Follow us


Prada: Profits plunge and the digital message finally gets through

Sandra Halliday
29 August 2016

There’s big change due at Prada. The company that was always known for being ahead of trend has finally discovered that new-fangled thing called the internet and has a bold new strategy to make the most of this great innovation.

After all, analysts think online sales already account for around 2% of Prada group sales. Wow!

OK, sarcasm aside. Nobody can deny that Prada has been late to the e-party but its lowest profit for half a decade has led it to dig its party invite out the drawer, don its best party dress and walk in with plans to be the biggest, baddest party-goer ever.

So what’s the background to this? It’s a while now since Prada was the name on everyone’s lips when it came to being the ultimate influencer/must-have brand. Not that people don’t want it any more. Prada still sells billions of euros of stratospherically-priced goods worldwide.

But in fashion, it’s the cool factor that counts (unless you’re Chanel) and these days, Gucci has it. But Prada? Well, not so much.

And part of that is to do with Prada’s frankly useless approach to digital. The company ignored or underestimated e-commerce, m-commerce, digital marketing and social media for way too long, even after other latecomers had woken up and smelt the e-coffee and its finances and image have suffered as a result.

But the message has finally got through and that’s no surprise because Prada has posted first half profits down a massive 25% to €330m and sales down 15% to €1.55bn. Worse still, its core leathergoods sales were down 22%, Prada footwear sales fell 9.3%, clothing fell 10.3%.

Sales plummeted almost worldwide, even though UK sales rose, boosted by a late surge because of the falling pound.

Even previously-buoyant Miu Miu fell nearly 16% as an uptrend in shoes and clothing couldn’t make up for the downward dive in leathergoods.

That’s all bad news on so many fronts. When profits fall more than sales it usually means a company is having to spend more to sell more, whether that spending is around extra marketing, making its stores more attractive or ‘investing’ in markdowns that help shift unwanted product.

And part of the reduced interest in its product isn’t necessarily because it isn’t any good or it’s too expensive. It’s about the loss of coolness that rival Gucci also suffered for a while before Alessandro Michele’s arrival. And it’s about the failure to maximise the 21st century’s key retail and marketing channel - the internet.

But the company said it sees 2016 as "a turning point from where the group will return to growth” on the back of a new vision. So what exactly is it doing?

It’s reviewed prices, overhauled product and taken a new approach to online marketing (ie, embracing it rather than sniffily ignoring it). This, it believes, will help get back to 20-something and 30-something customers who are defecting to Gucci in their thousands.

"We're now setting a target of doubling online sales every year for the next three years," chairman Carlo Mazzi said, explaining that the group will launch an online sales platform in China, Hong Kong and Singapore by the “end of 2017”. Hmmmm. Not the quickest reaction, but let’s not be too cynical.

The company will also increase its social media activities so it can hit the always-on millennials where it needs to and look at a "potential launch” of shoppable content via Instagram.

Back in the physical world, it will also shut underperforming stores. Now that’s big news in itself given its previous go-for-it approach to opening stores. And it’s going to refurbish other stores to offer a better shopping experience to customers. Speaking from experience, I think the cheery smile and willingness to help that sister brand Miu Miu has should be the first step in overhauling Prada brand stores.

And its new pricing strategy is very interesting. "We have to cover all price ranges," said marketing chief Stefano Cantino, "because there are a lot of opportunities in each of them.”

Prada bags and shoes have, over several decades, gone from ‘expensive but almost affordable’ to ‘totally scary’ for anyone without a trust fund. But it seems to have realised that aspirational shoppers can’t just be fobbed off with a key ring.

That’s a lesson Mulberry also learnt recently and it’s helped the UK brand return to growth. Let’s hope Prada can pull it off too.

Free NewsletterVISIT