Interested in learning more about FashionUnited’s Prada predictions – but no time to read the whole story? Then click for the 30-second-version: these illustrations and higlights will give you the answer.

Why Prada shares hit an all time low

Two reasons can be attributed to Prada share drop. One, the most
significant, is that the company’s profits are much lower than the previous
years. For the first half of 2015, the company reported a profit of 285.7
million euros, which is a vast difference from its 364.1 million euro
profit for the same period last year This means that company profit
decreased 21.6 percent, with earnings per share dropping 23 percent.
Compared to the group’s total sales, total profits have decreased to 15.7
percent of the total sales, down from 20.8 percent in 2014.

Secondly, forecasts for Prada’s third quarter results, set to be unveiled
on December 15th, remain bleak. The main factor behind this outlook can be
linked to the financial distress taking place in the Asia-Pacific region,
as affluent consumers continue to shop abroad for luxury European brands.
In addition, Prada’s firm decision to hold steadfast to its exclusivity and
brand image, whilst other luxury brands such as Balenciaga, Dior and Lanvin
have gone through major transformations this year, spurred by Prada’s arch
rival Gucci, means that Prada is losing much of its clientèle to its
competition.

According to the company’s predictions, Prada Group total sales are set to
grow by a mere 0.5 percent in 2015. Sales for Europe are likely to decline
2 percent and 2.5 percent in Asia-Pacific, with sales for other countries
decreasing 16 percent compared to 2014. Sales for the Prada brand are set
to drop 2 percent, with leather goods declining 3 percent. Unfortunately
for the company these negative sales trends are likely to continue on
towards 2016, if no changes are made in regards to their product line and
way of working. It can be said with certainty however, that sales in the
Asia Pacific region will continue to decline, even if the group introduces
large changes. Sales in this area will probably decrease another 2.5
percent in 2016 and 2 percent in 2017 due to a lack of demand.

Can Prada turn things around, without joining in on the change revolution?

With nearly every luxury fashion label on the market making some sort of
change to its brand this year, Prada sticks out by standing by its old
morals and ideals. As the company is controlled by Miuccia Prada and
Patrizio Bertelli, group CEO, a change in management is unlikely to happen,
as is any change to the brand’s pricing scheme. “Prada is by far the most
expensive of the mega brands,” said Luca Solca, a luxury-goods analyst at
Paris’s Exane BNP Paribas in a recent interview with the Wall Street
Journal. “I’d like to see more canvas and nylon. The name of the game is
not to be exclusive, but to appear exclusive.”

However, in spite of Solca’s opinion, the creative head at Prada remains
firmly rooted with her vision of the brand. “Python is the new cotton,” she
reportedly proclaimed after Prada’s recent show. “There’s always a lot of
irony in my work,” she added, for those still unsure of the brand’s future,
that she was indeed referring to real python skins. Known for going against
the grain, the fact that many luxury brands are working with cheaper
fabrics could actually help Prada boost it’s exclusivity image. For
example, if the company uses its production method and use of premium
materials as a marketing tactic, it will be able to own its rights to
exclusivity so to speak and reinforce its image in the consumer’s mindset,
in the same way Hermes does with its handmade handbags.

Prada could also boost its waning popularity amongst today’s hot consumers,
namely millennials, by becoming more transparent about the brand’s supply
chain and manufacturing. Although, Mrs. Prada revealed that she may explore
options to make her designs bolder and more eye-catching on the outside, by
updating Prada’s image in a wider sense, such as perhaps making the
collection more current and adding in new items which could be linked to
its cruise collections, Prada will be able to reach a larger audience of
potential customers.

What the future may bring for Prada

Prada Group remains very volatile to market changes, which means that its
shareholders are rather sensitive and very alert to any shifts in the stock
market. This in turn influences both their trust in the company and share
price. Therefore every change made to the company and to Prada, and every
new product line Prada releases will be reflected in their share price.

By taking the company’s 2015 predictions into consideration and combining
this with Prada’s vision to move the brand forward without joining the
luxury ‘change revolution’, and the managements team awareness that changes
do need to be made, FashionUnited is able to predict a future trajectory
for Prada Group to January 2018. This company forecast can be extended to
apply to the years ahead, but only if the company proves it can handle the
continuous growth. If not, then it is likely Prada’s stock price will fall
again after three years of growth.

Prada’s refined and exclusive image

Prada’s brand image is too strong when it comes to morals and vision to
change the materials used or pricing scheme. According to Miuccia Prada,
there are enough wealthy people in the world who are able to afford Prada
and will continue to buy the brand. Nevertheless in order to remain
attractive to the new generation of wealthy, Prada will have to make some
changes. Although this does not necessarily mean making any drastic changes
or becoming more ‘granny chic’, it does imply that Prada will have to
ensure that consumers in search of a more exclusive brand will think of
them first. The quality of garments, accessories and footwear and materials
used for them are of vital importance for luxury brands looking to position
themselves in the highest end of the market.

Another important aspect to keep in mind is sustainability and transparency
in the supply chain, as these are areas of vital interest for
well-positioned potential customers. The fact that Prada’s leather comes
from actual pythons can be seen as a positive point. However these future
consumers will want to know exactly where the leather comes from, how the
pythons are handled and in what state they are kept in. Following the
example of luxury conglomerate Kering, who has made a public stand against
the could help boost
Prada’s ethical and sustainable credentials with millennials.

By showcasing its exclusivity and the origins of its materials, the company
will not have to make any big changes to the overall style of the brand,
but these steps will improve Prada’s perception amongst consumers and
elevate the brand at the same time. With these type of marketing, Prada
will still remain appealing to its current customers but also be able to
speak to new customers who are drawn into the new, distinguished style of
the brand. In addition, Prada has the unique quality of being able to
continuously keep its consumer pleased by delivering in both quality and
refined style.

The appeal of Prada’s ready-to wear, footwear and leather goods range

Although both apparel and footwear are important to Prada, the brand is
focusing more on its leather goods and footwear range over its
ready-to-wear range. However, as the brand strives for perfection in all
areas, FashionUnited predicts that the company will continue to create
refined and current ready-to-wear collections that will match its leather
goods range. Prada is also likely to start developing its footwear
collections around its leather goods. As Prada’s clothing line growth
remained below average in 2014, if the brand makes the needed changes, then
FashionUnited predicts these sales will grow on average 7 percent in 2016.
By 2018, clothing sales could be slightly higher than average, at 9.1
percent.

Prada’s sales of leather goods has been declining over the past years, but
will recuperate as the Prada brand will do so as well. The largest part of
the leather goods sales from Prada will continue to come from Prada’s
classic range. These will continue to shine, because of the addition of
some matching items made from different, yet still exclusive, materials. In
order to boost the sales even more, Prada could work with limited edition
products, which would bolster the brand’s exclusive image again. Therefore
the sales of Prada’s leather goods are most likely set to start picking up
again in 2016, albeit at a slower pace than the brand’s other product
lines, growing 4.6 percent next year and 8.5 percent by 2017.

If Prada implements all these suggestions, FashionUnited foresees the
brand’s total sales to start improving again in 2016 and growing in 2017.
Brand sales are predicted to grow from an expected 2.8 billion euros in
2015 to 3 billion euros by 2017, a brighter future for the refined brand indeed.

Illustration Credit: Studio Iva (IGM: studio_iva)