Will Prada’s Versace Bet Pay Off?

The centre just might hold after all: Despite a global rout in markets and escalating tensions between the US and key trading partners, particularly China, Prada Group is forging ahead with plans to acquire Versace for €1.25 billion ($1.38 billion), the company said Thursday, after negotiating a discount of more than €200 million.

Prada’s stock rose 2.4 percent Friday, more than twice the 1 percent average rise of the Hong Kong Stock Exchange where its shares are traded.

The deal is a boon for the pride of Italian fashion leaders, who bemoan the decades-long trend of its most iconic brands being sold off to French, Qatari and American groups like Capri Holdings, which paid $2.1 billion for Versace in 2018.

Beyond that, the logic behind Prada’s acquisition as outlined by management appears to be trifold: Versace is highly complementary to Prada’s existing portfolio, has significant growth potential and was for sale at an attractive price. Prada also feels it is the right buyer after piloting surging growth at its Miu Miu label, suggesting its corporate structure and supply chain can take on the challenge of relaunching Versace.

Let’s take a closer look at those claims.

Versace’s valuation certainly reflected its loss-making status (margins swung to a high-single-digit negative percentage last year), as well as the darkening outlook for global luxury. Capri agreed to sell for around 1.5 times Versace’s annual sales of $850 million for calendar year 2024, compared to an average deal price of 3 times annual sales for the luxury sector over the past 20 years, according to UBS. The last big Italian fashion deal was Kering’s play for 30 percent of Valentino, in which the brand was valued at 4 times revenue and 16 times EBITDA.

It’s also a price Prada can easily stomach. The group plans to hold onto its net cash pile of €600 million, borrowing the funds to acquire Versace as well as an additional €250 million to invest in relaunching the brand. The likely dilution to group margins after absorbing the brand is “not insignificant” but taking a hit to profitability in order to build a bigger group is in line with the Prada family’s long-term vision, UBS analyst Susy Tibaldi told clients.

Regarding how it fits into the group’s portfolio, Prada scion and chief marketing officer Lorenzo Bertelli noted the contrast between Versace’s bold, baroque aesthetic and the rest of Prada Group’s current offer. “It’s far away from the aesthetics of our existing portfolio like Miu Miu and Prada, but I think this is exactly a strength for our group, because there are no overlaps in terms of creativity or in terms of customer,” he said. “This is super important to really reach new audiences of customers and to express a different kind of message.”

It’s true that flagship brand Prada has favoured a more streamlined aesthetic in recent seasons — with fewer bold prints — as well as positioning itself more squarely in the luxury space. I wouldn’t go so far to say there is “no overlap” between the target market for a revamped Versace and Prada’s sporty entry-priced styles, or Miu Miu’s rebellious bookworm aesthetic — which is fashion’s maximalism of the moment. But it’s a big world, and the risk of cannibalising sales between brands feels limited. LVMH chairman Bernard Arnault doesn’t lose sleep when a Louis Vuitton customer turns up at Dior or Loewe. Richemont owns head-on competitors Cartier and Van Cleef & Arpels.

The more interesting complementarity could be Versace’s continued exposure to accessible luxury, as Prada and Miu Miu have hiked prices dramatically in recent seasons.

Versace’s bridge positioning — leveraging its runway image to sell many mass products like undershirts and sunglasses — has not been its strongest point lately. Less wealthy “aspirational” shoppers who historically powered the brand have been luxury’s least resilient customers since 2023.

Still, Prada could hedge itself against tariff-driven inflation and a global recession if it manages to revive demand for Versace while preserving some of its more accessible character. A push to cut prices after going too high, too fast over the course of 2023 and 2024 is already underway, Capri chairman John Idol has said.

The most important — and least certain — variable at Versace is its growth potential. Bertelli flagged ultra-high brand awareness relative to sales as a key proof point: surveys regularly rank the brand among the top 5 or top 10 most well-known names in luxury, alongside far bigger businesses like Louis Vuitton and Chanel.

Indeed, Versace understood viral fashion before social media even existed, engineering pop culture moments like 90s it-girl Elizabeth Hurley’s safety pin dress or Jennifer Lopez’s plunging jungle-print gown. A 2018 video campaign featuring models, brand ambassadors and Donatella Versace correcting people’s pronunciation of the brand harkened back to the label’s prominent placement in the 1995 cult film “Showgirls,” whose protagonist is humiliated for calling it “Ver-sayce.”

But growing a business on par with Versace’s global fame has long proved a challenge. The brand has struggled to scale key categories like luxury handbags and leather shoes, depending heavily on cheaper items like sunglasses, underwear, t-shirts and its Versace Jeans Couture diffusion line. While those entry-level splurges play a big role in most brands’ businesses, Versace hasn’t gone far enough to protect its image by balancing them with higher-end activities.

The brand suspended its haute couture shows in Paris in 2016, refocusing its scaled-back “Atelier” line on red-carpet operations. Its ready-to-wear shows focused less on design innovation than camp and nostalgia, bringing back J-Lo for a PR coup underwritten by Google Images, or pop singer Dua Lipa strutting the runway fanned by shirtless servants heaving and hoeing on ropes. Those might have helped to sell more underwear and merch, but did little to justify the increasingly pricey positioning of Versace’s core fashion offer.

Revamping the brand will require bringing back the opulence of its founding vision, which provided a halo effect to the rest of its portfolio. That could be tricky to pull off while appealing to a customer base that’s likely to resist higher prices.

Prada Group already has its hands full delivering a soft landing for Miu Miu after a phase of unprecedented hype and expansion, and keeping up the momentum at Prada, whose growth slowed significantly over the past year.

