It’s doom at gloom at Italian luxury fashion house Prada, who has seen its
share price hit a new low.
The company saw its net profits fall further than anyone had expected with
business in key markets such as Hong Kong and Macau deteriorating in the
three months through October.
Not that the year as a whole has been , but the
problems seem to have accelerated in Q3 as a comparison with the figures
for the first nine months of the year show.
So what’s the problem? Prada is still undeniably a fashion influencer with
widely praised collections season after season. But its costs are very high
and the fact is that it’s selling fewer leathergoods (where the margins are
particularly high) than it would like. Sales in that segment have fallen
11.6 percent this year.
Prada’s problems in China have been coming from all angles with the overall
economy being weaker, a government drive to discourage conspicuous
consumption eating into sales and this summer’s currency devaluation
meaning fewer mainland Chinese tourists stopped off in Hong Kong to shop.
And the problems appear to be Prada-specific with Miu Miu still growing,
albeit much more slowly than in the past. In the nine-month period, Prada
brand sales fell 8.9 percent currency-neutral, while Miu Miu edged up 0.9
percent.
So was there any good news? Yes, of course. Q3 Europe and Japan both grew
as tourists took advantage of the weak euro and Japan continued its luxury
bounce-back. But in the US, the strong dollar hurt the business.
CFO Donatello Galli said on a conference call with analysts that the market
is still tough for the luxury sector.
So what’s Prada doing to improve business? One step is to standardise
prices across various markets so there’ll be no advantage in hopping on a
plane to buy in bulk in countries where the products cost less. Analysts
have said that ‘price gaps’ are a big problem for the luxury sector in
general, not just Prada.
Prada will only open 10 stores in the year ahead and may even close some.
Ten might sound like many, but compared to last year, where it opened 54
new stores in the year to January 31 2015, it is a significant decrease in
expansion.
Image:Prada AW15 campaign