Prada’s Plummeting (but Recovering?) Profits

Prada is, naturally, a household name. But the house’s widespread fame hasn’t been enough to save its plummeting revenue—and logo fatigue, among other factors, may even have been the culprit!

On the heels of a weak 2015, Prada S.p.A. revealed earlier this month that its 2016 profits had dropped yet again. In fact, last year saw the lowest revenue since the Prada Group’s 2011 initial public offering.

Miu Miu Pre-Fall 2017 Collection. Photo Courtesy: WWD

Miu Miu Pre-Fall 2017 Collection. Photo Courtesy: WWD

First, let’s recap what Prada S.p.A. is. We all know, of course, that it encompasses the eponymous 1913 Milanese fashion house and its little sister, Miu Miu, established in 1993. But it now includes Church’s, an English men’s footwear brand, as well as Car Shoe, an Italian driving moccasin brand. (As of 2014, it has also acquired Pasticceria Marchesi, a beloved bakery in Milan!) Together, these subsidiaries make the Prada Group.

The second pastry shop of Prada’s Marchesi. Photo courtesy: whereMilan.com

The second pastry shop of Prada’s Marchesi. Photo courtesy: whereMilan.com

The Group, which is in the midst of a retail model revamp, had a tough 2016. Over the course of the year, total revenue fell 16% to $295 million. But the news isn’t uniformly bad. Prada’s profits improved in the second half of 2016, when the decline in sales inched back down to 6%. Growth has been especially noticeable in China, and has continued into this year. Profits also appear to be recovering in Europe, particularly in the UK and Russia.

Prada’s Share Graph Since its IPO. Photo Courtesy: Prada Group

Prada’s Share Graph Since its IPO. Photo Courtesy: Prada Group

Why did Prada have such a difficult year? Well, one major factor is slowing demand in Asia, the continent responsible for about half of Prada’s revenue. Other factors are the decline in European tourism and, as mentioned earlier, logo fatigue—Prada has become almost too popular, losing its air of exclusivity. Although other luxury goods companies, like LVMH and Burberry, also faced declining profits last year, Prada was hit harder than its competitors. It seems to have suffered the consequences of years of overexpansion and overexposure.

Prada in Harrods. Photo courtesy @fannyaggevall

Prada in Harrods. Photo courtesy @fannyaggevall

As Prada fights to regain its footing, it’s working to implement major changes. Rather than opening new stores on the ground, Prada is in the process of revamping its entire brand. The Group has hired a new digital strategy team, whose duties include relaunching Prada and Miu Miu’s websites, targeting social media posts for sales conversion, and adding more RTW items to online platforms. Prada is also planning the occasional pop-up, as well as introducing less pricey handbags and accessories aimed at Millennials.

CEO Patrizio Bertelli and Miucci Prada. Photo courtesy: CelebFamily.com

CEO Patrizio Bertelli and Miucci Prada. Photo courtesy: CelebFamily.com

At this point, Prada seems pretty optimistic about its chances of success. CEO (and Miucci Prada’s husband!) Patrizio Bertelli has said that “coming up with fresh ideas in quick turnaround times has always been our specialty,” and believes that Prada is now “firmly on the pathway to sustainable growth.” Others seem less convinced. An op-ed in The Business of Fashion argues that although Prada is on the right path to address its financial concerns, a “full-blown recovery” is not ensured.

What do you think of Prada’s new strategies, especially the focus on e-commerce? Can Prada turn its profits around? We’d love to hear your thoughts on BopTalk.

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