Prada : What Went Wrong?

[FelipeV]

And what went wrong? Right now, Raf Simons, but he's just the scab in the wound.

 

[RaisinBoy]

Given the trainwreck of men's FW 2022 that has been just unveiled, I'm here yet again, asking you for assistence. Are there any brands to substitute Prada's place? I've been buying from Prada for years, but I just can't carry on.

 

[Phuel]

^^^ Unless you’ve snatched up collections whole, there are always past collections to be had. With the best of Prada’s past, there are always gems to be discovered/rediscovered.

(Agnona menswear possesses that hint of Prada’s mid-90s quiet, nerdy luxury if you insist on brand new unworn purchases. A tad on the basic side, tho.)

 

[Marc10]

Prada Sales Climb 41% in 2021
In the second half of last year, sales at Prada's directly operated stores, including e-commerce, grew 27 percent compared with 2020 at constant exchange rates.

MILAN – A solid performance that accelerated in the second half of 2021 boosted Prada Group revenues in the 12 months ended Dec. 31.

Sales climbed 41 percent to 3.36 billion euros compared with 2.42 billion euros in 2020. Revenues rose 8 percent compared with 2019. Both figures were provided at constant exchange rates, boosted by the “excellent” performance of the retail channel, the company said on Tuesday in a trading update.

Chief executive officer Patrizio Bertelli said “2021 was a year full of challenges but we proved to be ready and quickly responded to the needs of an extremely dynamic market, putting in place actions that allowed us to understand changes in consumer behavior effectively. The Prada Group has the capabilities and resources to set itself apart and deliver on its future growth objectives.”

In the second half of last year, sales at Prada‘s directly operated stores, including e-commerce, grew 27 percent compared with 2020 and were up 21 percent compared with 2019, both at constant exchange rates.

The group has been actively raising its luxury positioning, slashing wholesale accounts, endorsing full-price sales by canceling markdowns and investing in online sales, marketing and communication.

Prada underscored “a significant increase” in operating profit, supported by the higher contribution from the retail channel, as well as by full-price sales.

As of Dec. 31, the strong cash flow generation allowed the group to achieve a net financial surplus.

In November, Bertelli hosted the group’s Capital Markets Day at Milan’s Fondazione Prada, providing an update on its growth strategies.

Financial targets in the medium range include reaching revenues of around 4.5 billion euros, which implies almost doubling 2020 figures. The company is also targeting an operating profit of around 20 percent of sales.

Key objectives are to double the percentage of the group’s online sales to represent 15 percent of retail revenues and to increase the productivity of directly operated stores by 30 to 40 percent.

wwd.com

 

[RaisinBoy]

Since their prices surged 30%-200%, that's not really an achievement. (The real achievement is people are willing to pay $3,500 for a nylon logo jacket.)

 

[Fulton St Critique]

Since their prices surged 30%-200%, that's not really an achievement. (The real achievement is people are willing to pay $3,500 for a nylon logo jacket.)

*cough* NBA player James Harden *cough*

 

[Rigida]

I gagged looking at the prices on their website.

$3000 for a chambray skirt??
$4100 for an ~embroidered~ cotton poplin skirt???
$2200 for a ~screen printed~ cotton hoodie????

 

[Olaffo]

The prices have gone up so much I was shocked. Leather jacket is around £ 5 k, poplin bowling style shirt more than £ 1100, knitwear from £ 950. Are they mad? I really don't think they will be many people interested lol

Prada now serves as a cash cow: they devalued their design by hiring Raf and lifting prices like crazy...

 

[Frederic01]

The issue of price increases in the luxury industry is very complex and problematic. Groups like Prada, LVMH, and Kering are constantly engaging "analysts" from Bernstein, Goldman Sachs, etc. etc., who are constantly telling them how "undervalued" their products are. These analysts suggest that in order to raise perceptions of exclusivity and luxury, they need to increase their prices frequently to reflect that.

