terms. Kering posted another steady revenue progression in the third quarter. In fact, even ahead of the pace of growth in Q1 and Q2. The consistency of top-line growth across quarters fully validates our multi-brand strategy, which enables us to deliver satisfactory growth when the markets are upbeat and also when they are more challenging.
In luxury, trends remained healthy in the quarter, with comparable revenue up 3.5% in a fairly difficult environment. Like our peers, we faced more intense macro uncertainties and political unrest. This affected business conditions in several markets. In this context, our high-growth brands, notably Bottega Veneta and Saint Laurent, kept an excellent dynamic, with sales up double digits. Gucci, for its part, proved resilient in retail, with very good trends in North America and Japan. On the positive side also, currency headwinds have begun to ease, with reported and comparable growth rates of our luxury activities at nearly the same level in the quarter. In Sport & Lifestyle, we are truly encouraged by the third-quarter achievements at Puma. It is executing its turnaround strategy fully in line with its roadmap.
The Forever Faster campaign, launched in August, is effectively repositioning the brand in the performance segment. The third quarter is confirming the positive top-line inflection we expected. Overall, comparable sales in Sport & Lifestyle were up over 6% in the period, a performance we had not witnessed for quite a few quarters. Currency negatively impacted the division's reported performance, especially due to Puma's exposure to Latin American currencies. I will now move on to slide five, which gives you another view of the quarter in luxury. As a reminder, from this quarter onward, there is no more scope effect due to the consolidation of Pomellato. As you can see on the chart, once again, performances were driven by solid growth in our own stores, with retail revenue up 6%.
As you know, this is our key focus. We have dedicated action plans across all our brands centered on retail excellence and organic growth. By region, mature markets, notably North America and Japan, up respectively 12% and 7%, had the highest growth. As a whole, emerging markets did post a good 4% increase in retail revenue, although they were affected by adverse conditions in certain Asia Pacific markets. Growth of online revenue, up 25% this quarter, was solid across all luxury activities. This performance underscores the growing importance of this channel, in which the group has invested in the past years and will continue allocating resources. Wholesale revenues decreased very slightly in the quarter, with two major trends to outline. As anticipated, wholesale at Gucci was still down but improving compared to the first and second quarters of the year.
In hard luxury, conversely, we observed more caution from certain third-party distributors. In line with our strategy to selectively expand our retail network, the number of directly operated stores rose by 26 net units in the third quarter, still very well-balanced between emerging and mature markets. Let's now turn to Gucci's performance in the quarter on slide six. Gucci posted retail trends similar to the second quarter. In our view, given recent market headwinds, this is in line with overall industry performance. By region, Japan, North America delivered mid-to-high single-digit sales growth, which is a significant achievement and does fully confirm the success of our elevation strategy. In Japan, the brand is well-established and will capitalize on the upcoming celebration of its 50th anniversary in the country. In the U.S., Gucci's momentum is vibrant.
The brand is increasingly appreciated on the West Coast by both local customers and visitors, matching its traditional strengths in other parts of the country. In Western Europe, patterns were contrasted. France and the U.K. were the weakest spots, while Southern Europe seems to have bottomed out, especially Italy, but also Spain. In a context of softer tourist spending in Europe, Gucci sales to local customers were up, reflecting the appeal of new collections. In Asia Pacific, retail revenues were down 5%, not materially different from the second quarter trend, even slightly better. South Korea had another positive performance confirming its momentum, and Taiwan is back in positive territory this quarter. Gucci sales trends in mainland China stabilized in the period. On the flip side, we experienced some deterioration in Hong Kong and Macau, while Singapore remained a difficult market.
In Asia Pacific, Gucci now has new management teams in place following the recent appointment of Merinda Yeung, general manager of Taiwan, as president of the China region, encompassing both mainland China and Taiwan. As expected, the drop in wholesale is materially compared to the previous quarters, reflecting two main dynamics. First, Gucci continues to buy back certain operations as it did in Russia at the beginning of the year, and is considering doing in the U.S., with a few department store corners to be converted to retail. Secondly, in line with our brand elevation strategy, we are cutting down sales of entry price and logo products. In this respect, it's worth noting that the decrease in sales of small leather goods contributed to 50% of the total decline in wholesale. By category, handbags performed extremely well in mature countries, supported by the carryover lines, Soho and Bamboo Shopper.
