Prada SpA is busy in China these days. It's not just listing its shares on the Hong Kong stock exchange Friday and opening stores across the mainland. It is also increasingly manufacturing its high-end fashion there.
About 20% of Prada's collections—which range from bags and shoes to clothes for men and women—are made in China. The Milan-based company manufactures outside Italy in other cheaper countries such as Vietnam, Turkey and Romania, according to the IPO prospectus. In addition to the main Prada label, the company also owns Miu Miu, Church's and Car Shoe.
"Sooner or later, it will happen to everyone because [Chinese manufacturing] is so good," Prada designer Miuccia Prada said in an interview. She added that the Chinese are particularly good with shoes.
European luxury fashion labels such as Prada, Gucci and Louis Vuitton have built their reputations on goods crafted at home in France and Italy. Manufacturing skills there in part justify the high prices.
The temptation to move some production abroad is growing, however. The financial crisis put pressure on the industry's operating margins. British label Burberry PLC, for instance, came under fire for closing a factory at home and moving production to Asia.
And production capacity in Europe is limited. Hermès is constantly recruiting new workers in France who undergo a two-year training program. Vuitton is opening its 12th production site in France this month, but it had to close some stores early in the day last year because it was running low on stock.
But there's more than just the bottom line at stake. In Prada's home country, "Made in Italy" has become a political issue. Santo Versace, an owner of the Versace fashion house and an Italian senator, last year lobbied for a "Made in Italy" law that called for an elaborate labeling system to make a clothing item's origin more transparent. The law is awaiting approval from the European Commission.
To be labeled "Made in Italy," only a majority of the cost of an item's production must take place within the country's borders. Manufacturing in China could also backfire with the customers that brands like Prada are trying to appeal to in Asia. "Chinese consumers are ready to pay higher prices for luxury brands, but they want products not to be manufactured in China," says luxury-goods consultant Armando Branchini.
Prada's "Made in China" items aren't priced any differently than products made in Italy. A pair of woven wedge shoes were recently available for $455, the same price as Italian-made sandals.
Last year, Prada provoked debate about manufacturing abroad by announcing it would make small collections in India, Peru, Japan and Scotland. Woven ballet flats from India, Scottish tartans and alpaca sweaters sought to challenge the idea that the best products came from Italy.
Yet it was an anecdotal experiment compared with the rest of Prada's manufacturing outside Italy. Prada owns 10 factories in Italy and one in the UK, primarily for Church's shoes. Yet 80% of its goods are made by a network of 480 external manufacturers, according to documents issued for Prada's stock market debut. About 20% of the external manufacturers are located abroad.
Prada sneakers are made in Vietnam, which has developed specialized know-how in athletic shoes. Many Miu Miu bags bear a "Made in Turkey" label. Clothing such as shirts and dresses often comes from nearby countries like Romania.
Prada, which raised 16.7 billion Hong Kong dollars (US$2.15 billion) from its initial public offering last Friday, fell 2.9% in "gray-market" trading Thursday amid general market weakness.
Hong Kong-based trading firm PhillipMart's gray-market session, open to both retail and institutional investors, runs from 4:30 to 6 p.m. local time the day before a company's shares start trading on the stock exchange. Prada closed at HK$38.35 (US$4.92), below its IPO price of HK$39.50, according to PhillipMart, which said HK$9.7 million in shares changed hands. - WSJ
Written by: Christina Passariello