People like Luca Solca are constantly writing fluff pieces and drivel for websites like BoF and Reuters about how "undervalued" luxury is and how in order to keep it going, they need to constantly raise prices. This only works for a brand like Chanel because they maintain such tight control over their distribution network. You can't buy Chanel online and they're going to keep it that way. The people working at Chanel know that this strategy gives more of an "exclusive" feeling. All the other brands who want to emulate Chanel's aura of exclusivity but then want to sell on every single website and have no control over their wholesale market, are kidding themselves.

 

[velvetandsilk]

Greed and nylon obsession. In past their use a lot of eye-catcher fabric.

This only works for a brand like Chanel because they maintain such tight control over their distribution network. You can't buy Chanel online and they're going to keep it that way. The people working at Chanel know that this strategy gives more of an "exclusive" feeling. All the other brands who want to emulate Chanel's aura of exclusivity but then want to sell on every single website and have no control over their wholesale market, are kidding themselves.

Moreover, the profits are more high when you have own distribution. All big online retail charge a huge margin.
About brands which have Chanel phantasmic. They don't understand that this brand is timesless. They sill could sell Coco's designs, people will buy this. A few month ago I read interwiew with CEO new brand which I liked, but now I am very sceptical. He was classic suits. The brand some years ago produce interesting high fashion clothes, now it is overpay clothes on Instargram taste. This man told a lot of bullsh*t that in future they will be Chanel. They still don't have bags product line . Their clothes is good for party or on the Instagram, you can't to wear to work with dress code.

 

[Frederic01]

Oh dear, Prada just had another price increase. The price point of their clothing is astronomical. Some of their pieces have surpassed Dior prices and are now approaching a Chanel price point?

 

[Reggie63]

I think Patrizio Bertelli is really delusional, or plain clueless as to where Prada is in the luxury landscape. In Luca Solca's latest investor note, Prada is squarely in the aspirational category, while Hermes, Chanel and Dior occupy the summit of the soft luxury pyramid, and as such, can really command the prices that they currently do (to a point). The latter two can command top pricing for clothing because of their HC heritage and in general, these brands are able to command these prices because they are incredibly brilliant at leveraging heritage into creating brand icons. All of these are not applicable to Prada (the nylon backpack is an icon, yes, but nylon is just nylon, no matter what the brand says).

Prada's current strategy has alienated its core consumers. It's virtually unrecognisable to long-time fans and clients. Anna Wintour doesn't wear Prada anymore, and that's saying something. The brand it seems are focused on Millennials and GenZ through hyper-socials engagement and logo mania. This is where it could get interesting. Millennial luxury shoppers are attached to brands to show off status, and as such would always, by default, aspire towards the top three brands mentioned. This market is mature enough that they know they don't need giant PRADA stamped boldly across your chest to signal wealth - a 2.55 bag does that more effectively. GenZ clients are incredibly trend driven and have no brand loyalty. They would buy the latest trinket gaining visibility on Tiktok, but otherwise, this group seems to display no interest in focusing on specific brands. They simply move on to whichever catches their eye in socials.

Prada's pricing and positioning strategy might be working (or so they say - I think it's purely cosmetic, the brand's revenue "recovery" is due to price increases, not due to product volume sold). The price increases cosmetically fix their numbers but it's a horrible strategy. Only people serious about fashion buy clothes at that price point, and even then, up to a point. Given that they've alienated out their long-time core market and that millennials generally don't even aspire to buy it, who are going to buy all those sweaters more expensive than the Loro Piana equivalent or suits and coats more expensive than those of Zegna? Those Milliennials they're trying to court? They're all in line to get into Hermes, Chanel and Dior. Why buy a Prada dress (that even isn't even interesting nowadays) when you can get a quasi-HC experience chez Dior?