The introduction of the Swing and Bright Diamante was successful, especially among Gucci's younger Asian clientele. The Swing is a functional, yet fashionable, no-logo leather bag, which helps satisfy demand for entry-level products. In addition to the good results generated in this segment, the recent launch of the Jackie Soft, a higher-priced, sophisticated handbag, has been promising. The product assortment and price architecture of this key category is now where we want it to be, with a very strong and qualitative offer in the core segments. In women's ready-to-wear, Gucci posted a very good quarter with sales up sharply, reflecting the success of the fall/winter collection. The shoes category for both men and women also grew nicely. As of September, Gucci operated 485 stores, with five net openings in the quarter, of which two in Latin America, namely Panama and Brazil.
Moving on to slide seven, Bottega Veneta had a very consistent performance in the quarter, up 11% comparable. Retail was up 10%. Despite a shift in deliveries that benefited the second quarter, wholesale was up 14% in Q3. Leather goods posted further sharp increases in sales, fueled by continued good client reception for both iconic Intrecciato styles and for newer solid leather shapes and styles. Men's lines were among Bottega Veneta's fastest-growing categories and accounted for around 35% of total sales. The presence of more seasonal items continues to be well-received by clients, attracted by novelty and the regular flow of new products. The perfume line has been expanded with the launch of a new fragrance named Knot in the quarter. Sales remained sustained in retail across all main regions, with somewhat less uniform patterns this quarter. Western Europe was up 8% in retail, reflecting slower tourism traffic.
North America and Japan, both up 12%, had another very strong quarter. Asia Pacific was also up double digit, with Taiwan and South Korea being the strongest drivers. During the quarter, Bottega Veneta opened three new directly operated stores and closed two, bringing the total store count to 228. On slide eight, you will find a recap of Saint Laurent sales. In the third quarter, Saint Laurent achieved another sharp increase in sales, up close to 28%, consistent with the previous two quarters. As was the case already during the first half, this was driven by very solid 34% growth in retail. This channel accounted for 60% of sales and is gaining more and more importance as the brand successfully rolls out its store concept and expands its network.
Wholesale also grew at a solid pace, up 21% in the quarter, driven by the very positive reception of the fall/winter 2014 collections and reflecting the brand's penetration with leading wholesale accounts worldwide. All product categories contributed to growth. In line with the previous two quarters, leather goods achieved the sharpest retail increases, up 35%, a performance driven by the success of the Sac de Jour and Monogram lines. On top of this, the newly launched pre-fall 2014 lines, including Moujik, Université, and Emmanuelle, posted very positive results ever since they reached the stores. Ready-to-wear, accounting for over 25% of retail sales, also delivered outstanding revenue increases driven by women. This follows the very sharp growth in sales of men's ready-to-wear in the past two years. Overall sales in this category are now well-balanced between men's and women's.
By geography, retail growth remains steady across all key markets, further underlining the broad-based outperformance of the brand. In Asia Pacific, a high potential region for the brand, sales rose at a sound pace. In Mainland China, sales more than doubled, a performance accomplished with limited store openings at this stage. On that subject, a quick word on Saint Laurent's retail footprint, which reached 122 units at the end of the quarter, with seven net openings year to date. Most of the recent store openings target key destination cities in mature markets where the brand momentum is unfading. The highlight of the quarter was the opening of the brand's Milan flagship store on Via Sant'Andrea. Moving on to slide nine, I will comment briefly on our other luxury brands.
In the third quarter, the contrasted performance of our other luxury brands largely reflects diverging trends in soft and in hard luxury. Altogether, our soft luxury brands posted revenue growth of 5%. Particularly noticeable was the performance of Balenciaga, with another quarter of double-digit sales progression in both retail and wholesale. Our British designer brands also enjoyed solid retail growth, with our wholesale performance reflecting shifts in delivery patterns compared to last year. Our hard luxury brands faced tougher markets in the quarter. Pomellato sales remained quite resilient considering conditions in Western Europe, which accounts for the bulk of its sales.
At Boucheron, sales comparisons were impacted by two factors, the high base in Q3 last year due to sales of high jewelry pieces and the lasting effect of Japanese VAT increases last April, as sales only started picking up in September following the anticipated purchases that had occurred in Q1. Finally, sales of timepieces, primarily from Girard-Perregaux, reflected the continued caution of third-party distributors widely observed in the watch industry. If we look at distribution channels, most brands saw firm increases in retail sales, up 11%, driven by soft luxury, in line with our strategy to focus our efforts and investments on retail. Trends were negative in wholesale, impacted by the restraint of resellers in hard luxury I mentioned. In the other luxury brands, we recorded 21 net store openings since the beginning of the year, bringing the total network to 360 units.
