Prada posts strong financial recovery as it aims to reach US$ 6 billion by 2025

Italian luxury group Prada is expecting a strong financial recovery. CEO Patrizio Bertelli told the business publication Il Sole 24 Ore that yearly revenue will hit $6 billion over the next four to five years to double its current revenues based on a strong acceleration once the pandemic is over.

Now that the luxury industry is shaking off the pandemic, Prada has experienced increased demand in the Asia Pacific for the second half of 2020, specifically China (+52 percent), Taiwan (+61 percent), and Korea (+22 percent), where lockdowns have lifted earlier than the rest of the world. The Italian house predicts $3.6 billion in revenue this year, nearly reaching its pre-pandemic levels of $3.86 billion in 2019.

Prada’s five-year plan forecasts a doubling of revenue, which is a tall order that will require the luxury brand to follow through on the strategy it has been implementing over the past several years. In 2019, under the leadership of Lorenzo Bertelli, Prada started its expansion on local e-commerce platforms JD.com, Secoo, and Tmall.

Although it initially lagged in China, the brand’s latest efforts on e-commerce and social media have driven significant traffic, helping to triple its online revenue. In fact, Prada’s online growth is outpacing offline retail, confirming the consumer shift toward digital due to the pandemic.

Additionally, the luxury house’s close collaboration with influential KOLs, larger investments in new retail formats, and sustainable initiatives have drawn the attention of many local young consumers. Prada’s influence is hard to miss on popular Gen-Z social media platforms like Little Red Book. Although the brand doesn’t have an official account, Prada is among the platform’s most mentioned brands, with over 200,000 instances of user-generated content.

Prada has been experimenting with new retail formats. In 2020, Prada launched about 80 installations, including pop-ups and workshops. The brand’s latest instalment showcases its outdoor collection, Garden, at its cultural residence in Shanghai, Rong Zhai Villa, where it offers gardening, horticulture, camping, coffee, and mixology workshops for guests.

Admittedly, a single pop-up would be limited in its ability to mirror the sales created on digital platforms like Tmall. However, as is often the case with China, scale is the key. With 80 activations per year, Prada’s pop-up model pushes beyond a one-off marketing event and into an important driver of influence and sales.

In 2019, Prada appointed the 22-year old pop idol Cai Xukun, who has 34,000,000 followers on Weibo, as its brand ambassador. Prada had largely avoided the idol ambassador trend but finally gave in. At the time, the endorsement announcement won over 730 million impressions within 24 hours. The collaboration with the young Chinese star helped Prada rejuvenate its brand image and connect with Gen-Z consumers.

However, as all international and domestic players are leveraging the followers economy, the fact remains that “young fans’ spending power is quite limited,” Miss Charming pointed out. Celebrities can help brands to boost significant visibility, but it does not necessarily convert to actual sales — and even less to consumer loyalty.

For instance, Prada’s two co-creative directors Raf Simons and Miuccia Prada engaged in a conversation with international students for the brand’s Fall Menswear collection. Elsewhere, for the relaunch of Prada’s Galleria handbag, fashion blogger @Dipsy迪西 revived the classic item, looking back at its cameo in “Mission: Impossible 4.”

Top star endorsement deals can cost brands millions of dollars. To fully leverage celebrities, brands should start considering them as partners they can co-create content and campaigns with as a way to appeal to followers, ultimately driving traffic to the brand’s channels.

For the release of its latest Cleo handbag last November, Prada selected China as its first launch location and rolled out the social campaign on Weibo while leveraging 22 Chinese celebrities, eight top models, and 24 fashion influencers. The campaign’s hashtag on Weibo garnered over 80,400,000 views in one day.

The new product quickly achieved the coveted IT-bag status, gaining popularity among local consumers. Whether directly or due to a halo effect, this new addition paid off in sales. In the second half of 2020, Prada experienced double-digit growth in Asia for its leather goods category.

Handbags remain the industry’s biggest and most profitable category. Despite the recent success of sneakers and Tees among young consumers, bags are critical to a post-pandemic sales rebound, especially for iconic luxury bags, since their high recognizability makes them perfect status symbols.

However, with new rules to luxury marketing, IT bags are few and far between. Brands run the risk of investing countless marketing and production dollars in vain. Yet, that is what it takes for a bag to even stand a chance when it is introduced into the China market. And, with today’s fashion cycle, that bag may lose popularity within a year.

With international travel banned and Western countries under lockdowns, China’s young consumers have driven luxury brands’ V-shape recovery, with Prada reporting a 52-percent growth jump in the local market.

But as borders reopen, luxury brands are preparing for a post-pandemic world. “Prada, like all, will benefit from a return of significant tourist spend,” points out Flavio Cereda, managing director at Jefferies International financial services company. “It will be a positive but not a short-term driver in our view.” Yet, can brands maintain sales figures in the local market when Chinese consumers start traveling again?

The pandemic has drastically shifted consumer shopping behaviors. Before the pandemic, local shoppers would consider purchasing luxury products in Hong Kong or other international destinations, but now buyers have become used to making purchases locally. Moreover, as brands have prioritized merchandise allocation in China, domestic consumers have embraced their contacts with local sales assistants.

The “new normal” presents an opportunity for luxury brands that have had to double down on their strategies for selling to consumers in Mainland China. If brands can keep this loyalty in addition to easing back into travelers internationally, they stand to win on both ends.

To ensure continuous growth in the market, Prada must continue acquiring new customers by leveraging its new retail formats and engaging online and offline content. It has to retain loyalty from already existing customers by offering exclusive benefits. And lastly, as Cereda suggests, it must “support full-price, sell-out metrics” to create its next “IT” products.

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