Youth focus helps Prada sashay back to profit growth

MILAN－Italian luxury goods house Prada on Wednesday reported a return to net profit growth, following four years of threadbare results, as its strategy of targeting younger fashionistas paid off.

Net earnings rose 11 percent in the first half of the year to 106 million euros ($124 million) on sales of 1.5 billion euros, 3 percent higher than the same period last year.

Prada's CEO Patrizio Bertelli called the results "very satisfactory" and said they confirmed "the soundness of our strategic choices".

There was still "great potential to be unlocked through integration with digital technologies", he said in the earnings statement.

Bertelli and his wife, the designer Miuccia Prada, turned the company from its humble beginnings as a Milan leather goods company into a global power house and Italy's biggest luxury group by turnover.

Apart from the Prada brand, the group also owns Miu Miu, Car Shoe and Church's.

But Prada, whose shares are listed on the Hong Kong stock exchange, suffered declining sales in recent years, with net earnings down more than 10 percent last year.

Prada fought back by upgrading its retail network and developing digital technologies, a strategy that started to bear fruit toward the end of 2017 as online sales improved.

The company also revamped its existing product lines and launched new ones, in an apparent attempt to end over-reliance on its famous, and pricey, handbags, and emulate the competition's diversification.

"Prada has been much slower than its conglomerate competitors, Kering and LVMH, to adapt to the changing profile and behavior of the modern luxury consumers," Euromonitor International analyst Lorna Hennely commented on Wednesday.

"The group showed resistance to change, particularly when it came to engaging in e-commerce and strengthening their digital presence."

Sector experts also said Prada may have underestimated the need for leisure wear, including sneakers for younger buyers.

The 18-35 age segment will account for 45 percent of global luxury goods purchases, according to the KPMG consultancy.

But the latest figures, said Euromonitor's Hennely, "suggest the brand has entered a new phase, and Mr Bertelli's accompanying statement finally acknowledges the importance of the 'new generation' for the future of the group. After all, it is indeed tech-savvy millennials who are driving the vast majority of growth in the sector".

"Brands should identify their targeting consumer groups and integrate their sales online and at physical stores. It's also important to choose pop stars or internet celebrities that are in line with the brand features to help promote the products," said Neil Wang, president of consulting company Frost & Sullivan in China.

"With their large number of followers, those stars have a significant impact on the decision-making of their fans, at least more consumers would know the products. Brands' business will grow further if they can understand consumers and identify the right individual influencers," he said.

At its latest Milan fashion show catwalks, Prada appeared to be embracing a more youthful look, including for "young sexy men", in the words of Miuccia Prada.

In the first half of this year, Asia-Pacific sales rose strongly with 14 percent growth at constant exchange rates.

China booked a 17 percent increase, in a reversal of fortunes after slowing sales weighed on results in recent years.

The US returned to sales growth and Japan saw a "significant recovery", Prada reported.

Europe sales were up 7 percent, although smaller tourist numbers because of a strong euro kept a lid on gains.

Agencies-China Daily