Prada Grew Nearly 50% In The First Half Of The Year, But It Still Lost Blood In The Chinese Market.

After a radical first half of the year, Prada delivered a fairly good financial report.

In the first half of June 30, 2019, Prada Group recorded 1 billion 570 million euros in sales, up 2% from the current exchange rate, down from 3% in the same period last year. Thanks to the tax agreement signed with the Italy government, Prada group's net profit rose 155 million under the preferential tax policy, which rose by 46.6%.

Despite a slight decline in overall revenue growth, Patrizio Bertelli, the group's chief executive, said that Prada is still moving in a positive direction after its earnings announcement and believes that the strategy of reducing wholesale channels and promotional activities is playing an important role.

But this is still not the time for the Prada group to relax. Although there has been a marked improvement in profits, the growth rate may be slower than expected if the tax preferences are excluded.

And the income of every brand within the group has not increased enough to be reassuring. Core brand Prada grew by only 1%, while Miu Miu showed a 8% decline. In the specific category, the clothing series still contributes to the group's main sales volume, but as the contemporary luxury brand revenue support department shoes and bags sales have declined to varying degrees.

But with slower real growth, more worrying is the Prada group's losing momentum in the Asia Pacific market. In the 2018 annual report released in March this year, 10% of the profits were also attributed to many analysts' insipid performance in the Chinese market. In the half yearly earnings report, the Prada group's revenue in the Far East market and the Greater China market recorded a decline of 6% and 5% respectively. The growth from 7% in the European market has become one of the few driving forces to support the group's revenue growth. For this phenomenon, the details of the financial report are attributed to the social problems in Hongkong, China, and the mainland market still maintains a positive growth trend.

In a luxury brand that has recently disclosed half yearly earnings, Prada's performance in the Asia Pacific market, especially in the Chinese market, can be quite different. From the LVMH that has been developing steadily to the Burberry that has been radically transformed in the same year, they have gained a positive growth figure in the Chinese market, that is, the Gucci which is slowing down, and the growth rate of the Asia Pacific market is still 23%.

Faced with such a problem, Prada's strategy is to speed up the process of electronic commerce and vigorously reform sales channels, and launch a series of new initiatives against the Chinese market.

One of the most important concerns is the appointment of Cai Xukun, the champion of the variety show idol trainee, as the brand spokesperson. Because of the controversy caused by Cai Xukun on the Chinese Internet, it is considered to be one of the most radical brand strategies of the brand in recent years. But according to the list of entertainers' commercial value released in the first half of the year by AI man consulting, Cai Xukun still brought fourth achievements to the brand with a strong fan appeal. Since the announcement of the endorsement had reached June 6th, how much Cai Xukun could bring to the Prada market from China would need to wait until the next earnings announcement.

Meanwhile, a man's show in Shanghai's people's Wharf also brought a lot of attention to Prada. This is the first time that the brand has been held in China for men's wear, and has become one of the most important fashion events in China in June, like Fendi and Chlo's Shanghai show. The show is believed to help Prada further search for brand ties with Chinese consumers.

The subsequent announcement of the luxury goods business Temple library is an important move for Prada to embrace online business. There is no doubt that online e-commerce has become one of the fastest growing channels for luxury brand sales, and is also the most direct and boundary way for brands to reach the younger generation. Although the Group Chairman Patrizio Bertelli has been skeptical about e-commerce, this year's cooperation with Oracle and temple libraries has shown that Prada, who has lagged behind other brands in online competition, is catching up.

In the global market, the focus of Prada group reform is still on the reform of sales channels and ways. Patrizio Bertelli said that reducing the distribution channel could help the brand to strengthen its control power and reduce the profit slide and image damage caused by unnecessary price reduction. The dilution of luxury value caused by excessive supply has become one of the key issues in today's industry. When Hermes announced the expansion of scarf production in May this year, it has been pointed out that the scarcity of luxury goods will damage the brand's long-term development as early as possible.

It is not difficult to see that the reform of Prada group is still not over. However, as a few brands with sustained decline in the luxury industry during the period from 2016 to 2018, the Prada group may face greater challenges when this wave of growth is about to slow down.

After yesterday's earnings announcement, Prada group quoted HK $24.05 at the close of HKEx, down 0.82%