Why Online Sales Have Been the Devil to Prada

While many investors have flocked to luxury fashion retail in the past year, it hasn’t quite been the case for Prada. The fashion giant showcased its new fall collection last Thursday but its pointy pencil skirts and big-shouldered jackets couldn’t hide its 5.5% fall in revenues for the first half of 2017 to $2.24 billion.

While the company is still considered a darling to fashion press, it’s still failing to turnaround positive profits in its last few earnings results, raising questions about its strategy under current management.

Falling demand in Asia is partially blamed for Prada’s poor financial performance, but the Milan-based brand also admits that it has been slow to realise the importance of digital channels and the influence of online bloggers as well, which has undeniably disrupted the fashion industry.

“I don’t want to be judged by sales,” Miuccia Bertelli, wife of the Prada’s CEO Patrizio Bertelli, told reporters after last week’s fashion show, which ironically featured a theme of strong, contentious, driven women. “My life is bigger than that.”

online sales Prada e-commerce fy17
Prada’s CEO Patrizio Bertelli with wife Miuccia Bertelli

For the managers of Prada however, plummeting sales can’t be shrugged off so plainly. The company missed analysts’ net profit forecasts falling well-below, with net income also plunging a sizeable 18% to €$171.6 million.

In contrast, rival Gucci saw sales growth of 43.4% while Louis Vuitton saw a 12% increase in comparable sales – both these brands are well ahead of Prada in its online presence and expansion.

Earlier this month Prada’s CEO Patrizio Bertelli said that digital “transformation is actually taking longer than originally expected”. He has however sited other reasons for the company’s poor financial performance, including the decline in Asia sales, “losing a lot of money” at its Fifth Avenue store which is located in front of Trump Tower, saying that continuous protests have blocked the entrance. Bertelli says that Prada missed the boat on luxury sneakers as well.

But, he concedes Prada’s biggest downfall has been being late in appreciating how important a digital strategy when it comes to luxury fashion sales.

The company is responding to its predicament saying it plans to rollout complete e-commerce platforms around the world by the end of 2018, aiming to capture 5% of its sales from digital channels, without specifying a timeframe for that. The company says its 18 million Instagram followers is a good sign that it is catching up to being digitally savvy, which is ahead of Gucci’s 17.9 million followers.

Still, retail analysts express concern over Prada’s online forecasts which currently trail far behind the luxury fashion industry, especially since digital has become a significant barometer of success among millennials, given that Gen Z is tipped to make up nearly half of the luxury retail sector customer base by 2025, according to retail consulting firm Bain.

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