Prada Playing Catch-Up

MILAN, Italy — If in fashion, being late on a tendency can be lethal, playing catch-up when it comes to business strategy can be just as harmful.

Prada is learning that session the hard way. The trend in luxurious goods is to drum up exact same store sales by curbing enlargement and wowing customers with new items, yet Prada continues to pay on the odds to open swanky new stores and stock them with handbags small changed from previous bestsellers.

Prada, say analysts, now urgently has to focus less on new shops and more on new handbags.

The girls, which also owns the Miu Miu and Church's brands, opened up 250 stores in the past three years, much more than rivals. It has finally slowed down the pace but still plans 30-35 more stores this year, which this says is part of its long lasting strategy.

"Prada is starting to concentrate on same-store sales growth three years later on than some of their peers as their focal points were elsewhere, but it is obviously better to do it later rather than in no way, " Erwan Rambourg, luxury items analyst at HSBC and writer of The Bling Dynasty, a book concentrating on Chinese shoppers.

Analysts estimate same-store sales, which Prada stopped confirming last year, fell year-on-year by twelve percent in the third quarter in order to Oct. 31 and may have slipped by as much as 9 percent in the one fourth to Jan. 31.

Prada's pricey retail space, combined with slower development, has hammered margins and value. The group's share price almost halved in the past two years and most experts still have sell or hold tips about the stock.

Its operating perimeter fell to 15. 4 % in the third quarter from twenty one. 3 percent in the first fifty percent. Some analysts expect small perimeter growth this year, mainly thanks to the solid dollar that will boost reported profits in euros.

Prada is not solely facing difficulty at a tricky period for luxury goods makers, questioned by cheaper "accessible luxury" brand names like Michael Kors charlton crossbody and Longchamp.

Other brands seen as having relaxed on their laurels in terms of strikingly new items, like Kering's Gucci and Tod's, have also struggled to produce growth.

However the strategy of concentrating on same shop sales has nevertheless produced achievement for some luxury brands. Arch-rival Lv revealed last week that it had liked a strong rebound by investing seriously in exciting new products under brand new designer Nicolas Ghesquiere. It also stopped the opening of new stores.

In order to floated in 2011, Prada's ambition has been to catch up with bigger rivals simply by expanding. It spared no expenditure, splurging on "key money" – cash up front to secure the best areas.

In Milan, Prada outbid Apple company and Gucci to build a menswear shop opposite its historic shop in the prestigious late 19th Millennium Galleria Vittorio Emanuele II buying arcade, paying more than 20 mil euros to get the spot, real estate resources said. Prada declined to remark.

In the plush ski resort associated with Courchevel, it financed the restoration of the entire Place du Rocher to make it a more fitting address for the new boutique.

Meanwhile, some clients say the new shops carry totes that have not evolved much recently, as if the company were afraid to alter a product that worked well to get so long.

"Just arrived" Prada totes these days include two-toned satchels plus new versions of the Twin Handbag launched last year, fitted with a best flap and double zips. The item is similar in shape and carries most of the same features as previous best-sellers, such as the Double Bag or Galleria.

Some bags start at 1, 400 euros. In crocodile, they can achieve 18, 500 euros.

"Unless you might have strong feelings about sewn-on holders versus buckles, there's not much when it comes to meaningful variety or novelty, " wrote Amanda Mull on the widely-followed PurseBlog.

Customers have become savvier and much more demanding. Partly thanks to the Internet, they learn more about a brand's new products than in the past, and can readily abandon brands that appear to trail in innovation.

"They've dropped their touch, " said Sara, on a visit from Kuwait, directing at handbags in a Prada store window in Milan as the lady left the store empty-handed. "They aren't keeping up with changing trends as well as other brand names like Fendi or Dior. "

HSBC analysts upgraded their ranking to overweight last month over the hope that its "issues associated with innovation in handbags and accessories" will eventually be solved.

They will forecast new product launches will help like-for-like sales grow by a modest 1% this year.

Prada says it is constantly on the work on improving its flow of recent products and constantly recruits young creative designers. It has also pledged to improve the customer service and product mix in shops.

But at Prada's Paris range topping, no boots were on display regardless of cold weather. Clerks said this was regular as they were selling spring/summer items. But at Gucci and Lv, which were also selling summer selections, there were some boots on display as well. Gucci even had fur-lined versions on the shelves.

Manfredi Ricca, a professional at consultancy Interbrand, said primary now is not on building a lot more stores but on maximising income from existing shops.

"Having numerous retail outlets is less important compared to being able to offer the experience that customers look for in a brick-and-mortar shop, " Ricca said.

By: Astrid Wendlandt and Valentina Za; editor: Philip Graff.

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