Balenciaga, Brioni, and Alexander McQueen saw the largest store network expansion so far this year, in line with our selective approach to investments in retail adapted to each brand's need and stage of development. With slide 10, let's move on to an overview of our Sport & Lifestyle activities, which had solid sales performances during the quarter. The brand relaunch at Puma, combined with the repositioning of our other brands, were the engines of this growth. Puma, after a successful football World Cup in terms of brand visibility, the quarter saw the unveiling of the Forever Faster campaign, as well as the partnership with the Arsenal Football Club. The Forever Faster global 360-degree media campaign launched in August ahead of the crucial back-to-school season, led to a sharp surge in brand awareness.
It's a decisive statement delivered to both end consumers and our key wholesale partners that the Puma brand is on the offensive. As expected, Puma sales picked up nicely during the quarter, led by the rapid take-off of the partly revamped fall/winter 2014 collections. Selling trends were highly satisfactory, as shown by the sharp jump in wholesale, up 7% in the quarter. Retail evolution was also positive, both in reported terms and on a like-for-like basis, extending the promising developments of the first half. By region, sales performances were consistent across both mature and emerging markets, growing 6% and 7% respectively. Within mature markets, sales in Western Europe, accounting for 35% of the total, grew 6%. The Eurozone was especially solid, led by rebounds in Germany and France, underscoring that the Puma brand continues to resonate intensely in its home region.
In North America, sales were up 5%, extending the market share gains of the first half. Looking at product categories, I would like to start with footwear, which represented 44% of sales in the quarter and is seeing a marked improvement. Higher sales of footwear confirm the appeal of Puma's new product lineup, with a better articulation of design and functionalities between performance and lifestyle products. For example, in football, evoPOWER achieved strong sales, reaching the younger audience the brand is targeting. This is a very encouraging development, considering that the full spectrum of new products is not expected to reach the shelves before spring/summer 2015 collections. Apparel and accessories also posted further increases in sales, up 11% and 7% respectively, fueled notably by the recent Arsenal kit launch. For their part, sales of Volcom and Electric were also positive in the quarter.
Combined sales of the two brands were up 5%, confirming the revenue trends that started emerging in the first half. At Volcom, both Western Europe and Asia-Pacific were up double digits, suggesting that the retail investments we made over the past two years to better establish the brand outside of its domestic U.S. market are starting to pay off. A few words of conclusion. In luxury, we are carrying on our ongoing strategy. Our consistent approach aims at providing each of our brands with the tailored support and resources it needs to fulfill its long-term potential. This requires a constant commitment on the part of the group to direct brand investments where they have the biggest impact according to each brand's individual traits and stage of maturity.
We conjugate this strategic approach with shorter-term vigilance, helping our operations navigate the surging macroeconomic evolutions and a generally tougher market environment, particularly in Asia-Pacific. In Sport & Lifestyle, the launch of Puma Forever Faster has gained traction, confirming the merits of the brand's long-term marketing strategy. The relevance of the investments is already reflected in the sales and order trends of the third quarter. For the balance of the year, we will closely monitor sales through developments ahead of the launch of the spring/summer 2015 collections due in the first quarter next year. In the fourth quarter, we also look forward to reaching further important milestones in reinforcing our group's portfolio, expertise, and synergies. The closing of Ulysse Nardin is on track, and we should get through antitrust clearances over the next few weeks.
In eyewear, we are progressing with the ramp-up of our Kering Eyewear structure, a process that should continue into 2015, and we are continuing to strengthen our management teams across our operations. Each of our brands benefits from huge inherent potential, and we will continue working methodically and consistently to foster growth and profitability at the level of each brand and at the level of the group as a whole. I would like to thank you for your attention. Jean-François and I are now available to answer your questions.
Certainly. Thank you, sir. If you'd like to ask a question at this time, please press the star or asterisk key, followed by the digit 1 on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Once again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone to signal for a question. We'll now move to our first question today from Helen Brand of Barclays. Please go ahead.
Hi, good evening, everyone. Just a couple of questions from me. First of all, for Gucci, you said mainland China stabilized in the quarter, whereas Hong Kong deteriorated. Do you think you could give us the magnitude of the deterioration in Hong Kong? Secondly, just on Hong Kong, can you talk about the trends during the start of October, and what the impact from the protests was during Golden Week? Are you seeing any of that spend being directed elsewhere? Next on Gucci, my final question, just on the wholesale performance, obviously in Q3 still down 8%. What are you expecting for Q4 in wholesale?
