News / Economy

In China, the Devil Doesn't Wear Prada

Shoppers walk past a Prada store at Hong Kong's shopping Tsim Sha Tsui district, Sept. 16, 2013.
Shoppers walk past a Prada store at Hong Kong's shopping Tsim Sha Tsui district, Sept. 16, 2013.
Reuters
The Devil, it seems, wears anything but Prada in the eyes of Chinese bloggers determined to expose corrupt government officials flashing luxury labels way past their pay grades.
 
Prada is among a few premium brands reporting solid growth in the world's second largest luxury market even as a government campaign against conspicuous spending and gift-giving hurts firms with instantly recognizable brands like LVMH, Compagnie Financiere Richemont and Kering SA.
 
The logos on Prada's deluxe leather handbags, wallets and shoes are, by and large, low-key and these days, discretion is key in China.
 
This month, the government jailed a provincial official for 14 years for corruption after pictures of him wearing expensive watches - including what bloggers said was a Vacheron Constantin - became a hit on the Internet, earning him the nickname “Brother Watch”.
 
Richemont owns several leading luxury watch companies including Vacheron Constantin, Cartier and Piaget, and earlier this month said demand in China had weakened.
 
“Some companies, like Richemont, had a lot of exposure to sectors that have taken a big hit in China this year, especially luxury watches,” said James Roy, senior analyst at China Market Research Group in Shanghai.
 
“Many luxury clients here are moving away from more loud or bling-focused luxury brands like Gucci or Louis Vuitton, towards things that are a bit more subtle and sophisticated without the flashy logo,” he added.
 
LVMH's Louis Vuitton and Kering-owned Gucci, which won over legions of fans with their visibly branded products, have recently moved away from the logo-look and are now offering more upmarket leather handbags.

Prada is confident about China, its biggest market, even though sales slowed in the first half, the luxury Italian fashion house said on Tuesday.

The Hong Kong-listed group, whose first-half net profit fell short of expectations, said appetite for its colorful leather handbags in China, particularly in second-tier cities where it was opening shops, was showing no sign of abating.
 
"China is performing in a very good way and growth is still very high," Chief Financial Officer Donatello Galli said on a conference call on Prada's first-half results. He said
investment plans in the country remained unchanged.
 
Sales growth in Greater China, including Hong Kong, slowed to 20 percent in the first half from 35 percent a year ago.
 
Greater China, including Hong Kong, makes up 21 percent of Prada's revenue.

Cracking China
 
The shift away from in-your-face luxury brands is most prominent in big cities such as Shanghai and Beijing, where many companies have their biggest stores and where customer tastes are rapidly evolving.
 
Logos, however, are still very popular in China's vast interior, where luxury labels are still a novelty, analysts say.
 
“Prada really offers an alternative to Louis Vuitton and Gucci from a customer's choice perspective. They are a third choice, an understated choice for people who stay away from logos,” said Franklin Yao, CEO of Shanghai-based consultancy SmithStreetSolutions.
 
Another plus factor for Prada is its pricing -  many handbags and wallets are less expensive than the equally discreet offerings by Kering-owned Bottega Veneta, whose woven leather goods are also gaining popularity in China.
 
“What I am looking for is bags with great quality, low-profile, which means the logo should be smaller,” said Chloe Chen, a 23-year-old college graduate in Shanghai. “As for brands, I don't like those known by the majority, such as Burberry, Gucci, LV. Personally speaking, LV or Gucci are a little out of fashion.”
 
Other luxury brands that are doing well in China include jeweler Tiffany & Co., which has benefitted from the rising demand for diamonds among couples, Burberry Group Plc and leather goods maker Coach.
 
Investors sensing the shift in China's luxury market have also helped propel Prada's shares eight percent higher so far this year, beating a two percent gain for the benchmark index.
 
Prada, at 22.6 times forward earnings, is more expensive than Burberry and LVMH but earnings growth expectations are higher: on average, analysts expect Prada's earnings to grow a fifth next year, or about 50 percent quicker than LVMH or Burberry.
 
“From a valuation perspective, we maintain that although the PE does not look appealing, Prada remains the most interesting stock in the luxury sector from a 'price to growth' point of view,” HSBC wrote in a research note last month.
 
“Prada is an Asia Super Ten stock.”

You May Like

Arab League Delays Forming Joint Force

Delay grows out of one of original obstacles facing pan-Arab force, analysts say: 'They may agree on the principle, but they continue to argue about how to implement the project' More

Pakistan Demands Afghanistan Protect Its Kabul Mission, Staff

Officials in Islamabad say Afghan agents are harassing Pakistani embassy personnel, particularly those living outside of mission’s compound More

US Survey: Trump Lead Grows in Republican Presidential Contest

Quinnipiac University poll shows brash billionaire real estate mogul with 28 percent support among Republican voters More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs

World Currencies

EUR
USD
0.8770
JPY
USD
119.68
GBP
USD
0.6414
CAD
USD
1.3265
INR
USD
66.194

Rates may not be current.