Can Prada Return To The First Tier Of Luxury Goods?

The challenge of luxury brand business has risen to an unprecedented level in the extremely complex global market, the elusive consumer tastes and the rapidly changing technological forms.

Prada, a luxury brand in Italy, yesterday delivered a financial report that was not easy to analyze. Analysts have mixed feelings about their assessment, and few have given more clear forecasts of Prada's future development. Such confusion is actually a universal emotion in the current changing market.

In the 6 months ended June 30th, Prada group's sales grew by 2% to 1 billion 570 million euros on the spot exchange rate, slightly higher than that of FactSet analysts, but lower than the average growth rate of global luxury goods, which also slowed down compared with 3.3% in the same period last year.

The group's profit before tax and depreciation amortization rose 31.2% to 491 million euros, and net profit rose 57% to 150 million euros. But it is noteworthy that this is mainly due to tax incentives for patent boxes. Group's operating profit dropped by 13%. Bernstein analyst LucaSolca said that after eliminating the one-time effect, the company's earnings will actually be 14% lower than the first half of 2018.

By brand, Prada sales were basically flat, increasing 1% to 1 billion 237 million euros. MiuMiu performance is not ideal, sales fell 8% to 235 million euros. Church's sales increased by 3% to 32 million euros, and sales of other brands increased 8% to 8 million euros.

According to the category, the leather and footwear department of the core was basically the same as that of the same period last year. But the clothing business was promoted by women's wear and men's wear series. Sales rose by 8%. The LineaRossa series was outstanding. The positive retail price was optimistic. In the first half of the year, the total sales increased by 2%, partly due to Prada's decision to stop the sale at the end of the season. The group sells through 637 direct outlets and luxury department stores, independent retailers and franchised stores in 70 countries.

By region, sales in Europe and the United States increased by 6%, but sales in Asia, including China, fell by 4%, while sales in Greater China fell by 5%, and sales in Japan increased by 5%. Overall, the growth of Europe, America and Japan is offset by the contraction in the Asia Pacific region and the Middle East.

PatrizioBertelli, chief executive of Prada group, said that despite the slowdown in performance during the period, the profitability of the group increased significantly with the growth of full price retail sales, which means that the transformation and upgrading strategy is continuing to take effect.

This earnings report embodies several key points: the sales of the positive price products have gone up, the Chinese market is not satisfactory, and the sales of garments have gone up. But this is somewhat "anti common sense", the general situation of the industry is that leather goods business is better than garment business, China's market growth is better than the European market, and Prada is the opposite.

Sentiment in the capital market is much more direct. Despite the poor performance in the Chinese market, the Prada group, which listed in Hongkong, has surged against the market today, and has surged to 7%. Today it closed at HK $25.35, up 5.41%, with a market value of HK $64 billion 800 million. It is noteworthy that today's Hang Seng Index has fallen below 27000 points, and the Hong Kong stock market is shrouded in haze. Prada is thriving.

　 01

The capital market clearly saw a positive sign of change in Prada.

First of all, stimulating sales of positive products and reducing discounts are generally considered to be the right decisions for luxury brands. With the two sides of the head luxury brand and the popular fashion brand, the "mid-range" luxury brand life has become a common phenomenon. In March, PatrizioBertelli said in a conference call that its brand will stop the discount sale activities at the end of the store, so as to further enhance its brand image and enhance its profitability. Some analysts believe that at the same time, it can compete with Gucci and other competitors for market share better. What it means is that Gucci began to go downhill and recorded the lowest growth rate in 3 years in the second quarter of this year.

Luxury brands offering discount products in Ortles is a common mode of attracting lower level consumers, which can solve both unsalable stocks and profit margins. ManfredAbraham, chief executive of BrandCap, a London based management consultancy, said in an interview with the financial times that selling discount products at outlets is a quick way to boost revenue for luxury brands, but this often erodes the brand's own value.

The problem of discount is an industry problem. The Prada pricing strategy is undoubtedly a strong stimulant in the industry.

In the Internet age, how to maintain the uniqueness and scarcity of luxury brands has also triggered the industry's vigilance. Some analysts pointed out that the real use of luxury goods is only two. The first is to create social distance. The second is the expression of values. To create social distance, it is impossible to buy them freely, so the first key words in the field of luxury goods are hard to get, so luxury can not be reduced easily.

It should be emphasized that discount is a common challenge faced by an industry. Prada's positive price strategy is undoubtedly a strong stimulant in the industry.