Good evening, Helen. What we've said about Gucci sales in China is that there is a stabilization of the trend, meaning it's still slightly negative, low single digit, we didn't see a further deterioration. We feel that all the initiatives taken in China start to pay off in terms of merchandising and products on the shelf. We are confident that with the appointment of the new manager in China, we will improve further. Considering the track record of Merinda in Taiwan, on the retail network, we are quite confident. In Hong Kong, we saw a further deterioration, meaning that we lost further points in terms of decrease of sales, being now double digit on the quarter in Hong Kong. Not over the nine months, but for the quarter.
What we can say about the recent protest and the event in Hong Kong is that, as we already said, mentioned that the trends in Hong Kong since the beginning of the year are quite complicated. With some concern about the traffic in the stores and also the average quality of the mainland Chinese customers, with probably less purchasing power and perhaps a soft transfer of the wealthier Chinese customers on some other markets. Finally, I would say that the event had an impact, especially during the first week of October, with a decline of traffic in the stores in the location, which were completely blocked, like, of course, Canton Road, Admiralty, and Causeway Bay. We saw a sort of transfer to some other stores in some other malls which were not concerned by the event, and also to the airport.
Also we saw that for the Golden Week, you had a shift of Chinese tourists to some other locations, especially South Korea and Taiwan. Even if, of course, considering the size of this market for the Chinese tourists, it cannot completely offset. All in all, I would say that the outcome of the Golden Week is quite positive. We remain confident that we can improve. As soon as the second week of October, we saw a slight improvement in Hong Kong. There is currently an acceleration in Hong Kong, regaining a little bit in terms of traffic and sales. Concerning the wholesale, of course, we won't comment about what we expect for the last quarter. Especially because, of course, we already mentioned the fact that we should see a gradual improvement over the year.
If you consider that the Q3 is minus eight compared to the trends we had during the first half, which was double-digit negative, we should see some additional improvement in the wholesale. As you know, we have been carefully reviewing our third-party distribution network throughout the past two years, with the goal still to further decrease the share of wholesale sales. We will continue. We contemplate some opportunity to buy back a few new doors. We cannot comment on this at this stage because we have some confidential discussion, but it could have an impact on the Q4. Meaning that we believe that it should be up for next year in the retail network, but probably with an impact on the Q4.
Interestingly, I think that as I mentioned during the call, we are working also on the quality of the merchandising in the wholesale network. The fact that half of the decline of the quarter was due to the small leather goods and the travel and luggage categories is quite interesting because it's typically some categories where we want to upgrade the brand as well.
Perfect. Thank you. Just one follow-up question on Gucci, on terms of the margins. If Hong Kong is obviously weakening, and that's obviously quite a high margin region, how are you thinking about H2 margins for Gucci compared to H1?
I think the main impact we are expecting for the second half of the year has to do with the hedging. As you know, we saw an inflection point in September with the dollar and with some other currency. For the yen, it's not just the case. The hedging impact should be less favorable, even negative, during the last quarter. It will have, surely, an impact. Again, don't forget that despite what you mentioned about the breakdown of the sales and the gross margin depending on the region, we have still the beneficial effect of the improvement of the gross margin. The gross margin should continue to increase on a constant currency basis. I think that the main driver for the decrease of EBIT margin would be the FX and the hedging.
Thank you very much.
Thank you. We now move to our next question from Thomas Chauvet of Citi. Please go ahead.
Good evening. I've got three questions. The first one on Europe. Trends at Gucci, but also at Bottega Veneta, have deteriorated slightly quarter on quarter, but against a much easier comparative. Could you comment perhaps on what have been the moving parts between the local demand evolution and the tourist demand? Secondly, can you come back to the rationale for the eyewear deal announced earlier this summer and the financial implication you are forecasting in terms of cash outflow, potential earnings dilution, but also the organizational changes it requires in terms of distribution? Thirdly, in terms of the management changes, earlier this week you announced three CEO appointments at Bottega, Brioni, and Christopher Kane. Can you perhaps give us an update on where you are in the transformation and improvement of some of the smaller brands, and perhaps the more sizable of these smaller brands?
I'm thinking of Balenciaga and Brioni. I would like to hear about those brands. Thank you.
Thank you, Thomas, for the question. I will answer to the first question, and I will let Jean-François jump on the two other questions. Concerning the first one, it's true that we have witnessed since Q1 2014 a weakness of Russian tourism in Europe. It still continues. There is no improvement, as you can see when looking at the data provided by Global Blue, and we have still lower tourism purchases from Japanese customers. This trend for Russian and Japanese continued in Q3. As far as Chinese tourists are concerned, I think it's more a question of volatility. It's quite difficult to predict how these tourism flows will evolve.
