In China, the Devil doesn't wear Prada

By Donny Kwok

HONG KONG (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 recognisable 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 expected on Tuesday to report a 12 percent rise in profit for the six months ended July, largely due to an almost 12 percent growth in sales in the world's second largest economy.

Analysts polled by Reuters expect a 321.3 million euros profit.

Prada did not comment during its pre-results blackout period and both LVMH and Kering do not comment on their rivals' performance.

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 jeweller 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 8 percent higher so far this year, beating a 2 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." (Additional reporting by Vikram Subhedar and Alexandra Hoegberg in HONG KONG and Astrid Wendlandt in PARIS; Editing by Anne Marie Roantree and Miral Fahmy)

Latest News

  • DD documentary on Mrinal Sen handed over to filmmaker

    Kolkata, April 1 (IANS) As part of its tribute to India's living legends, Doordarshan has made a documentary on legendary film maker Mrinal Sen, the DVD of which was handed to the nonagenarian movie maker here on Wednesday. Titled "Celebrating Mrinal Sen", the four-episode documentary is primarily based on conversations between the maestro and renowned film critic and analyst Sameek Bandyopadhyay. Prasar Bharati chief executive officer Jawhar Sircar handed over the DVD to Sen and his wife …

  • Surprise! Abhishek Bachchan shoots for his special appearance in Aishwarya Rai Bachchan's JAZBAA
    Surprise! Abhishek Bachchan shoots for his special appearance in Aishwarya Rai Bachchan's JAZBAA

    One of Bollywood's hottest couple Abhishek Bachchan and Aishwarya Rai Bachchan had created their magic on screen last in GURU which released in 2007. …

  • Swastika Mukerjee and 4 Bengali bombshells who went bold in Bollywood
    Swastika Mukerjee and 4 Bengali bombshells who went bold in Bollywood

    Swastika Mukherjee has become the talk of the town because of her bold scenes and hotness quotient in DETECTIVE BYOMKESH BAKSHY! …

  • Fools' Day Special: Here's why Uday Chopra and Nargis Fakhri made us go 'aww'
    Fools' Day Special: Here's why Uday Chopra and Nargis Fakhri made us go 'aww'

    The funny man in the Chopra family, Uday Chopra (of DHOOM fame) knows how to take a dig at himself as he said that he is proud to be a fool. …

  • Ayushmann Khurrana: We actors are over pampered
    Ayushmann Khurrana: We actors are over pampered

    At the recently concluded FICCI Frames 2015, Ayushmann Khurrana confessed that actors are over pampered. …

  • Madhuri, Shriram Nene now Aquaguard goodwill ambassadors

    Mumbai, April 1 (IANS) Bollywood actress Madhuri Dixit Nene and her husband Shriram Nene have been roped in by Eureka Forbes, a pioneer in the water purification systems market, as the goodwill ambassadors for Aquaguard for a five-year term. …

  • All decks cleared for 'Komban'

    Madurai, April 1 (IANS) The Madras High Court bench here on Wednesday refused to pass an interim injunction restraining the makers of actor Karthi-starrer Tamil rural actioner "Komban" from releasing the film in cinemas. Justices S. Tamilvanan and V.S. Ravi turned down a petition filed by Puthiya Tamilagam president K. Krishnasamy seeking a stay on the film's release, claiming it's based on a clash between two castes and could possibly affect the law and order situation in the state. …

  • Ekta Kapoor to turn 'maha judge' for 'Nach Baliye 7'?

    Mumbai, April 1 (IANS) After a long search for a fourth judge for "Nach Baliye 7", producer Ekta Kapoor might herself step into the chair to complete the quartet of judges for the forthcoming dance reality TV show. Bollywood beauties Vidya Balan and Kareena Kapoor Khan were also approached for the spot, but nothing concrete is said to have come out of the talks so far. Other than judges, "MasterChef India 4" judge Ranveer Brar is also expected to join the contestants with his wife Pallavi. …

Loading...