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.
TEXT SIZE - +
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

Photogallery Pope's Easter Prayer: Peace in Ukraine, Syria

Pontiff also calls for end to terrorist acts in Nigeria, violence in Iraq, and success in peace talks between Israelis and Palestinians More

Abdullah Holds Lead in Afghan Presidential Election

Country's Election Commission says that with half of the ballots counted, former FM remains in the lead with 44 percent of the vote More

Russia-Ukraine Crisis Could Trigger Cyber War

As tensions between Kyiv and Moscow escalate, so too has frequency of online attacks targeting government, news and financial sites More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.