Q1 was totally satisfactory and positive, Q2 and Q3 trends with the Chinese in Western Europe have somewhat slowed down, at least for some brands, which is not totally a surprise to us, looking to the broader industry trends. Finally, what is interesting is that for the local customer, especially at Gucci, we have some figures showing that the new collections, and especially in ready-to-wear and with the new launch in terms of handbags, do resonate quite well with the local clientele. Globally, I would say that in Europe, the local clientele is improving. Not yet us, but is improving. We suffered from the lower tourism flows.
I think the combination is that there is a decrease in terms of the contribution of tourism flows and rather an improvement with the local clientele, which is very encouraging considering all the initiatives we had in Europe to position better Gucci. We feel that with local clientele in Europe, we could experience the same trend we are now testing in Japan and in America, with a very good perception of the brand with the local clientele.
About the eyewear initiative, our intention is to take back the full control of the value chain on this product category, which is quite important for our brands, all of them actually, including Sport & Lifestyle. What we want is to set up an expertise in this field. We now are gradually taking back the license contracts from the various licensees to have them all under one roof. We will now control design, product development, distribution, of course, the monitoring of subcontractors for eyewear. This will also enable us to strengthen the performance of Gucci and also to develop the full potential and to tap the full potential of our other brands in this product category, which is, again, very important. The financial implications will be twofold. One, the ramp-up of costs, which won't be very material in the financial statements.
Also the payments of a compensation to Safilo, as we explained in the press release that we issued a few weeks ago. In terms of organizational changes, there will be very, I would say, minimal, because we are setting up a new team with experts of this industry, led by Roberto Vedovotto, who's the former CEO of Safilo. There won't be any change within the brands. We will have a slight change in distribution because a significant portion of distribution will be centralized, but we will also have a sales force throughout the world and also agents. Nothing but normal.
Just as a follow-up, Jean-François, are you expecting to grow the current EUR 350 million turnover achieved by your partner? On the contrary, do you want perhaps to be more selective in terms of distribution? Are you expecting to offset the loss of a EUR 50 million royalty stream, and at what timeframe, roughly?
Well, actually, what we plan is to increase the quality levels in terms of product, in terms of distribution, which will also have an impact on prices for a few brands. For the other ones, we want to develop some product categories, particularly prescription eyewear or conversely sunglasses. We do have identified some opportunities to increase turnover and also to increase margin.
Thank you.
About the changes in the CEOs of Bottega, Brioni, and Christopher Kane. Bottega, again, it's a natural move because you remember that Marco Bizzarri has been appointed the CEO of the soft luxury division. He is being naturally replaced by Carlo Alberto. For Brioni, Gianluca comes at the end of a phase or an era for Brioni where we have completed the integration into the group, particularly the integration in the logistics schemes that we have at LGI. Francesco has finished the re-engineering of the manufacturing template. We need to step up to some other, I would say, development and domains where some other competencies are required. That's why Gianluca, who's been in the group, particularly in retail, not only in the U.S. but also globally for Bottega, will particularly focus on retail development and excellence. For Christopher Kane, it is the same.
Alexander had a mission to set up the company because, as you know, it was a minute company, a startup, I would say. He set up the various functions and also the integration within the group. Now that this has been completed, we need to push the fire on some commercial development. That's why we have Sarah joining us to boost the sales, particularly in wholesale. You mentioned Balenciaga, I think. Balenciaga is an ordinary business, so there is nothing to tell about that.
Thank you.
Thank you. We'll now move to our next question, which comes from Antoine Belge, HSBC. Please go ahead.
Yes, good evening. I've got three questions. First of all, I would like to come back on the performance of Gucci in retail. Still flattish. I would think you are expecting an improvement. When you look at Q4 now, and especially with Hong Kong, even if you understand that the situation is maybe not that bad, is there any rationale for Q4 sales not to be negative at this stage? I think you've mentioned some initiatives in terms of product, et cetera, but would that be enough to offset the headwinds of the industry? Second question on actually the smaller luxury brands. I think you've mentioned a few of them. I think Pomellato and
Good evening, Antoine. Concerning the Q4, as you perfectly know, we never provide formal quantified outlook, but ambition was to regain, as we said last time, progressively positive like-for-like growth across all the regions, as the like-for-like growth is already positive in America and Japan. Given the sharp market volatility and complicated macro situation in many parts of the world, I must say it's quite hard to predict if consumers will, and macroeconomic environments will improve in some regions, and even more so in the light of the situation in some markets like Hong Kong. This being said, we are confident that we have done a lot of improvement in the repositioning of Gucci, in all key regions. As you know, the first stages of our repositioning strategy have encompassed first product and merchandising.
