Grand restructuring plans captured by optimistic tag lines have become commonplace for luxury brands that have struggled to swiftly adapt to a changing consumer and retail landscape. In this series, we’ll break down the promises and analyze the progress of the different brands’ master plans to get back on track.
Prada’s goal of righting years of wrong is taking longer than expected.
In September, Prada Group CEO Patrizio Bertelli owned up to the fact, while walking investors through disappointing earnings for the first half of 2017: Revenue dropped 5.7 percent, and net income fell 18 percent to $140 million, falling short of analyst predictions.
Earlier this year, when revealing Prada Group’s (owner of Prada, Miu Miu, Church’s and Car Shoe) lowest full-year profit since going public in 2011, Bertelli outlined a detailed turnaround plan, which included a new focus on digital marketing, e-commerce and millennial consumers. In March, a new global digital director, Chiara Tosato, was brought on to lead the digital charge.
Whether it’s a case of too-little-too-late may be too early to judge. (Seemingly in a push for patience, Prada shifted its earnings reporting from biannually to yearly following last month’s call with stakeholders.) Bertelli owed the latest numbers to a lower volume of available product in retail stores, as well as costs associated with adopting new digital strategies.
A long-held stubbornness to change with the times is to blame for its uphill climb, according to Manfredi Ricca, CEO of brand consultancy firm Interbrand Milan. “Prada’s will to avoid complacency is genuinely admirable from an integrity standpoint,” he said. “However, it has come at a considerable cost from a business perspective.”
Its competition has been quicker to adapt, and it’s paying off: Kering-owned Gucci appointed a new creative director, Alessandro Michele, in 2015, seemingly allowing him free rein to redo the brand in his off-kilter style. LVMH named former Apple Music exec Ian Rogers chief digital officer in 2015, marking an increased focus on digital, starting with the launch of the conglomerate’s first multi-brand e-commerce site, 24 Sèvres. Louis Vuitton, which falls under LVMH’s umbrella, is often credited for its digital savvy and ability to connect with young shoppers.
To compare, shares of Prada SpA increased by just 6.3 percent this year, while Kering saw a 50 percent hike and LVMH’s shares gained 21 percent.
“Prada has remained caught between Hermès’s unrelenting focus on craftsmanship and the breadth of the likes of Gucci or Vuitton,” said Lidi Grimaldi, executive director of Interbrand Milan.
However, it now has its sights clearly set on the Gucci-Vuitton end of the spectrum. Here’s a look at the progress it’s made on its official promises thus far.
Promise 1: Implement a digital-centric marketing strategy
During last month’s brief, Tosato stated that Prada’s digital communications “now represent a relevant portion of total media spending.”
It’s a start.
Well aware of its tardiness to the digital game, and the roadblock that meant for connecting with customers, Prada made a digital marketing push a central part of its plan.
It was smart, according to Ricca. “There may be questions about the brand’s relevance,” he said, “but the major gap appears to be in its presence and ability to engage audiences.”
Last month, Bertelli confirmed the brand’s dedication to digital marketing. “Prada’s DNA is about products that are really breakthrough, that can surprise and even disrupt markets,” he said. “We need to complement that with new communication policies,” costly or not.
Among those policies is the use of minimal imagery across print and digital to tell a consistent story, as spelled out in the Prada365 plan in January. Additional touch points to be rolled out by year’s end include instant chat, digital assistants and personal shoppers on Prada.com.
There’s progress, but there’s still much work to be done. It’s evident in social media, where Prada still lags behind much of the industry: According to Reuters, it has 309,000 followers on Weibo, a popular Chinese microblogging website, just a tenth of Coach’s following. On Instagram, it has 13.6 million, compared to Louis Vuitton’s 19.4 million.
Its best bet, according to Ricca: to keep moving forward and not to get too caught up in the competition.
“This far down the road, Prada must avoid compromising its personality by making a U-turn [to catch up],“ he said. “The opportunity for Prada might be to leapfrog and do different, not just better.”
Promise 2: Win over young shoppers
Prada’s answer to slipping sales in its own retail stores, which typically account for 80 percent of its total sales, was to pull back on physical locations. In the six months ending in July, it closed 13 Prada stores.
As a means of filling the void, it rolled out a series of 13 pop-ups (some Prada, some Miu Miu; concentrated in Asia and Europe), a model that’s proven popular among millennial shoppers. Open for three weeks each, the stores gave Prada the chance to stir up excitement in new markets — through unique experiences, influencer activations and product launches — with minimal financial risk.
In addition, Bertelli is aware of Prada’s opportunity to appeal to younger customers by coming out with more styles they can afford. Last month, he called expanding its leather goods category to more price points an untapped opportunity.
Paula Rosenblum, managing partner at retail intelligence company RSR Research, agreed that more attainable options are crucial.
“Millennials don’t like to spend money,” she said, “and Prada’s core customer has aged out of wanting to wear [the brand’s] current look, which is true of most luxury brands. Prada doesn’t feel timeless, it feels young — and that’s fine. But it has to be somewhat accessible,” she said.
One category that will no doubt appeal to a younger demographic is sneakers. This month, Prada will introduce a number of sneaker styles to make up for recent losses in footwear as shoppers move away from dressier styles.
Promise 3: Shift focus from individual stores to global e-commerce sales
In keeping with its plan, Prada has been busy erasing any evidence it was ever hesitant to sell its collections online. The goal: doubling online sales in each of the next three years.
First steps have included securing additional wholesale partners, driven by its success with MyTheresa and Net-a-Porter, which together drove an increase in wholesale revenue of 13 percent in 2016. New retailers for fall 2017 include MatchesFashion.com.
As for direct sales, Prada has gone live with new e-commerce sites in U.S. and Europe, and holds that it’s on track to launch in key markets — China, South Korea, Japan, Australia and Russia — this year. For the first time, Prada’s full product range — rather than just its handbags, shoes and accessories – is available to shop on its site
“Our digital transformation continues apace,” Bertelli said last month. The next step in the Group’s turnaround: “to pursue the important aim of offering a seamless online and offline shopping experience.”
Image via prada.com