Prada crisis – What’s wrong…?

Have you read the shocking news on WWD and Bloomberg? Prada sales dropped as much as 21% in the first half of 2014! They lost about 30% of their value in the first half of this year!  40% of the brands revenue are directly made in Asia, 34% in Europe and 12% in the US. Speaking about Europe the major costumers are tourists visiting from Asia. As all export centered companies the strengthening of the Euro hurts the brand with dropping rates of visitors and reduced purchases. The European domestic interest declined too. But that affects other brands in very much the same way? This can’t be the only reason for this heavy decline! Does the market get too dense and does Prada fail to stand the competition from other forces in the business like Vuitton and Chanel?

Prada crisis

Anna dello Russo wearing Prada spring 2014 during fashion week in February 2014, pic http://www.pinterest.com/stylecloseup/coats/

One of the major marketing instruments of a fashion house are its runway show and ready to wear collection. Besides a written review by a fashion critic the major measure of a collections marketing success is how often it is featured in the top fashion mags, like vogue, elle or harpers bazaar. Besides that celebrities wearing the brand, street style icons, front row guest and red carpet appearances can hugely raise brand awareness and trigger sales of the more basic products of a brand like classic bags, shoes and basic clothing (that’s what the general customer is searching for!).

Prada tax investigation

… not really frequently spotted during fashion week Prada’s tennis style sweaters, pic http://www.pinterest.com/stylecloseup/knitwear-sweaters/

Prada knitwear

… and the second Prada sweater, pic http://www.pinterest.com/stylecloseup/knitwear-sweaters/

So what about the ready to wear shows. The woman’s collection that is in store right now with the skinny silk scarfs, the airy dresses, the tennis style cashmere sweaters and the colorful shearling jackets is made up of a well thought layering approach. The fashion press really liked it when we stick to reviews. Suzy Menkes wrote about “… a varied but powerful wardrobe …” and Tim Blanks praised the “… clothes as ambassadors for ideas …”. But covers of the september issues of the major fashion mags spoke a different language. Vogue China, one of the biggest markets for Prada, presented a Vuitton glad Fan Bingbing and in Europe, the brands other major market, Prada only made it onto the cover of Vogue Italia!

Prada crisis

A minimalist LV-glad Fan Bingbing covering the September issue of Vogue China 2014, pic designscene.net

Prada crisis

cara delevingne in LV on the cover of Vogue UK, pic http://thecitizensoffashion.com

Prada crisis

Natalia Vodianova in LV on the cover of Vogue Paris Sept 2014, pic vogue.fr

Prada crisis

Prada on the cover of Vogue Italia September 2014, pic http://theimagist.com/node/8878

Let’s go further towards street style of the current fashion month. In February there was a lot of Prada – all those mural inspired coats and dresses – spotted in the street style pics. But this time maybe a face painted bag from the above mentioned collection, but skinny scarfs, tennis style sweaters, 60ies printed dresses, industrial wedges no – A very rare thing. What about the iconic Prada creepers! No – designers favor Stan Smith for their final bow instead of Prada and in the streets – Stella Mc Cartney platforms seem to take over a sector previously owned by Prada! However, Prada reports on an increase in RTW sales in its half year report. Seems that the collection is wearable instead of being editorial or street style attention capturing!

But did the brand pay for the increase in RTW sales with a loss in classic leather goods because it didn’t manage to capture enough attention. Let’s take this fall – there was Nicolas Ghesquière for Vuitton a favorite among editors and the Chanel shopping center a social media hit! And Prada was left behind.

And now a new scandal hit newsstands today – After Bvlgari and Dolce & Gabbana Miuccia Prada and Patrizio Bertelli are now under investigation for tax evasion.

There won’t be any recovery of the brand within the next half! Personalized Prada creepers are about to launch in October attempting to bring the style back to stage.

