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Prada lowers China prices, joining Hermes, Gucci and peers

Move follows tax cuts and likely to shift luxury shopping from overseas to mainland

People walk past a Prada boutique near Beijing's Wangfujing Street.   © Reuters

HONG KONG -- Italian luxury retailer Prada Group has lowered prices in China by around 3% following tax cuts that are expected to lift Chinese consumer spending.

The price cut, which took effect Monday for all products under the Prada and Miu Miu brands, comes in response to Beijing's recent decision to lower the value-added tax from 16% to 13% on sales of imported goods, the Hong Kong-listed company said.

China aims to boost consumer spending after its economy grew at the slowest pace in 28 years during 2018. China's overall growth in consumption slowed to 9% last year from 10.2% in 2017, hampered by sluggish sales of big-ticket items including cars and home appliances.

Prada followed similar moves by other consumer companies targeting high-end buyers in China, including U.S. smartphone maker Apple, German automaker BMW and Daimler's Mercedes-Benz, as well as other luxury labels such as Hermes, Gucci, Louis Vuitton and Piaget.

The share prices of European luxury brands have faced pressure since last year, as China has represented the most important luxury market during the past decade. Prada made 22% of  its 2018 global sales in greater China, including Hong Kong, Macao and the mainland.

Prada's shares in Hong Kong lost 40% of their value over the past year.

Analysts think the price cuts will divert luxury purchases from overseas back to mainland China.

"[The price cuts] should further narrow the price gap between mainland and overseas markets," said Mariana Kou, a Hong Kong-based analyst at investment group CLSA. But she expects only a "mild" impact on sales, given that the price cut is just 3%.

Though Chinese buy roughly one-third of the world's luxury goods, about 75% of purchases were made outside the country, Boston-based consultancy Bain & Co. estimates. Mainland Chinese spent over $115 billion during more than 130 million overseas trips in 2017.

As U.S.-China trade frictions rein in the growth of Chinese exports, Beijing has grown more determined to bring consumption home.

The new round of price reductions dealt another blow to the once-booming daigou business of buying goods overseas for resale in China.

Since October, however, the authorities have conducted tighter border checks for undeclared luxury goods bought by Chinese travelers overseas. In January, Beijing implemented an e-commerce law that requires those professional buyers to register as e-commerce operators, obtain licenses in both China and the country in which they shop as well as pay the related taxes.

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