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Prada's Road To Revival And Reform

2019/7/3 10:06:00 2


Under a series of strategic mistakes, Prada has been in a difficult period for several years. But recently, the Italy luxury group has begun to take measures to get back to the right track, such as announcing plans to further reduce wholesale channels, and the decision to stop selling full price stores. These two steps are praiseworthy and wise, because only in this way can we better manage product pricing and ensure the long-term development of brand equity.

Prada also announced that it would stop selling fur and launch various initiatives before making up for past sales mistakes: re introducing nylon bags and entry-level handbags, increasing the design style of leather products, paying attention to novelty again, no longer playing sports shoes and restarting the campaign series "Linea Rossa".

However, Prada is still lagging behind its competitors in one step (or two steps). Looking back over the past five years, we can see that the brand is always aware of it. When its competitors began to cut their retail networks, Prada was opening new stores; it was the last one to regard digitalization as a strategic focus; after Louis Vuitton decided not to continue to support the US Cup Sailing Competition, Prada became a new event sponsor.

When was the last time Prada launched a creative initiative to make its competitors admire? This question deserves more attention. After all, Prada has been perfectly compatible with the trend of thought and has become a pioneer in many fields. For example, more than 20 years ago, the street apparel and sports series were brought into the luxury sector; breaking the practice of uniform style of other brand stores, realizing the differentiation of store styles, and pursuing minimalism, etc., similar examples are numerous.

But Prada's weaknesses are very obvious compared with peers.

But Prada has now become a follower of the follower, not making money. In fact, the business performance of the brand is not satisfactory. No matter which mature industry, we can find that the top ranked players have high profit margins; second of them also have good profit margins, while third can only make ends meet. The luxury industry is still at an emerging stage, which is not perfect enough and is vulnerable to strong potential demand trends, so it is relatively relaxed. But Prada's weaknesses are very obvious compared with peers. (in the case of retail irreparable, the decision to reduce wholesale channels is correct, but this has also led to further downgrades in revenue.)

So, what should Prada do next? Organizational development is the key. Firm and decisive organizational upgrading is beneficial to Prada; enabling a more powerful management team to accomplish the vision of the founders is also beneficial to Prada; more powerful merchandising and brand management capabilities are also beneficial to Prada's peak.

The rapid development and complexity of luxury goods industry have challenged traditional management models. Empowerment management, teamwork and willingness to take risks are crucial to maintaining competitive advantage. Although highly centralized decision-making management mode may have advantages in major strategic steps, it may stifle innovation, delay progress, and lead to lack of accountability in daily operations.

To be sure, Prada is fully capable of counterattack. If enterprises create the right environment, we do not think there is any obvious structural problems that will affect the brand to create brilliance again. Of course, the scale of Prada is smaller than that of Louis Vuitton and Gucci, and the surge of investment will make the scale issue even more important. But forward-looking small businesses can achieve brilliant results if they focus on the right indicators - spatial productivity and brand value enhancement. Moncler is the best example.

Prada is unlikely to be bought, not because of a lack of acquiring company, but because its controlling shareholders will not sell at this stage. Improvement must start from within. We believe that the most promising signal for the market is management upgrading and thorough reform.

Luca Solca, director of luxury research at Bernstein Research Institute (Bernstein).

Source: BOF Author: Luca Solca

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