Prada, the Italian luxury fashion house, has reported slowed earnings for Q3FY15. To put the scale of slowdown in perspective, Prada has seen its net profits fall beyond the trade estimates in key markets like Hong Kong and Macau in the three months through October. The trend is actually an extension of Prada’s slow performance for the first months of the year. On the whole, Prada brand sales fell 8.9 per cent currency-neutral.
Although Prada continues to be a fashion influencer with widely praised collections season after season, the high prices of the label’s merchandise and low sales of leather goods (known for plush margins) have weighed down Prada’s performance. Sales in the leather goods segment have fallen 11.6 per cent this year.
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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.
However, in 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. The Prada CFO Donatello Galli agreed to it in a conference call with analysts that the market is still tough for the luxury sector. In order to improve the business, Prada will be adopting standardised prices across various markets to nullify any advantages deemed by buyers in hopping on a plane to buy in bulk in countries where the products cost less. Prada will open only 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.