Last November, Farfetch CEO and founder, Jos Neves, at the New York Times International Luxury Summit in Hongkong, also appealed for luxury and fashion brands to stop and take steps to prevent the "discount war" from deteriorating. Excessive discounts have become the biggest threat to the whole retail ecosystem.

In addition to Prada, the British luxury brand Burberry CEO MarcoGobbetti has been carrying out a positive transformation plan after taking office, trying to persuade shareholders to change the current medium priced luxury brand positioning of the Burberry, return to the high-end line, take back the price leadership and enhance profitability so that the British brand can become "extravagant" again.

Gucci, from the first two series of creative director AlessandroMichele in 2016, the new products are all sold at full price, and no longer any discounted goods will be sold. The discount stores are usually sold for six months or a year ago.

Luxury brands such as Louis Vuitton and Dior have also retracted wholesale business from two markets in Europe and the United States to a licensing mode. Coach, MichaelKors and other luxury brands reduce the "discount" damage as much as possible by reducing the volume of wholesale channel shipments.

　 02

Judging from the stock price trend since last year, the performance of Prada in the Chinese market has been widely recognized. In the first half of the year, a series of actions in the mainland of China need a certain amount of time to release the value, which is ultimately reflected in the performance.

In fact, Prada's excellent performance in the European market has reduced the market's doubts about the over reliance of luxury brands on Chinese consumers.

Beginning in March this year, apple blamed the problem on the decline of iPhone sales in the Chinese market, which triggered a wave of market sentiment and spread to luxury brands. According to CNNBusiness, besides apple, more and more luxury brands grow heavily on the Chinese market, but the current complex market situation or the growth of these brands is at risk. Analysts BenjaminCavender pointed out that this year may become a tough year for luxury brands. Chinese consumers may not be willing to spend money on the latest smart phones or luxury handbags when they tighten their spending.

Because of trade friction, market instability has been proved in the near future. Prada's assessment of the Asian market is that Hongkong's retail instability and exchange rate factors have an impact on local retail sales. However, the mainland market is optimistic, and the efforts of the Chinese team in advertising marketing are having a surprising effect.

In the first half of this year, the pace of Prada's layout in China has become more compact. In early June, Prada made a number of initiatives in just a week, not only in Shanghai, but also in the 2020 spring and summer men's wear Shanghai big show, and also released the 2019 autumn winter men's clothing series "almost human", directed by the artist Cao Fei and the Chinese new generation idol star Cai Xukun KUN.

Prada said that the Chinese team's efforts in advertising marketing are working.

Immediately after that, Prada announced cooperation with Jingdong. Its three brands, Prada, Miu Miu and CarShoe, were officially entered into the Jingdong 618 period, and there were 2019 new products in autumn and winter. Before June this year, Prada and MiuMiu only set up a brand official website in China. Purchasing and Hai Tao are the main ways of contacting consumers on the Chinese line. However, because of the opaque prices and the rampant fakes, such sales methods have a greater negative impact on the brand image.

PatrizioBertelli said he was not worried about the future performance of the Chinese market, but felt that the group needed to strengthen its grip on the market. After detailed analysis of the wholesale channel structure, the group's board of directors announced in May this year that it began to restructure its independent partner network, of which China is the strategic focus of the reorganization plan.

In June 10th, a series of moves in the Chinese market stimulated Prada's share price to rise by 5%, and its market value exceeded 60 billion Hong Kong dollars, which proved the market's confidence in Prada's performance in China.

It is noteworthy that Bernstein analyst LucaSolca questioned the transformation of Prada in China after the publication of the earnings report, saying that Prada was late in adapting to the millennial generation of China, but the latest data was not ideal. It may mean that Prada did not work as well as other brands to arouse the resonance of the millennials. However, according to people familiar with the matter, told WeChat public No. LADYMAX, after announcing Cai Xukun as spokesperson, Prada stores attracted a lot of young consumers and fans online "drying list", which will undoubtedly be reflected in the second half of the performance.

　 03

Among many of the top luxury brands, Prada has always been unique in its category sales. The continuous rise of garment sales is a direct reflection of its brand cultural value.

Luxury brands usually use advanced clothing to create brand image, but earn profits through higher profit handbags and cosmetics. Taking Hermes as an example, the core handbag category contributed more than 50% of sales. Chanel's beauty make-up business is 1/3 of total sales. The more depressed the economy is, the more inclined consumers are to invest in luxury goods that are easy to maintain. Compared with the fashionable clothing, the value of the handbags is obviously higher. This is also the reason why many luxury brand handbags are out of stock and the garments are unsalable.