It looks like they've cornered themselves into this frenzied influencer dance to corner the GenZ market. They do buy - the 1000 euro reissue, the 400 euro bucket hat and the occasional 1800 euro Cleo bag (if their Shein budget would allow for it). It's either Prada keeps on degrading the brand by constantly sending out more free products to influencers and keep asking them to create controversy in order to create buzz in the hopes of going viral (that broken Prada Christmas baubles fiasco was incredibly cringey) or revert back to consistently making tasteful, trend-setting product design in the hopes of attracting a less trend-led market and recapturing its previous core clients, which I think has moved on at this point. Even then, Prada current price points are a problem - I honestly think they've priced themselves out in several key categories. Price reversions in hopes of recapturing core clients who've left have been problematic, just like what happened to Cartier when they "corrected" price points previously.

As I've said, it could get interesting for the brand in the mid-term.

 

[Frederic01]

I think Patrizio Bertelli is really delusional, or plain clueless as to where Prada is in the luxury landscape. In Luca Solca's latest investor note, Prada is squarely in the aspirational category, while Hermes, Chanel and Dior occupy the summit of the soft luxury pyramid, and as such, can really command the prices that they currently do (to a point).

Exactly! How is a Prada jacket nearing double the price of a Dior jacket? The pricing of the menswear is ridiculous! And in terms of womenswear, the pricing strategy is equally confusing. Dior Womenswear will always be seen as being more "luxe" than Prada. Why/how is the pricing almost the same, if not more in some cases?

Dior 100% Virgin Wool Jacket - $2800USD.

DIOR

Prada 100% Wool Jacket - $4000USD.

PRADA

Dior Printed 100% Cotton Skirt (Made in France) $3100USD

DIOR

Prada 100% Printed Cotton Skirt (Made In Italy) $3000USD

PRADA

 

[susseinmcswanny]

Wait I just checked the old buying spreadsheet and they actually increased the prices on LAST season's clothes LOL. Good luck.

$4100 USD ---> $4500 USD

source: prada.com

$3650 USD ---> $4000 USD

source: prada.com

$9100 USD ---> $10000 USD

source: prada.com

 

[RedSmokeRise]

Catching up with this thread is refreshing. The pricing increase is starting to become cringe-worthy!

 

[Frederic01]

Wait I just checked the old buying spreadsheet and they actually increased the prices on LAST season's clothes LOL. Good luck.

Agreed! This is beyond ridiculous. Prada is talking about the cost of production going up due to the pandemic and shortage of materials, so they are raising the price on clothes that are already sitting idle in the store that were produced last year, how does that make sense?

Even Louis Vuitton, who are having a price increase this week, only marked up their leather goods, fashion accessories, and perfumes. Not ready-to-wear.

Louis Vuitton is increasing its prices globally on Wednesday as production costs surge, according to a Reuters report.

Prices will increase across the French luxury brand’s leather goods, fashion accessories and perfumes, a spokesperson for Louis Vuitton in China told Reuters.

VOGUE BUSINESS

Prada's strategy with their ready-to-wear is absurd. The price point is so astronomically high, and has become so within such a short period of time, that it has alienated their core customer base. As much as I love Raf Simons, I know that his vision is very specific. His aesthetic is very niche. Yet instead of Prada trying to make his clothes more appealing and profitable by keeping the price point normal to encourage customer spend, they make it so ridiculously high, that their core client base is now looking to other brands. In these global circumstances (inflation, stagnant wages) luxury customers are extremely savvy. They want to get value for their money.

The problem is that Prada thought by making the runway collection ready-to-wear so expensive and therefore "aspirational", that the "cheaper" and commercial ready-to-wear pieces would sell well by extension. What they failed to realise that the clientele is not stupid. If you can get something from Bottega or Gucci that is from a runway collection for the same price as something that is commercial and nylon and with logos everywhere at Prada, why would you choose the latter? Let's be honest.

The other problem is that when the demand is not high enough, the prices go up to protect the profit margin for the investors. That is what is happening right now at Prada and that is what is going to continue happening until the clothing really starts selling. It's a vicious cycle and a financial strategy that will end in disaster. Raf's clothes are just not as commercial and appealing to mass taste as Miuccia's clothes were, and they are also double the price! How is that going to work for them as a company?

