Prada Bagmaker Sitoy Plans China Production Boost to Meet Demand

Sitoy Group Holdings Ltd. (1023), which makes Coach Inc. (COH) and Prada SpA (1913) handbags, plans to boost production capacity by 50 percent over two years as luxury brands move more manufacturing to China to cut costs.

The company is building a new plant in Yingde, Guangdong province and aims to boost capacity to 24 million handbags in 2014 from 16 million last year, Teras Yeung, chief executive officer of the Hong Kong-based contract manufacturer said in an interview.

Demand for high-end purses is climbing in China, defying slower global economic growth and prompting bagmakers to localize more production, cutting transportation costs and delivery times, Yeung said June 25 in Hong Kong. The global market for outsourced manufacturing of luxury bags and small leather goods is likely to grow to $6.8 billion in 2015 from $3.8 billion in 2010, Sitoy estimated in its initial public offering prospectus last year, citing a Frost & Sullivan report.

“As Asia is the growth market for many European luxury brands, it makes a lot of sense for them to outsource in China where they can save costs on logistics and labor,” Yeung said. Sitoy expects to add two or three customers a year, he said.

The manufacturer, whose prospectus also lists Michael Kors Holdings Ltd. (KORS), Fossil Inc. (FOSL) and Tumi Holdings Inc. (TUMI) as clients, expects rising demand will hold up amid a dip in economic growth. China yesterday cut benchmark interest rates for the second time in a month to combat a slowdown in the world’s second-biggest economy.

“Consumers may delay the purchase of a posh car, but they won’t put off buying a nicely designed luxury handbag,” Yeung said.

Shares Rally

Sitoy raised about HK$736.3 million ($95 million) in an initial public offering last year, according to data compiled by Bloomberg. Italian fashion house Prada owns 4.9 percent of the company.

Sitoy gained 0.9 percent to HK$3.54 as of 11:04 a.m. in Hong Kong trading. The shares have risen 20 percent from their IPO price of HK$2.95. Prada, which also started trading in Hong Kong last year, is up 30 percent from its offering price of HK$39.50.

The global luxury handbag and small leather goods retail market is expected to grow to $82.9 billion in 2015, representing a compounded annual growth rate of 9.4 percent from 2010, Sitoy said in the prospectus citing Frost & Sullivan.

Coach, a client for 15 years, accounts for more than 50 percent of Sitoy’s revenue, making it the manufacturer’s biggest customer, the company’s filings show. Coach said in an e-mailed statement it doesn’t comment on strategy with individual service providers. The company regularly reviews its sourcing strategy, Coach said.

Sitoy posted a 15 percent jump in net income to HK$178 million and a 35 percent rise in sales to HK$1.62 billion for the six months ended in December.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net

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