The devil might wear Prada, but “she” (and others) isn’t buying as much from the Italian fashion group as “she” used to…
What does this mean?
Prada’s first-half revenue was down 15% and its profit fell about 25% versus the same period last year. It’s not all Prada’s fault: virtually all luxury fashion brands are struggling due to things like the recent terrorist attacks in Europe (which have led to fewer shopping-mad tourists), a crackdown on corruption in China (the country had been a major source of sales growth before wealthy Chinese people cut back on ostentatiously flaunting their wealth) and generally anaemic global economic growth (which means fewer big spenders, basically). Prada is in a particularly sticky situation because its brands are so expensive and because it largely shunned e-commerce until very recently.
Why should I care?
For the stock: Its turnaround plan is easier said than done.
Prada has a simple plan: increase sales and cut costs (it’s not rocket science, right?). But, the hard part is actually getting sales to increase. One of the key components of Prada’s plan is to vastly increase its online sales (it is aiming to double them for each of the next three years). It’s also going to focus a little more down-market: we’re not talking “cheap,” but expect to see a marketing focus on products that appeal to a slightly wider crowd.
The bigger picture: Moving luxury online is tough.
One of luxury’s big selling points has been its in-store experience: customers received a service that felt exclusive. It also allowed the expensive brands to differentiate themselves from other retailers. It’s difficult to shift that exclusive mentality online. Now that Prada is throwing itself into e-commerce, it will be interesting to see how it tries to tackle the challenges that are inherent to luxury e-commerce.
Originally posted as part of the Finimize daily email.
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