Regarding those two aspects, we believe that we have brought the brand where we wanted it to be. Now our focus is more on communication as well on addressing our retail excellence, which we all know is a long journey, but we are making good progress. Our confidence is therefore higher than ever on our capacity to restore positive trends at Gucci in the near future. For the moment, the trends are positive for the retail business at Gucci, at least better than the Q3. Concerning your comments about the smaller luxury brands, as we mentioned during the speech, the performance of hard luxury is negative. It's not because of Pomellato, because Pomellato still has a high exposure to the European market, as you know. The bulk of the sales of Pomellato is in Europe.
All in all, the trends are, I would say, flat-ish at Pomellato, which is a good achievement. I think that we have acquired a solid performance considering the macro environment in Europe, and with a rebound of DoDo business. The two weaknesses we saw was first, the Girard-Perregaux, suffering, of course, of the situation of the distribution in the watch industry in Asia, especially following the change of the distribution since the beginning of the year. Also, I would remind the high comp we have at Boucheron. Boucheron had high sales of high jewelry during the Q3 2013. We have a high comp. On top of that, the Japanese market did not fully recover from the VAT increase. We saw a pickup late in September, we see now a positive trend on the Japanese market.
In July and August, the market was still negatively oriented, and Boucheron has a high exposure to Japan. We are also confident because I think that the feedback that we had on the Boucheron Biennale in Paris were very positive, and we can say that we have some sales and orders as regards the pieces that were shown during the Biennale, with a very positive trend. Finally, concerning the FX. Our hedging strategy is primarily forward contracts with no options in 2014. We will have some options in our strategy of hedging in 2015, but with more impact during the last quarter. This means obviously that at this stage, we should expect a rather negative hedging impact for the next 12 months ahead, assuming spot rates being dragged forward.
You're right to say that normally, it should have a positive impact in terms of FX on the sales. After that, you have a mix between the different regions and the different currencies. At the end of the day, if we look at the Q4, what we can see is that despite the favorable impact of the FX on the EBIT margin, at the end of the day, the hedging impact is negative for the EBIT in terms of %. We should expect still headwinds as regard the hedging impact, at least for the first half of 2015.
Thank you very much. Let me just, a very small question regarding your stake in Puma. Has it changed during the quarter?
It remained unchanged since the end of June. Since the first half, sorry.
Thank you.
Thank you. We will now move to our next question from Luca Solca from Exane BNP. Please go ahead.
Yes, good afternoon. Luca Solca from Exane BNP Paribas. A couple of questions on Gucci again and its position in China. Fully appreciate the political issues and tensions in Hong Kong and the difficult macroeconomic environment. Talking about brand-specific issues, what brand-specific issues do you see there that could be at the top of the agenda of the new CEO, and that could be improved supporting better progression for Gucci? I think, for example, about the quality of some of the store locations, and also despite wholesale streamlining, about the quality of distribution. We continue to see what appears to our eyes gray market product in a number of locations and also in high-profile locations like the Canton Road in Hong Kong. Concerning the appointment of the CEO, if I understand correctly, this looks like an internal appointment considering that it took a while.
Is it fair to conclude that you looked for an external hire, but you couldn't find one of your satisfaction? Thirdly, on lifestyle, at one point, you hinted that there could be a review of results for lifestyle and how Puma and its revival is progressing. This update seems to be indicating a good step forward. Is it fair to assume that this is the case and that your commitment to lifestyle is reinforced? Thank you.
Can you just re-elaborate on the third question, Luca, to be sure that we have properly understood?
Well, the third question had to do with the idea that you were sort of setting up a timetable to see how the cure or the new strategy for Puma could work. That you would reassess this at some point to test whether this was actually working to your satisfaction or not. This quarter results seemed a good step forward, and I was wondering whether this is sort of reinforcing your commitment to Puma and to its future development.
Thank you for providing part of the answer to the first question, Luca. No, I think that, as I said previously in the call, we made some good progresses as regard the merchandising, the replenishment policy, which is more efficient than before. In terms of stock network, you're right to mention that we may still improve, but the point is rather that in China, it will be a constant reshuffle of the network, considering the change of traffic year after year, depending on the cities and the mall. Probably we need to fine-tune, but as you know, we have three years lead. I think that now for the industry, it's a question of systematically review the quality and the traffic of the store. What we have several time pointed out is the retail excellence.