Prada crisis

A personalized version of the iconic Prada creepers is about to launch in October, pic vogue.fr

And the new collection … Tim Blanks writes about “all things she’s done before – that late “normality” and Suzy Menkes sees “… a desire to preserve the skills of the past but always and forever remain relevant …”.

Let’s see what the brand is doing next. I guess for all of us “domestic European” customers there are great things on their way at Prada, including attractive store events, a very generous end of season sale and maybe even a price drop!

What do you think about the Prada crisis? Do you feel that customers will benefit from it?

8 thoughts on “Prada crisis – What’s wrong…?

  1. christa

    Nice info! But I wouldn’t say that the press for Prada is that bad – a Prada coat covered Vogue Netherlands sept 2014 and Elle UK Sept 2014, a dress is on the cover of Harpers Bazaar UK Okt 2014 and there is another coat on the cover of Vogue China for Oct 2014 … I feel that Prada has never been a player as big as Chanel and don’t think that the press turned the back on Prada while favoring other brands. I feel that there hasn’t been a big change!

  2. piaH

    😉 … all you chanel devotees and fashion week followers I guess here is the topic I can contribute a little. Prada’s DNA is based on the so called Saffiano leather, a stamped and wax coated calf leather, that was invented by Mario Prada, the companies founder. Products that are made out of this leather are extremely durable, they are water and scratch resistant plus look much more luxurious than LV mono canvas. Handbags and small leather goods made out of this leather have always been the brands top sellers. Sadly, several brands including Coach, Michael Kors and even Target started to launch Saffiano leather products as well. These alternatives started to become more and more popular in spring 2013. The strengthening of the EURO further contributed to the fact the clients from Asia or the US turned their back on Prada while favoring the alternatives!!! 😉 😉 😉 Prada has already started its way out of the crisis with focusing on very wearable ready to wear & partially it also succeeded with a growth in ready to wear sales in the first half of 2014!!!

  3. annie

    Is the man in the pic wearing a wig? Not a nice streetstyle photo at all 🙁 But to be more serious there is a lot about Prada’s sales strategy that I don’t understand. Just take MUC as an example. They very recently expanded their store in Residenzstrasse, but severely reduced the availability of their products at Theresa. We had time, where you could even get Prada clothes at mytheresa.com – now its only sunnies you get there! I personally don’t get that! Its easier just to fall into something beautiful while browsing the racks of theresa and just by accident it might be Prada … but directly entering a Prada store? … I would only do that when I am in search for something particular from the brand … but this rarely happens…

    1. nfh

      I can only agree! Its a general strategy of Prada to shut down wholesale locations (like Theresa) and expand directly operated stores in order to have more control over the shopping experience. In an interview with WWD Miuccia Prada even said openly that wholesale buyers tend to buy the wrong products thus giving their customers the wrong “Prada experience”. Furthermore, Prada speaks out openly against online retail. But after the big loss business in the first half they now wrote in their report that they want to improve the online experience … I personally feel that one of the biggest mistakes of the brand might have been that they overestimated their exclusivity!!! Buying Prada isn’t like buying Hermes!!! That’s for sure!!! I feel that they should bring the experience out of the “luxury capsule” closer to the customers – that’s what they have to do when the want to recruit new domestic European customers and not do it the other way round!!!

  4. niko12

    I am not a stock analyst nor am I a Prada customer, honestly I’ve never seen store from inside! But I want to share one thing of my basic knowledge regarding stock chart analysis. When we compare the performance of PRADA with the general performance of the luxury goods industry, represented by the global stock tracker on WWD, there is a huge gap!!! The general 1-year – performance seems stable with only minor growth but PRADA has fallen constantly. So let’s face it – its unlikely that the general economic situation explains PRADA’s fall, there are company inherent reasons! (If you want to check out the chart yourself: http://www.wwd.com/people-companies/company-profile/prada-spa-1604350

  5. masi

    Not a professional regardig stock but a very interested hobbiest with of focus on textile industry for many years.

