Prada: Tourist spending falls

Prada SpA reported last Sunday its full-year sales report. Chinese and Russian tourists don’t that easily spend $2,950 for leather handbags and other luxury Prada products anymore. Revenue fell 1 percent to 3.55 billion euros ($4 billion) in the 12 months through January, the Milan-based owner of brands including Miu Miu and Car Shoe said Sunday; analysts predicted 3.57 billion euros, according to the median analyst estimate compiled by Bloomberg.

While companies from LVMH Moet Hennessy Louis Vuitton SA to Hermes International SCA have also been weighed down by slowing demand, Prada didn’t react fast enough to changes in consumer behavior, particularly around price, according to RBC Capital Markets analysts. Profit margins will remain under pressure in the second half, Prada said in December as it announced plans to open fewer stores in fiscal 2016 and to introduce more bags priced between 1,000 euros and 1,200 euros. The slowdown in sales has gained pace since nine-month results, when net revenues dropped 0.9 percent.

The luxury-goods sector has been hurt by a weaker China market after the government there began cracking down on corruption and gift-giving. Economic weakness in Europe has also weighed on the houses’ financial performance. Sales in the Asia-Pacific region fell 7% compared with the previous year, affected by weakness in Hong Kong and Macau, where performance deteriorated significantly in the second half of the year, the Hong Kong-listed company said.

Prada’s namesake brand, which accounts for more than 80% of overall revenue, saw sales fall nearly 2% on the year compared with a 32% rise in 2013. Sales at Miu Miu, Prada’s smaller and more-edgy fashion brand, rose 4%, increasing in all markets except Europe, the company said. “The different timing of Chinese new year also affected performance for the month of January throughout the Greater China area”, Prada said in a statement. Patrizio Bertelli, chief executive and co-founder of Prada, said: “Throughout 2014, we operated under a geopolitical and monetary environment which was more uncertain and complex than could have been envisaged”. 

Mr Bertelli added that the group would pay close attention to costs “in order to safeguard profit margins and yield satisfactory returns on investments”.