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Prada Lacks Strong Brand Loyalty in China: Analyst

Italian fashion house Prada posted small gains on its trading debut in Hong Kong on Friday, and one analyst says he wouldn’t buy its shares right now because the retailer simply doesn’t have the same level of recognition in China as other luxury brands.

The Prada store in Milan, Italy.
Getty Images
The Prada store in Milan, Italy.

Shaun Rein, Managing Director at China Market Research Group, told CNBC that luxury brands such as Louis Vuitton and Gucci have greater brand loyalty in the mainland.

"Girls always tell us when they want to buy a bag, it's got to be a Louis Vuitton or Gucci first," Rein said. "Prada's going to do well but it's not going to take the [market by] storm."

The Chinese government is reportedly planning to reduce import duties on luxury items, a move that would encourage consumers to shop at home rather than on foreign visits. Such a move would benefit brands that have more stores in China than Prada, says Rein.

Rein is also concerned that Prada's stock is expensive when compared to its peers, a fact highlighted by several analysts recently.

"That's why we are more bullish on Louis Vuitton, which has a PE ratio of about 18 versus Prada which is going around 23 right now," Rein said.

Chinese consumers will buy an estimated $15.6 billion worth of luxury items this year, according to Rein, up about 20 percent from 2010.

Rein says Prada's Hong Kong shares may face a tough time as investors continue to look to reduce exposure to Chinese stocks.

"Overall people are concerned about whether inflationary problems in China are going to stop the consumption growth story."

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