We have candidly acknowledged that the retail excellence should be at Gucci on a worldwide basis, also, especially in China. That's why also, I think that Jean-François will come back also to the appointment of the new manager in China. What is important is to improve the client experience in our store in China, and the client experience is a global experience. It's also about the visual display, the windows, the quality of the sales associate. This is clearly one of the main tasks of the new manager in China. We need to improve on that. As a result, the gray market, I think that it's something we are trying to monitor and to be sure that we are on par with our objective of improving the distribution quality of Gucci.
Part also of what we did by shrinking the deliveries to some wholesale accounts in Europe and not only in Europe. The objective was clearly to have a better control of this gray market. We cannot exclude that in some cases, you can have some situation where Gucci products are not properly exposed and sold. I think also that the job of the new managers in the region, and I can tell you they are working hard on that, is to have a better control of the distribution.
About the appointment of the new CEO, the fact is that she has been identified for a long time now. The fact is that we wanted to have a great expertise in retail. This is what we wanted to make sure that we would find this type of experience from within the group. What we have to do is to find the replacement for Merinda in Taiwan and also to set up the structure that we have in Asia, so that she will cover Taiwan also, but she will have a second in command there, who also is experienced. Also she will, I would say, be supported by a whole organization within Gucci, also within Kering. That's why we just announced a few days ago, this appointment. In fact, she's been identified for a long time.
Considering the assessment of Puma strategy, we are quite pleased with the transformation of the product engine. We also are quite pleased with the impact on the top line and the prospects that we see with the improvement of momentum in sales. Now we are monitoring the conversion of these good dynamics into EBIT and cash flow, to make sure that through time, we will also improve EBIT and cash flow.
Excellent. Thank you very much indeed, Jean-François and Jean-Marc. Merci.
Thank you.
Thank you. We now move to our next question from Mélanie Flouquet of JP Morgan. Please go ahead.
Yes, good evening. Thank you for taking the question. My first question is on Gucci. Could you maybe come back on the Gucci brand as to let us understand a little bit better what is actually declining? Because you mentioned by category, handbags are strong in North America and Japan. Women's ready-to-wear is good. Can you help us a little bit understand whether the good is an overstatement a little bit, compared to the 0% total retail? Whether there is really a very sore point in one specific category. The other question is on the Gucci brand margin expectations. There will be pressure linked to the non-repeat of the VAT gains and even a hedging loss because of the forward contracts. Can you offset that with further significant gross margin gains? Have you annualized most of your positive impact from the mix?
I think you mentioned earlier on as well that your mix is pretty much where you want it to be. Can you also get all the savings to try and understand how much pressure we can have in the second half and into the first half of next year? My last question is on Bottega Veneta, which is on retail sales of plus 10%. Do you expect this to be a sustainable level? It's still a very good performance, but was that something that penalized Q3 and won't penalize it moving forward? Thank you.
By product category, what we can say, in line with our expectations, Gucci has seen a sharp pickup in women ready-to-wear during the quarter, suggesting a strong customer reception of the recent collections starting from the fall-winter 2014 collection. This is especially encouraging as ready-to-wear is really instrumental for brand hit and traffic generation in the store, provided that the market is supportive enough. Some more aspirational categories, such as shoes, have performed strongly in retail in the third quarter. In handbags on a worldwide basis, volume trends are stabilizing as we are gradually leaping the negative impact which resulted over the past two years from the discontinuation of entry price lines. This stabilization of the volumes encompasses a nice and steady growth in the core medium and core high price ranges, driven by the solid reception of the newly launched plain leather lines.
Average selling price are stabilizing now because, as you rightfully pointed out, the breakdown between logo, non-logo, and leather and canvas is now more or less stable if you compare Q2 and Q3. Now we consider that Gucci product architecture is covering properly all the key price points compared to last year. Volumes declined very significantly in other leather categories, especially in luggage, as we are currently working on reengineering the product assortment in order to make it more consistent with the revisited brand positioning. If you strip out the categories other than the fashion and leather, and if you strip out within the fashion and leather, the luggage and small leather goods, so you are still a large part of the business. You are up mid-single digits, which was what we expected.
There is a huge impact in retail and in wholesale of the decrease of the sales due to volumes of the small leather goods category and luggage category. As regards your question about the gross margin, you're right also to say that we should see from now a stabilization of the gross margin. Still improvement now that will be driven by the price increase of the collection on a seasonal basis. In terms of product mix, the impact should be less significant as in the past when the core category, the handbags category, we have this positive impact of the improvement of the product mix. That at the end of the day, the gross margins, the bulk of the improvement was made probably during the first half.