 

[Reggie63]

Agreed! This is beyond ridiculous. Prada is talking about the cost of production going up due to the pandemic and shortage of materials, so they are raising the price on clothes that are already sitting idle in the store that were produced last year, how does that make sense?

Even Louis Vuitton, who are having a price increase this week, only marked up their leather goods, fashion accessories, and perfumes. Not ready-to-wear.



VOGUE BUSINESS

Prada's strategy with their ready-to-wear is absurd. The price point is so astronomically high, and has become so within such a short period of time, that it has alienated their core customer base. As much as I love Raf Simons, I know that his vision is very specific. His aesthetic is very niche. Yet instead of Prada trying to make his clothes more appealing and profitable by keeping the price point normal to encourage customer spend, they make it so ridiculously high, that their core client base is now looking to other brands. In these global circumstances (inflation, stagnant wages) luxury customers are extremely savvy. They want to get value for their money.

The problem is that Prada thought by making the runway collection ready-to-wear so expensive and therefore "aspirational", that the "cheaper" and commercial ready-to-wear pieces would sell well by extension. What they failed to realise that the clientele is not stupid. If you can get something from Bottega or Gucci that is from a runway collection for the same price as something that is commercial and nylon and with logos everywhere at Prada, why would you choose the latter? Let's be honest.

The other problem is that when the demand is not high enough, the prices go up to protect the profit margin for the investors. That is what is happening right now at Prada and that is what is going to continue happening until the clothing really starts selling. It's a vicious cycle and a financial strategy that will end in disaster. Raf's clothes are just not as commercial and appealing to mass taste as Miuccia's clothes were, and they are also double the price! How is that going to work for them as a company?

As a luxury company, I feel that Prada is one of the most inflexible businesses out there. Their selling expenses are so huge that it really cuts into their margins. Some might say it is because of their no wholesaler/directly owned stores models but Hermes has healthy selling expenses levels so it can be effectively managed in that business model type. Funnily, how they dealt with this in the past is by constantly trying to cheapen production, and you see GPM improving since they started publishing financials. I think at this point, they're getting the cheapest prices they can in terms of what can be considered as "luxury" production. So now, their response is to increase prices to astronomical levels, hoping that their saviour Raf can lead to more sales, instead of fixing selling expenses. The latter is a more sustainable and long-term solution for creating shareholder value, but instead, they want to cosmetically fix the books by improving top-line results through price increases. It might seem like an easy fix but it's destroying brand equity in the mid- and long-term.

All these price increases are just to appease shareholders and show them that margins are improving even with the pandemic. No input cost increase can justify this. Before Covid, equity researchers have already been saying that Prada price points are already too high. And now this. It's all just so short-sighted. After these increases, you really can't dial it back - it would just destroy the brand further. It makes me think that the company is trying to fix the books to improve company valuation to sell. These are not the actions of a company that is fixing its issues for long haul value creation. That, or they are extremely stupid. Any investment banker worth their salt will smell this from a mile away and of course would flag it in their due diligence.

TLDR, the brand is screwed.

 

[andrew]

yeah uhhh I swear this was like $5-6K a couple weeks ago:

https://www.prada.com/us/en/men/rea...s.Leather_biker_jacket.UPW416_2D02_F0011.html

lmao

 

[YohjiAddict]

The prices for the beach bum men’s collection are the most absurd I’ve seen. For the price of that leather jacket, you can get a classic coat to last you a lifetime, instead of something trendy and gimmicky. They miscalculated so much by hiring Raf, he doesn’t get it.

 

[Frederic01]

The prices for the beach bum men’s collection are the most absurd I’ve seen. For the price of that leather jacket, you can get a classic coat to last you a lifetime, instead of something trendy and gimmicky. They miscalculated so much by hiring Raf, he doesn’t get it.

Prada prices are so astronomical, they have surpassed Hermès in some instances. A 100% cashmere coat is more at expensive at Prada now, than it is at Hermès! Have they completely lost their minds?!


PRADA


HERMES