Prada to open 80 more stores worldwide in next 12 months

Overseas purchases by travelling Chinese will make up for falling luxury sales on the mainland

PUBLISHED : Tuesday, 14 January, 2014, 1:58pm
UPDATED : Wednesday, 15 January, 2014, 4:42pm

While it expects growth in the mainland luxury market to slow down, Italian fashion giant Prada plans to press ahead with its strategy of opening more stores around the world, even though analysts warn that could hurt profitability.

Carlo Mazzi, deputy chairman of the Hong Kong-listed company, said it would add about 80 stores globally this fiscal year, spending €350 million (HK$3.7 billion) to drive future growth.

The mainland would remain a prime destination, with 10 to 15 new stores, largely Prada and Miu Miu, taking the total to around 60, according to Mazzi.

However, analysts have raised concerns about the impact of the central government's campaign against extravagant spending by officials on the mainland's luxury goods sector.

"Chinese people are travelling more and more and increasing very much their [purchases] abroad, [while at the same time spending] a little less on luxury goods in China," Mazzi said on the sidelines of the Asia Financial Forum in Hong Kong. "But their [purchases] are continuing to grow very fast overseas."

He said that was good for the company because "we are not selling food, which people buy where they live. We're selling luxury goods, which people buy on their holidays."

Prada, a leather goods and ready-to-wear brand the family of chairwoman Miuccia Prada set up in Milan in 1913, now operates 31 Prada stores and 15 Miu Miu stores in first-tier mainland cities or coastal regions.

Mazzi said future stores would be located in second- or even third-tier cities such as Urumqi in Xinjiang, where there was a growing population of big spenders and an appetite for luxury handbags.

Analysts expect the mainland's economic growth to taper off to 7 per cent this year from an estimated 9 per cent last year, which was still "great", said Mazzi. "We continue to think China is an economy which can expand because of its large population."

In the nine months to the end of October last year, Prada's net sales for the China region grew 14.8 per cent to €592.6 million, accounting for nearly a quarter of the group's sales.

The group's net income was 7.9 per cent higher at €440.9 million in the nine-month period.

"If we did not open stores many years ago in China, today we would not have got the results," Mazzi said.

However, brokerages such as Bank of America Merrill Lynch, JP Morgan and Macquarie Equities Research have downgraded the stock and its target price after being disappointed by Prada's third-quarter performance.

A recent Macquarie research report, which cut its 12-month target share price 16 per cent to HK$49.50, said Prada's sales per store had declined between August and October last year, which together with the pace of opening 80 stores globally a year, might put its profit margins "at risk".

The brokerage said Prada recorded same store sales growth of 7 per cent in the three months to the end of October, the same as the previous quarter and down from 8 per cent growth in the first quarter.

The stock closed down 0.83 per cent yesterday at HK$65.65.