Apr 1, 2015
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Prada to pamper clients to prop up sales following disappointing 2014

Apr 1, 2015

Italian luxury goods group Prada SpA has set out measures to counter a sales drop particularly in greater China, promising more services to clients in stores, faster-changing ranges and lower-priced handbags to meet stiff competition.

After concentrating on a rapid retail expansion since its 2011 listing in Hong Kong, the maker of Miu Miu handbags now wants to pull more clients into its nearly 600 shops after its sales fell 1 percent last year despite 54 net openings.

Same-store sales suffered a "high single digit" drop and Prada is putting a new focus on generating more sales from its existing outlets.

"Positive like-for-like (sales growth) is the No.1 priority for the group," head of marketing Stefano Cantino said. "We have to enhance the performance of our existing stores."

His comments came after Prada on Monday posted a worse than expected 28 percent drop in yearly net profit to 451 million euros ($488 million), hit by weakness in greater China. "Trading conditions in Hong Kong and Macau remain unsettled," Chairman Carlo Mazzi told analysts.

Analysts had on average expected a net 476 million in the year to Jan. 31.
As Chinese luxury spending cooled amid pro-democracy protests in Hong Kong and a clampdown on corruption that hit gaming hub Macau, consumer patterns have also changed, Mazzi said, pointing to lower brand loyalty. "The challenge of meeting customer needs is growing."

Shrinking sales of highly-profitable leather goods hurt Prada's margins and its core profit fell to 954 million euros, or 27 percent of net sales, from 32 percent a year before.

The company targeted stable or slightly improving margins this year, helped by the weaker euro.

Cantino outlined plans for in-store events, delivery and made-to-measure services. Key would be the merchandising mix of each store. "We're trying to be more specific by country and store," he said.

Prada will also try to leverage its best-selling models, frequently introducing new versions and launching new styles covering all strategic price ranges, Cantino said, including new bags starting at between 700 and 800 euros. By comparison Prada's most successful bags include the Galleria starting at 1,400 euros and the Double Bag at 1,800.

To be able to better respond to fast-changing tastes, Prada is also working on its supply chain and looking to hire 300 people in Tuscany where it produces leather goods.

The Milanese group will review its pricing policy after Easter and while there could be reasons to lower prices in Asia there was not much room to raise them in Europe.

As it strives to cut costs and shield margins, Prada will open 28 shops at most in 2015, including six conversions of existing outlets. Openings would be no more than five or six per year from 2016.

€1 = $1.07/£0.73

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