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Prada: Making the Most of Its Moment

In the midst of a recovery buoyed by hot product, the long-struggling Italian house is pushing forward in the US with a revamped e-commerce site and a resort show in New York. Can it catch up with its peers?
From the Prada Cloudbust campaign. | Source: Courtesy
  • Lauren Sherman

NEW YORK, United States — Early on Friday evening, ardent fashion fans will "swipe up" to watch the live stream of Prada's Cruise 2019 runway show, taking place in a former piano factory that serves at the Italian house's US headquarters.

The main attraction? Unlike many designers whose work stales as their worlds become smaller and smaller, Miuccia Prada's calling card is cultural relevance — a zeitgeist-savvy sensitivity to what's happening beyond her bubble. It makes for clothes that oftentimes set the fashion agenda.

But relevance beyond runway collections has eluded Prada over the past few years. The brand has suffered from missteps in footwear — a major growth opportunity — and a handbag offering that has been deemed too expensive. "Prada is not Chanel," Exane BNP Paribas analyst Luca Solca wrote in September 2017. "Lower price points are a part of its DNA — and essential if the company is to get organic growth back on track." Prada has also struggled to fine tune its retail experience both off and online, where it has long been a laggard. In the year ending January 2017, net sales at the Prada Group — which includes Prada, Miu Miu, Church's, Car Shoe and Pasticceria Marchesi — were just over €3.1 billion, down 11 percent from the year before.

While Prada has yet to return to growth, the company has since posted better results. In the fiscal year ending January 2018, net sales were €3.1 billion, down 2 percent year on year, with sales of ready-to-wear up 10 percent in the second half of the year. The group also reported double-digit growth in its wholesale business — mostly driven by e-commerce sales — as well as an increase in its gross margin (73.5 percent vs. 72 percent in 2016).

In the US, still the world’s largest consumer market, revenue was down 4 percent in 2017, but the company reported sales had picked up by the end of the year, buoyed in part by newfound consumer interest in Linea Rossa, also known as Prada Sport — a lower-priced, nylon-heavy collection that helped define the 1990s aesthetic. (Discontinued in the mid-00s, it’s officially re-launching for the Autumn/Winter 2018 season, although the brand has already reintroduced or refreshed many of its nylon accessories, such as the iconic fanny pack.)

Prada nylon campaign. | Photo: Willy Vanderperre

“Our research suggests that Prada has further strengthened its entry- and mid-price offerings,” said John Guy, an analyst at Mainfirst AG in a recent note, highlighting growth in bags priced between €800 and €1,800. “In our view, this ought to sustain Prada’s leather goods sales volume recovery.”

Prada's decision to host its latest cruise show in New York is significant. Not only are American consumers shopping the product once again, but Prada is consciously trying to engage them through specialised retail partnerships, digital marketing and a revamped e-commerce site, set to go live May 15. (It's a part of the company's Prada365 plan, first introduced in 2017, to bring a more sophisticated approach to its marketing by treating print, film, digital and all other mediums with equal weight.)

“We thought that it was the right moment,” said Stefano Cantino, strategic marketing director for the Prada Group, on the house's decision to show resort in New York. “There’s an opportunity to do more in the US market, which is one of the most important in terms of size, perception and appeal.”

The US also is Prada's largest driver of e-commerce sales, which makes up close to 5 percent of the overall business. Prada has ambitions to triple that number by 2020, tapping a fast-growing online luxury market that some call the next China. "Saying that an overwhelming portion of growth will come from digital is a wild understatement," Solca said back in 2016. "The development of digital capabilities will be necessary for survival."

Some argue that Prada is not necessarily as far behind digitally as perceived. "Most peers are not fully digital yet and are taking it slowly," said Thomas Sineau, an analyst at market research firm CB Insights. LVMH only launched its multi-brand website, 24 Sèvres, in June 2017. Others, like Burberry, have moved very quickly but haven't performed as well as expected, partially because of an unclear brand positioning."

But others insist that Prada is relying too much on wholesale partners for digital growth. Its partnerships with Net-a-Porter and Mr. Porter — which, along with MyTheresa, are the first e-commerce wholesale partners to carry Prada ready-to-wear — have certainly generated buzz.

“Wholesale is a quick and fast option to increase the amount of digital sales, but fails to deliver the margin and consumer insight potential that a more direct engagement in e-commerce would bring,” Solca recently told BoF. “I can only imagine that over time they will try to reduce the gap. Our analysis shows, for example, that Prada is among the brands increasing the fastest in regards to the number of products available for purchase online.”

While Cantino points to Prada’s nearly decade-long e-commerce presence as proof it is committed to upping its direct digital sales, he acknowledged that the company has lagged when it comes to digital communication — something Prada365 aimed to change.

"We're now present on all the major platforms and very active on social media," he said, attributing part of the success of its Cloudbust trainer — Prada's answer to the dad sneaker — to the social media campaign developed around it, which was supported by influencer marketing, product seeding and sponsored content in addition to earned media. (Chief executive Patrizio Bertelli called out the Cloudbust, which first launched in August 2017, as a commercial win during the company's most recent earnings call.) "It's not so easy to measure the result, but as soon as you launch a campaign, you immediately see traction." The style's sell-through rate remains above average.

In many ways, “catching up” digitally may be easier for Prada here in the US as it tends to operate via the concession model at brick-and-mortar department stores, meaning that it controls the merchandising, the client relationships and, to some extent, the experience at most of its outlets. In turn, it has already established a relationship with existing customers. Its customer relationship management tool allows sales associates to easily source product across the Prada retail network — including concessions in department stores — and message directly with clients to help push through hyped product, helping to increase productivity within its retail footprint. That's important, because the brand is not actively opening new stores. Mainfirst’s Guy expects Prada’s EBIT margin (earnings before interest and taxes) to almost double to 23.2 percent by 2022 as a result.

The hope may be that show will launch another hit style — or several. And perhaps there is no better place to bet on than New York City. “The US market is a strategic market, and this is why we are showing the collection here,” Cantino said. “It’s a message for the rest of the world.”

Additional reporting by Chantal Fernandez.

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