    As correctly said Prada’s major customers are from the far east (either consuming while at home or while traveling to Europe) – in short some of the many reasons why cosumption slowed down that much:
    1.) In March 2013 China named a new president called Xi Jinping one of his foremost goals is to stop corruption within the communist party! But – and here comes the thing you won’t read in PRADA’s half year report – this was actually one of the major sources of Chinese luxury consumption – „gift-giving“! Due to this anti-corruption plan not only PRADA slowed down other brands like Vuitton showed pretty much the same trend!
    2.) General Chinese economy is slowing. There is less growth in private income and people have to rethink their purchases.
    3.) Due to the countries high import taxes European luxury products are more expensive in China than in Europe. Thats why many Chinese love to buy overseas either on vacation or via a daigou (middleman buyer). However, strengthening of the EUR affected this adversely. Both traveling and buying. For the first year France isn’t the Chinese top luxury destination – now its Australia!
    4.) Many Chinese also like to buy in the tax haven Hong Kong (0% VAT). Ongoing riots in the city had a negative impact on consumerism in very recent times!
    5.) The Chinese nouveau rich love luxury products, but according to Hurun Report’s 10th annual Chinese Luxury Consumer Survey PRADA is only number 8 for woman and 7 for men, behind Chanel, Hermes, Vuitton. So its likely that all the above said effects Prada harder than other competitors!

    And yes sure the new tax evasion problem at PRADA will also affect the stock negatively …. and yes there is a lot more …

    So how will the future look?
    Prada has been around since a little more than a century its a real heritage brand and as CKM correctly said the things Miucci does are extremely well reviewed by industry top people like Suzy Menkes. As Morningstar report once said about brands like this – they are tough to replicate and somehow have a protective moat.

    I really think that Prada will rise out of the crisis – the only question is when. Less press in form of magazine covers and streetstyle appearance shows that the brand started to focus efforts. I guess they will go for wearability and simplicity and yes as CKM pointed out they will focus more on the domestic Europeans!

    So by now I am feeling so sorry for writing a copost. But I really have to say how much I love that the topic of fashion economics is touched side by side with the topic of trends, streetstyle, collection reviews. I feel that many woman, who love to shop might also like to know a thing or two about the economic situation of a brand, about its major clients etc. and don’t want to be the stupid female shopper, who feels that everything is „incredible and outstanding“, just because a celebrity or whoever has worn before or just because its PRADA, CHANEL or whatever …

  6. zoe

    very interesting discussion! I also have to add a personal opinion. Prada actually is a brand for a basic purchase – you buy your saffiano bag & your done for years. I also feel that several people in China have the income to buy in that segment for some time. After having this opportunity over a prolonged period the sparkle and fascination fades. I guess that in a similar way to Europeans Chinese slowly start to loose the interest in luxury goods industry and start focusing on other things like design objects or art! Luxury goods industry needs noveau rich, for whom all the logos still hold something!

  7. micha

    Interesting post and fabulous discussion so far. I also want to add my opinion to the topic. Over many years I have always perceived Prada as a very ambivalent brand. On the one hand there is no cult of the founding father like it is done at Chanel. Its all about Miuccia, who was once involved in the socialist party, is a trained pantomimist and loves art. Around every collection she can spin a fabulous inspiring story and somehow this attracts fashion journalists and some more customers with creative backgrounds. She somehow communicates an “anti status – democratic fashion – maybe even uncommercial fashion”. But on the other hand we hear about the gender discrimination lawsuit from PRADA Japan, we had to hear about the scandals in the Turkish leather production, the latest news is the tax evasion and yes somehow, Miucci Prada openly says that its fab to produce product parts in China assemble them in Italy and tag a product as made in Italy … I don’t know but this ambivalence is something that heavily distracts me from the brand – Its like they don’t practice what they preach! Maybe I am not the only one who feels that way…

Comments are closed.