Is Prada Ready to Take Off?

The pandemic hit Prada hard. The luxury label’s sales fell 24 percent last year to €2.4 billion ($2.9 billion), while operating profit tumbled more than 90 percent to €20 million ($24 million).

But shares in the company are currently trading at their highest value in more than five years, as a swift recovery starting in the second half of last year sparked hope that the company can finally deliver on a long-awaited turnaround.

With investor interest climbing in recent months, what’s driving the perception that the company’s growth is set to take off?

A Rapid Rebound

To be sure, Prada is feeling less pain than its Italian peers. The company’s 24 percent decline in revenue compares favourably to fellow Italian brands’ Tod’s and Ferragamo, both of which saw sales fall by roughly a third last year. But it was still far worse than French luxury titans like Hermès or LVMH’s fashion division, where full-year sales fell in the single digits.

Still, Prada’s retail sales were back at 2019 levels by December, and have remained at pre-pandemic levels since the start of the year, the Milan-based company said Wednesday, despite the ongoing downturn in events and tourism.

“2020 was a year of huge disruption to our business,” Prada’s chief executive officer Patrizio Bertelli said on a call with investors Wednesday. But Prada is “still at the beginning of our growth trajectory and there is still a huge potential to unlock,” he added.

Prada appears to be winning big where it counts, with second-half sales in the key Chinese market rising 52 percent. The Americas also returned to growth, up 4 percent in the second half. In Europe, sales to local clients grew by double digits, the brand said.

Online Awareness

In addition to the strength in China, Prada seems to have turned a corner when it comes to online relevance.

Previously a laggard among fashion players when it came to going ramping up its e-commerce business (the brand only sold a very limited selection of products online in a few regions until 2017), Prada’s online sales tripled in 2020, the company said.

A highly engaged social media following (including 26 million users on Instagram, up from 17 million in 2018) also helped the brand keep up awareness.

Prada’s Spring/Summer 2021 show, boosted by the excitement around the arrival of new co-creative director Raf Simons, garnered more than 30 million views each on China’s Weibo and Douyin platforms.

While most brands struggled to attract viewers on Instagram without influential guests to amplify their message by posting about the event, views of Prada’s show on the platform were more than double the prior year’s season.

Sporty Products, Small Bags

The company is also benefiting from changes to its product mix in recent years, including focusing less on expensive handbags in favour of relaunching sportier lines like its iconic nylon rucksacks and Linea Rossa sportswear.

Prada’s ultra-casual, utilitarian items broke new ground for luxury fashion in the 1990s, but the company discontinued many of those more accessibly priced products in the 2010s to focus on high-end leather — leaving it ill-positioned for the boom in luxury sneakers and athleisure that started around 2016.

That made it hard for the brand to plug the gap created by declining interest in its flagship Galleria handbag, a top-handle tote aimed at professional women (who no longer carry around file folders, and increasingly prefer to keep their hands free).

Prada’s $1,600 Nylon backpacks, which returned in 2018, as well as $1,000 belt bags and $875 reissued baguettes had been gaining momentum going into the pandemic and received an added boost as the brand reached out to environmentally-conscious consumers with its “Re-Nylon” program, which has pledged to convert all nylon products to recycled material by the end of this year.

Prada’s Linea Rossa line, well remembered for its hit skiwear, track jackets and sneakers in the late 1990s and early 2000s, is also back since 2018—and has continued to boost the brand’s relevance for younger, streetwear-influenced clients.

The Linea Rossa line “perfectly fits in the new world focused on sportswear and young consumers,” Bernstein analyst Luca Solca said.

While sportier lines helped broaden the brand’s appeal among entry-level consumers, more expensive leather bags are also rebounding, Bertelli said Wednesday, pushing up average prices.

Still Work Ahead

That Prada’s sales have returned to 2019 levels with 135 stores still closed — and with cancelled occasions and missed tourism revenues continuing to squeeze fashion sales — is certainly encouraging.

But in an uncertain market for fashion, the scale of Prada’s recovery has yet to be confirmed. In the immediate term, the brand will need to successfully commercialise its revamped collections under a new designer, Simons, without alienating fans of the codes built up over decades under Miuccia Prada, who remains in place as co-creative director.

The successful launch of Simons’ sleek, bright Cleo bag in December—one of the first items launched since his arrival—is a promising sign.

Looking ahead, the company will need to clarify plans for its corporate succession as well: Lorenzo Bertelli (the eldest son of Mrs. Prada and CEO Bertelli) has positioned himself as a modernising force on key topics like sustainability and digital communications since joining the company in 2018. But the former racecar river has only been in place at the company for 2 years while his parents are in their 70s.

Another variable to watch in the coming months will be the relaunch of Prada beauty and perfume following a licensing deal with L’Oréal. That effort, typically paired with hefty marketing investments, should help broaden Prada’s audience —though it remains to be seen how much.

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