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Prada Is Making Progress

After a series of strategic missteps, Prada is finding its footing, writes Luca Solca.
Prada Spring/Summer 2018 | Source: InDigital
  • Luca Solca

GENEVA, Switzerland — It is no secret: Prada has stumbled in recent years.

Hindsight is always 20/20, but the Italian fashion brand should have realised right from the start that its decision to position its products at the very high end of the market — think prices in the same range as Hermès and Chanel — was a mistake. After all, Hermès and Chanel have a wide assortment of product categories beyond fashion and leather goods, such as jewellery, cosmetics, fragrances… the list goes on. These effectively form a pyramid of price points, with their most expensive handbags shining somewhere near the apex.

In contrast, Prada tried to ascend to the highest levels of pricing without having a pyramid to climb. Making things even more challenging for itself, the company simultaneously decided to narrow its product range. The result: its handbags appeared overpriced. This was all the more glaring given that Prada is a brand best known for nylon and its distribution was tailored as such, meaning the company had one of the highest exposures to off-price among peers. This is hardly helpful in projecting the air of exclusivity on which the entire luxury sector is built. Little wonder then that Prada’s pricing strategy failed to take off.

At the same time, more and more accessible luxury brands entered the handbag space. The result was that Prada failed to crack the very top-end of the luxury market, while losing share to the likes of Furla, Longchamp, Michael Kors and their ilk at the lower end — a double whammy.


But Prada’s woes did not end there. Apart from too narrow a range of handbags, the company was also on the backfoot when it came to footwear. To wit: luxury sneakers. Balenciaga springs to mind; Prada does not. Prada was simply not introducing enough new products to appeal to millennials, an increasingly important customer profile.

On a related note, Prada also launched an untimely retail expansion programme. Opening stores aggressively to capture a wider customer base makes perfect sense… in the days before the internet. But this is the age of Instagram, influencers and swipe to buy. The brand’s decision to focus on rolling out expensive stores with all their associated fixed costs instead of engaging with consumers online was difficult to justify.

But Prada’s management now seems fully cognisant of these issues.

In the past 12 to 18 months, the company has updated its product offering by introducing more handbag styles and more compelling entry-level price points. We have seen the return of nylon handbags, putting Prada firmly back in the competition in the under-€1,000 segment. And customers seem to like its revamped bag range, boosting the company’s organic growth.

The journey back to Prada's halcyon days remains a long one.

Management has also tackled its distribution issues, tightening price discipline and turning less and less to promotions to juice sales, trading slight pain in the short run for likely brand equity gains in the long run. Prada is also rationalising its physical store network and enhancing its in-store experience, especially through the heavy and effective use of pop-ups.

And last but not least, Prada is making a more concerted push on the digital front. Exane BNP Paribas’ “Digital Competitive Map” shows Prada has made marked improvements in the past year, especially when it comes to elevating the customer experience. It has also made more and more of its products available online, as our research in the USA shows, with the number of SKUs rising more than 110 percent year-on-year. This should boost the top line by enabling Prada to take better advantage of the rapid growth of luxury e-commerce, much as its peers have done for a few years.

The journey back to Prada’s halcyon days remains a long one. But management are finally taking the right steps. If they continue to do so, Prada might just be back in vogue with investors.

Luca Solca is the head of luxury goods at BNP Exane Paribas. 

Related Articles:

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Who Will LVMH and Kering Buy Next?Opens in new window ]

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