Consumers are willing to buy Prada garments. They usually agree that Miuccia Prada is unique or even called "heterogeneous" values.

Because MiucciaPrada insisted on not following the trend, Prada, which was launched in 1988, became the most special presence in the luxury industry. In contrast to the vagaries of the business world, Prada's position in the fashion industry has remained stable. In 90s, MiucciaPrada formally introduced the "bad taste and fashion" to the fashion industry, breaking the traditional fashion industry's pursuit of flawless perfection and splendor, and was considered to be complicated and profound with the intellectuals.

Consumers are willing to buy Prada garments. They usually agree that Miuccia Prada is unique or even called "heterogeneous" values, Miuccia Prada.

Her original ideas come from her personal interest in politics and culture, especially her love for contemporary art. As early as 1993, Miuccia Prada and PatrizioBertelli founded the Prada foundation and co operated with many curators in the development of art projects.

MiucciaPrada has repeatedly expressed his disgust for the word "luxury" in media interviews. She believes that there is no right answer to any discussion on luxury goods. She has heard all the definitions of luxury goods disappointing her and hated the rule of luxury industry. She once said, "some people use" change "to define Prada. In some ways, I like this definition.

Through years of accumulation, Prada and art have become the moat of the brand. Unlike many brands that rely on art to enhance their positioning, Prada has sneaked into the core battlefield of art and has become a very familiar player. In recent years, it has launched PradaMode, Prada Invites, Prada, and other cultural projects. Cooperation with artists and famous directors has also become the norm of brands.

Despite recent Prada announcing the news that Cai Xu Hun joined the brand spokesperson lineup in social media, it is controversial or not bad for today's luxury brands. Brand is the product of the times. For any luxury brand that focuses on the contemporary era, it has no reason to bypass the idol culture, let alone the best interpretation of contemporary Prada.

From the perspective of brand value, Prada also keeps pace with the market in the layout of corporate social responsibility. In February this year, Prada announced the establishment of a multicultural and inclusive Advisory Committee to enhance the cultural diversity of the company and the fashion industry. In May, Prada announced its accession to the zero fur camp. Subsequently, Prada also announced the launch of the reclaimed nylon project, officially introducing a series of men's and women's knapsack with recycled nylon logo. ECONYL recycled nylon is jointly launched by PRADA and fabric manufacturer Aquafil. It recycls and purifies production by collecting waste plastics, fishing nets and textile fiber wastes in the ocean.

Even if the latest Prada initiatives are seen as commercial caters, there seems to be nothing wrong with it. Amazon CEO Bezos said, "we need to have big failures to force us to move forward. The difference between playing baseball and doing business is that only 4 points are scored in home runs, and sometimes 1000 points in business. According to the probability distribution, you should try to swing. You will fail many times, but it doesn't matter. Those who are always right are mostly those who are diligent in listening and diligent in changing their minds. Their change is not based on a lot of new data, but rather based on the analysis of things. If you are not diligent in changing, you will often make mistakes.

The fact is, as a publicly traded luxury group with a market value of nearly 100 billion, Prada will never jump out of the rules of the luxury industry and capital market. Market speculation on performance and even the future direction of the group is the pressure at the top of the brand.

Now it seems that Prada has come out of the "contradictory period" and is determined to embrace change, which is a positive signal for the market. In January this year, Prada Group Chairman PatrizioBertelli and Miuccia Prada's son LorenzoBertelli entered the group as the head of marketing and communication, and will surely inject new blood into the group. At yesterday's earnings conference, LorenzoBertelli outlined the company's plans to transform figures and data as part of its transformation. Prada has established a partnership with Oracle and Adobe, which will better digitize and plan to launch a new retail innovation sector.

Of course, the innovation that Prada is making may not be enough. For example, for the poor Prada sister brand MiuMiu, the group seems to need bolder strategic layout. In a global market with steep risks, Prada obviously needs more diversified portfolios to spread risks. After all, the risk control capability of Prada does not prevail when competing against brands such as LVMH and Kai Yun group.

But the luxury business is a long-distance race. The latest report shows that consumers are tired of Gucci, and it is still unknown who will become the next Gucci. Overall, Prada still has strong competitiveness in the long term competition, and the potential to return to the first tier is considerable. NickyIto, an analyst at Mainfirst, said that if Baidu focused on brand power, the performance of Prada would not be bad in terms of Google and Google search trends.

Business strategy is easy to copy. When more and more luxury brand innovation methods are becoming more and more similar, the final distinction is still the connotation of the brand itself, which is the long-term accumulation of the brand, and is not achieved overnight.