Still, the company believes they can be the ones turn around Versace: after steadying the core Prada business, its revamped executive team took on the transformation of Miu Miu from a financially-ailing (if insider-beloved) sideshow to fast-growing fashion star.

Corporate know-how for manufacturing, marketing and retail were all deployed to keep up with surging demand at Miu Miu. Adding seasoned executives at both the brand and group levels have freed up the company’s top leaders to shift to a more strategic, less hands-on approach. Now the Prada-Bertelli family believes their corporate and industrial “platform” is ready to take on new challenges.

“In a moment where everybody was growing, and we maybe struggled a bit more and had to tackle difficulties, we prepared ourselves somehow for this moment when of course, the markets are not in great shape,” Lorenzo Bertelli said. “We know our limits, and we know very well our strengths. We believe we can deliver long-term success.”

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Trump sees “transition problems” with China tariffs at 145 percent. The White House confirmed US tariffs on China have climbed to 145 percent on Thursday. “There’ll be a transition cost, and transition problems, but in the end it’s going to be a beautiful thing,” US President Trump said Thursday during a Cabinet meeting. “We’re in very good shape.”

The EU suspended retaliatory 25 percent tariffs on US goods after the Trump u-turn. The retaliatory tariffs on US goods are suspended for 90 days, with European Commission president Ursula von der Leyen underscoring the EU’s desire to negotiate with the US, and to enact retaliatory tariffs if negotiations aren’t satisfactory.

US imports are set to fall 20 percent in the second half of 2025 on Trump tariffs, an NRF forecast showed. A National Retail Federation forecast showed that imports into the US could be down at least 20 percent year-over-year in the second half of 2025, with imports expected to drop dramatically next month.

Shein gained UK approval for a London IPO, but awaits China’s approval. The online fast-fashion retailer has secured approval from Britain’s Financial Conduct Authority for its initial public offering in London, but it faces market turmoil and has yet to receive approvals from the China Securities Regulatory Commission to go public in London.

The US raised charges on small parcels, targeting Chinese retailers. Trump has ended the “de minimis” loophole, and Chinese imports of items priced up to $800 will now receive tariffs at a rate of 90 percent.

Capri aims to revive Michael Kors with lower prices, Amazon e-commerce sales. Following its sale of Versace to Prada Group, Capri Holdings is lowering prices and relying on Amazon sales for Michael Kors, denoting it may have to relinquish its luxury status.

Uniqlo’s owner raised its profit forecast amid expansion abroad. Fast Retailing Co.’s reporting operating profit climbed 18 percent in the six months ending in February, and subsequently raised its full-year forecast as demand remains high for Uniqlo casual apparel.

Chinese sellers on Amazon will hike prices or exit the US as tariffs soar. China houses roughly half of Amazon’s sellers (generating annual revenues of $35.3 billion), some of whom are looking to increase prices in the US while others seek new markets.

China advised Shein against shifting its supply chain. China’s Ministry of Commerce advised Shein and similar companies against diversifying their supply chains by sourcing from other countries, Bloomberg reported.

Trump officials quietly moved to reverse bans on toxic ‘forever chemicals.’ The Environmental Protection Agency is changing how it carries out chemical risk evaluations, which could lower regulations on everything from mercury in personal care products to PFAS in clothing.

Zozo acquired Lyst for $154 million. Following the acquisition of Lyst, the UK fashion platform best known for its shopping search engine, by Japan’s Zozo, Lyst will become a wholly owned subsidiary of Zozo while continuing to operate as a stand-alone business based in the UK, with Emma McFerran remaining as chief executive.

Levi Strauss beats quarterly sales estimates on steady denim demand. The denim brand, which has relied on steady demand and a diverse supply chain amid an escalating trade war, posted a 3 percent rise in reported quarterly revenue, exceeding analysts’ expectations by 4 percent.

Kwame Adusei and Diotima’s Rachel Scott are among Fashion Trust US 2025 winners. In its third year, the Fashion Trust US Awards honoured Rachel Scott with the ready-to-wear award and Nana Kwame Adusei of Kwame Adusei with the sustainability award. Saint Laurent’s Anthony Vaccarello received the event’s inaugural Honorary Award.

THE BUSINESS OF BEAUTY

Ulta Beauty pauses Target shop-in-shop openings. Ulta Beauty has debuted 610 Target in-store shops over the past five years, stopping short of its goal of 800 Ulta Beauty at Target locations.

WeightWatchers prepares for bankruptcy. WeightWatchers’ stock lost most of its value last year as the company struggled to maintain relevancy amid the rise of weight-loss drugs like Wegovy, and faced revenue declines, liquidity concerns and celebrity shareholder Oprah Winfrey’s decision to exit its board.

PEOPLE

LVMH names new CEOs at Fendi, Louis Vuitton China and Kenzo. In an executive reshuffle, Ramon Ros will leave Louis Vuitton China to join Fendi as CEO, and Charlotte Coupé will take the top position at Kenzo. Daniel DiCicco will succeed Ros as CEO of Louis Vuitton China.

Retail pioneer Darshan Mehta has died. The former Reliance Brands chief executive shaped India’s luxury fashion market for over two decades.

Designer Perri Cutten is remembered for her enduring mark on Australian fashion. Cutten, who was a Woolmark Award recipient. launched her eponymous label in 1981.

MEDIA AND TECHNOLOGY

Meta faces an FTC trial with an Instagram and WhatsApp breakup at risk. The landmark antitrust lawsuit is set to go to trial Monday. The FTC will argue Meta’s previous acquisitions of Instagram and WhatsApp were illegal and must be broken up, citing the decline of Meta’s apps through increased ads and weakened privacy protections.

Compiled by Jessica Kwon.