Prada China sales slump down to 'tarnished' image

07 April 2015

Qing Wang, Professor of Marketing and Innovation, believes a drop in sales figures in the Asian market shows Prada is the latest luxury brand to fall foul of a change in attitudes towards luxury products from Chinese consumers.

The Italian luxury goods retailer has seen its net profit slump more than a quarter (28 per cent) on last year’s figures, with many blaming the sharp drop on a decreasing demand from markets in Europe and especially China.

This is mainly down to the firm failing to understand what the emerging new wealth market in China really wants, resulting in its luxury brand image becoming somewhat tarnished argues Professor Wang.

Professor Wang said: "While to some observers the significant sales slump of Prada goods in China might seem big, almost unexpected, news, it is not actually that surprising. Big logo luxury brands such as Gucci, Louis Vuitton and now Prada have all suffered from this same fate.

"These well-known luxury brands have grown too fast in the recent years, eager to cash in on the rise of the Chinese new wealth, without a sufficient understanding of the market dynamic, which has now resulted in their exclusive image becoming somewhat tarnished in that market”.

The Asia-Pacific market is Prada’s biggest market, accounting for more than a third of the luxury good retailer’s sales at over 35 per cent – making the latest figures even tougher for the firm to take.

"This does not however mean that the Chinese are falling out of love with luxury, as many luxury brands are doing better in China, such as Hermes and Burberry. Instead they are becoming more sophisticated and discerning and buying luxury more for their hedonic pleasure than for showing off,” added Professor Wang.

“The Chinese are also novelty seeking and brands like Prada, Gucci, and Louis Vuitton have to up their game by coming up with truly innovative products or they risk becoming ‘too ordinary’.”

Fashion houses therefore need to have a look at whether their products are actually still interesting enough for wealthy people to buy argues Professor Wang.

Prada shop in Beijing
The lights are on: Prada sales down due to changing customer tastes in China argues Professor Wang. Image: Flickr

 

Professor Wang added: “Another important trend in the Chinese luxury market is taste has shifted from merely owning a  luxury item, to knowing the stories behind it and enjoying an authentic experience; and what better way to do this than travelling to the countries of origin?”

This trend is illustrated by the rise of overseas luxury spending by Chinese consumers, with a nine per cent increase to $81 billion reported for 2014. 

Chinese consumers are travelling more than ever, spending $129 billion on international travel during 2014 alone.

Consultancy firm Bain & Company also reports consumers travelling overseas accounted for 55 per cent of luxury spending last year, and purchases through relatives, friends, and professional agents called ‘daigou’ made up another 15 per cent. 

Chinese consumers now account for 29 per cent of luxury spending worldwide. The entire global luxury market is worth an estimated $250 billion.

London, also, has experienced a surge in Chinese shoppers. In the city’s West End, travellers from China now account for more than 20 per cent of all spending by tourists.

Last February, sales on Bond Street to Chinese consumers accounted for 27 per cent of the total tax-free spending with an average transaction value of £1,500.

Professor Wang added: “As the Chinese consumers seek hedonic pleasure to reward themselves rather than to show off to the others, big logo brands such as Prada, known primarily for their conspicuous value and as a status symbol, have to rethink their strategy in China.

“The era of making easy bucks on the back of the ‘face’ and a ‘fat pocket’ is now truly over.”

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