Italian fashion house Prada could have selected its hometown of Milan, London or New York to host its long-awaited IPO. Instead, it chose Hong Kong.
The owner of Prada, Miu Miu and Church’s brands listed on the Hong Kong Stock Exchange on June 24, climbing 1.3 per cent on its first day, after pricing its IPO at HK$39.50 (A$4.70) a share.
Prada, which chose 1913 as its stock code – Hong Kong uses numbers not letters – in recognition of the year it was founded by Miuccia Prada, ended its first day as a listed company worth HK$101 billion, making it among the world’s most valuable listed luxury goods companies.
What was unusual about Prada, is that it picked Hong Kong for its initial listing.
But in another sense, Prada became part of the growing trend for prestigious western consumer brands to see Asia as a place to sell shares as well as luxury goods. For not only is listing in Hong Kong a vehicle to access the rising Asian equity investor, selling shares in Asia acts as a marketing tool into a region that is the world’s fastest growing market for fancy brands.
Eight days before Prada listed, US luggage maker Samsonite International debuted in Hong Kong, falling 8 per cent in its first day, after raising HK$9.7 billion by selling its shares. The listing of Samsonite, which took the ticker 1910 for the year it was founded in Denver by Jesse Shwayder, also occurred during turbulence on global financial markets.
Samsonite’s market cap in Hong Kong listing was worth HK$21 billion the day Prada listed. Samonsite’s primary listing is the US.
More western consumer companies are expected to list in Asia. US leather goods maker Coach, Italian motorcycle maker Ducati and the UK’s Burberry are reported to be planning to list in Hong Kong.
If so, they would follow the footsteps of French cosmetics and perfume firm L’Occitane International, which raised about HK$5.5 billion selling shares to investors in an IPO in Hong Kong last year. L’Occitane listed on May 7 last year, to become the first French company to be traded on the Hong Kong Stock Exchange. L’Occitane’s market cap in Hong Kong was HK$27.9 billion the day Prada listed. The company’s primary listing is France.
LUXURY GROWTHThese foreign consumer companies are listing in Asia because they expect a substantial part of their sales growth to come from the region.
Goldman Sachs predicts the BRICs consumer could become as big as the US consumer by the end of this decade, in real and nominal terms, and that China will be the star (See Note 1). It reckons that in 15 years, China could be the world’s largest luxury goods market, accounting for over 30 per cent of global luxury sales, from 7 per cent now.
Hong Kong-based CLSA Asia-Pacific Markets predicts that over the next decade China’s luxury goods market could be worth US$100 billion, up from US$12 billion in 2010.
One reason is that the Chinese like to flaunt their new-found wealth by decorating themselves with branded handbags, clothing, watches and jewellery.
Prada, which operates Prada and Miu Miu stores, generated 32 per cent of its revenue from Asia Pacific (ex-Japan) in the year to January 31, after boosting sales in the region by 62 per cent over 2009 (or 35 per cent on a like-for-like basis).
Over the 12 months, Prada opened 17 stores in the region, to take the number of Prada group stores in Asia Pacific to 104, one third of the group’s network. During the period, two stores (one Prada and one Miu Miu) were opened in Shanghai, a Prada store opened in Chengdu and two stores (one Prada and one Miu Miu) were opened in Singapore. China, Hong Kong and Macau contributed more than 58 per cent of net sales in Asia Pacific, while recording growth of 69.1 per cent over the period. Sales in South Korea surged 68.2 per cent (See Note 2).
For Samsonite, Asia is already its most profitable region and home to three of its top five markets by net sales (China, India and South Korea). Samsonite’s net sales in Asia, which accounted for 33.3 per cent of its total net sales in 2010, increased by 45.1 per cent over 2009. Market research company Frost & Sullivan forecasts Asia’s travel market to expand 11.5 per cent a year from 2010 to 2015.
The boost to sales from Asia is not unique to Prada and Samsonite. So expect more western brands to list in Hong Kong to access Asian capital while marketing themselves. Though probably few western companies will snub European and US markets as Prada did and make Asia their only – or at least first – listing.
NOTES
1 – Goldman Sachs Strategy Series. “The rise of the BRICs and the N-11 consumer.” 3 December 2010. http://www2.goldmansachs.com/gsam/docs/fundsgeneral/general_education/economic_and_market_perspectives/20101203_strategy_series.pdf
2 – Prada Group. Annual Report 2010. http://www.pradagroup.com/assets/pdf/english/2010%20Annual%20Report_PRADA%20spa%20Group_ENG.pdf
Michael Collins is investment commentator at Fidelity.
