How Prada can overcome its challenges

In recent years, Prada has been underperforming, with its handbags offering missing entry-level price points, while going overboard at the high end of the market. Prada is not Chanel. Lower price points are a part of its DNA — and essential if the company is to get organic growth back on track.

A disconnect with the market is also evident in Prada’s footwear offering. Once one of the company’s few positive categories, the business is today in reverse because management underestimated the rise of sneakers.

Here’s another mismatch: across the board, new styles are selling well and have grown significantly as a part of Prada’s overall product mix, but like-for-like sales of evergreen products are plummeting. Strong positions in ready-to-wear and a strong consumer response to new leather goods products support the notion that Miuccia Prada and her creative team are at the top of their game. But the decline of sales of evergreen products suggests that merchandising — a key strategic function — is not being taken seriously enough.

Without strong merchandising capabilities, creative efforts risk being dispersed, energies diluted and resources wasted. Indeed, what appears to be most sorely missing at Prada is a strong merchant to take the creative director and her department by the hand, rather than a new set of hands to lead design.

Prada has also been missing out on its sales capabilities. The company’s retail network is top quality, but without fast organic growth reacceleration, it feels like a suit that’s oversized and too expensive to wear. Then there’s the question of digital. Back in 2014, I asked Prada chief executive Patrizio Bertelli why he was sceptical of e-commerce. He replied: “It’s not that I am sceptical, it’s that I have more important things to do, like opening stores, for example.”

Of course, he is not alone in having underestimated the digital opportunity and Bertelli has since had his Damascene conversion. Digital is now a priority at Prada, albeit with rather modest ambitions. General manager and digital director Chiara Tosato says she aims for e-commerce to account for only 5 percent of total sales (direct and wholesale) by the end of fiscal year 2018, significantly below market average, which will be close to twice as much.

There is some good news, however. Prada’s results presentation for the first half of 2017 confirmed that the brand’s price mix is improving and that off-price activity is declining. This is certainly a positive thing and will support brand equity in the medium term.

There’s no doubt that Prada remains one of the most remarkable soft luxury brands in the world, but its true promise remains unfulfilled and given the magnitude of the mistakes the company has made in recent years, it’s clear that the business needs more than a tune-up.

First published by The Business of FashionLuca Solca is the head of luxury goods at Exane BNP Paribas.

Prada store London

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