China is responsible for 30% of global spending in the luxury fashion industry, a market valued at more than $ 1 trillion USD a year. With such a large share of spending, it is not surprising to see the market affected by a slowdown in the Chinese economy.
Recently, the Chinese market experienced its slowest growth in almost 30 years. This recession has caused the typical consumer to think differently. In fact, we see people facing much more cautious spending, especially in the case of high prices such as luxury cars, electronics, and fashion.
Prada has seen a decrease in profits of 66% in the past for years according to Bloomberg‘s statistics, resulting in a loss of nearly $900 Million USD in value. The brand mainly associates this loss with a decrease in spending in Hong Kong and Macau.
As you may think, Prada is not the only company who suffered from this low spending pattern. Other high fashion brands like Gucci also took a hit, but they seem to have recovered, unlike Prada. Analysts report that this difference may be due to Prada’s inability to release new products quickly enough.
Walter Woo, an analyst at CMB International Securities Ltd, said: “We haven’t seen significant recovery in its China sales during the first two months this year after a weak fourth quarter in 2018… We still expect the business improvement for Prada will be slower than peers in 2019, as it takes time for the brand to upgrade its product design and retail operations in the country.”
Prada hopes to recover in 2019 with new releases, but only time will tell if the market will return to previous spending levels.