As regards the impact of the FX on the hedging, as a reminder, we had said that in 2013, we had a positive impact of the hedging of 100 to 150 basis points compared to 2012. Initially, we had thought that we should offset this impact fully in 2014, which won't be the case, because we are still positive effect. At the end of the day, considering the recent evolution, we will have probably something around 50 to 60 basis points of impact due to the hedging, negative compared to last year.
This is over full-year basis, just to confirm, the minus 60?
No. Over the second half.
Oh, second half.
compared to the second half of last year.
Perfect. Thank you very much.
As regard Bottega Veneta, the point is that Bottega Veneta, despite being a very hot brand in many regions, especially in Asia, the brand suffered, however, of the macroeconomic and political conditions in Asia-Pacific. In fact, if you look at the performance of Bottega Veneta in retail in Europe and North America, the trends are very healthy, very sound. What was probably a little bit below was the situation in Asia, and especially in China and Hong Kong, that penalized a little bit Bottega Veneta. You know that we have a lot of initiatives which have been launched to sustain the growth of Bottega Veneta in the retail network, especially in the U.S. The reason why we are confident that over the year and for next year, we can continue to post a significant growth at Bottega Veneta.
Thank you very much for the detailed answers.
Thank you, Melanie.
Thank you.
I suggest we take the last question.
Certainly. Our final question today comes from Warwick Okines from Deutsche Bank. Please go ahead.
Yes, thank you. Good evening. Can you cope with three parts to my question? I'll tell as Yes.
Yes, we can.
I've also got two questions on Gucci and one on Bottega Veneta. On Gucci, could you just try and maybe encapsulate exactly what's happening with the Chinese consumer globally? There are lots of moving parts. You said slightly softer in Europe, Hong Kong, Macau, obviously, but stronger Taiwan, South Korea, stable in mainland China. Compared with Q2, is that a slight deterioration, or is that a stable performance for Chinese consumption globally? Secondly, can I just come back to Gucci wholesale? I appreciate your comments earlier on wholesale and also on small leather goods category just now. At the first half results call, you had said that you'd expected a flattish performance for wholesale, and it doesn't look like you're going to get to that situation. Is there anything that's changed in season that you've not mentioned that I'm missing?
Thirdly, on Bottega Veneta, wholesale has been growing a bit faster than retail this year. I'm just wondering where that growth is coming from, and in particular, if that's coming from the U.S., which is one of the markets you've highlighted as an opportunity in wholesale. Thank you.
What I said about the Chinese customers is that what is difficult to analyze is that you have a huge volatility in the consumption of the Chinese consumers. If we had to summarize the situation, what we could say is that it did not deteriorate in the local market, in mainland China. We didn't see any deterioration. No major improvement, and we didn't see any major pickup of the consumption of luxury goods in mainland China. In Hong Kong, it has deteriorated, as mentioned before. In Europe, if you look at the flows of Chinese tourists, we saw an improvement in September, but July and August were particularly weak in terms of Chinese tourist flow and consumption.
What we say is that what is really interesting is to see the transfer of some Chinese tourists to some new markets in Taiwan, South Korea, and also Japan, which increased triple-digit in these regions, or at least double-digit in some others. For the moment, these markets, in terms of size for the Chinese tourists, is something like one-third of the size of the Hong Kong market. What we can say is that globally, I would say that on the Chinese cluster, we didn't see additional deterioration. Some move from one spot to another one, but we didn't see a major improvement, and still much volatility.
As regard the wholesale, what we had not necessarily planned was the discussion that we have started in the U.S. In some of the regions to see how we could take back the operations and to operate directly some corners of some operations. When you have some transfer occurring or taking place in the first half of the year after, you have generally already some impact the year before, and especially during the second half of the year before. As I said previously, we cannot elaborate on that because we have some confidential discussion with some partners, but we may come to some additional buyback. As we always stated, we would contemplate some opportunistic buyback operations as it proved to be very efficient.
As a reminder, since we have brought back the Saks corners in the U.S., we had a dramatic improvement of the level of sales and of course of the profitability. Concerning Bottega Veneta, what we can say is that for sure the increase is mainly driven by the mature market. Europe and North America represent the bulk of the sales for the brand in wholesale. It's true that even if for the moment the sales in the U.S. were not so huge, we made some big efforts to push the brand in some wholesale accounts in the U.S. We have a significant double-digit increase in sales to the wholesale partners in the U.S., and still very dynamic sales in Europe with this objective to push the brand more with the local clientele.
That's very helpful. Thank you very much.
Thank you all for your questions tonight and your interest in Kering. Our next formal meeting will be in the second half of February when we release our full year numbers. In the meantime, as always, you can rely on Claire or Edouard to answer all your questions. We wish you a nice evening. Goodbye.