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Prada warns tough times for luxury goods aren’t over

Luxury Retail Economy In London's West EndLuxury Retail Economy In London's West End
Chinese frugality has left Prada more dependent on the Foreign Devils.Photograph by Chris Ratcliffe — Bloomberg via Getty Images

Prada SpA (PRDSY) warned that the luxury goods sector’s poor run isn’t over, as it announced third-quarter profits well below expectations.

The Milan-based group, whose fiscal third quarter ended in October, said its sales fell 6% from the previous quarter, due largely to disruptions to its business from the pro-democracy protests in Hong Kong, where its stock is listed. That left net profit for the first nine months of the fiscal year down 28% from a year earlier at €319 million ($392 million).

“The difficult economic and political conditions that have adversely impacted the consumer’s attitude are not easing,” the group said in a presentation of its results, in a reference not only to the Occupy Central protests, but also to the nationwide crackdown on corruption by President Xi Jinping’s government.

That campaign has led to a sharp drop in excessive consumption, particularly by officials and their families. Prada also noted a sharp drop in sales in Macau, home to China’s increasingly empty casinos.

“The luxury market is undergoing a reshaping phase, the extent and nature of which is not yet entirely clear,” the company said, hinting at problems even beyond China.

Sales in Greater China so far this year are down 4% from a year earlier, while those in Prada’s home market of Europe are down 2%, suffering from depressed domestic consumption and from lower spending by tourists (notably the once free-spending Russians). Sales in the Americas are up 6%, meanwhile, while the Middle East generated a 10% increase, but even together, those regions generate barely half of the money that Prada gets from Greater China.