Scenario 1

Does the Devil Really Wear Prada?

The Prada Group is one of the top luxury businesses in the world. It is a closely held firm. The company previously considered going public in the form of an IPO to acquire capital for future expansion. However, the company recognized that an IPO would force the company to deal with outside shareholders, and alter the ownership structure of the organization. Further, the company had to also make decisions regarding where an IPO should be offered. Some advocated a listing on the Milan Stock Exchange, and others in Asia, which is closer to future growth markets. The China market was particularly appealing. The company eventually opted for an IPO in Hong Kong. As we moved into 2016, Prada has suffered for a variety of reasons. Persistent weakness in Hong Kong has really hurt Prada sales. Tighter visa restrictions on Chinese shoppers who looked to Hong Kong as the place to shop pushed a lot of Chinese shoppers to Europe. However, the terrorist attacks in Paris dramatically reduced the flow of Chinese tourists to Europe. The economic slowdown in China coupled with a rise in the Hong Kong dollar, which is pegged; to the United States also hurt the sales of Prada and other luxury brands.

1. What do you feel are the best justifications for Prada to issue the IPO in Hong Kong? Are there any downsides to their decision to list in Hong Kong?

2. Given the downturn in the economy in Hong Kong and China, what do you think Prada's future is in the region?