Prada’s Path to Retail Performance

Prada Group’s new CEO Andrea Guerra has voiced his ambition to double its flagship model’s retail area productiveness, figuring out this as a very powerful alternative for the corporate within the subsequent few years. “From day one, I’m arguing and speaking about productiveness,” he mentioned. “There’s a lot to be finished. The ambition is to double it in three or 4 years… It’s the greatest like-for-like alternative now we have.”

In luxurious items, enhancing retail area productiveness — or gross sales per sq. foot throughout an organization’s retailer community — is on the coronary heart of shareholder worth creation. That’s as a result of luxurious items is a set value business, with lots of these prices on the retailer degree, in prime location rents and gross sales affiliate salaries. Higher gross sales densities present larger working leverage over these fastened prices and enhance revenue margins, return on invested capital and, in the end, shareholder worth.

Right now, Prada is materially behind larger mushy luxurious opponents on retail area productiveness, in response to Bernstein estimates. The model has roughly half the retail area productiveness of Kering flagship Gucci and fewer than 25 % the productiveness of LVMH money cow Louis Vuitton.

The difficulty is partially structural: retail area productiveness is a operate of the advertising and marketing {dollars} a model can spend, and Prada, being considerably smaller than Gucci and Louis Vuitton, could be arduous pressed to match their advertising and marketing budgets. However a lot of the hole stems from inefficient retail operations in addition to the scale of Prada shops. Prada has a top quality retail community, however its shops are sometimes too massive.

Guerra has indicated that Prada will use an array of measures to extend retail area productiveness — together with quicker and extra environment friendly operations (to enhance the replenishment of high sellers), customer support and clienteling (to extend gross sales per buyer, favour repeat purchases and enhance gadgets per basket), and, one presumes, rightsizing shops which can be too massive in non-strategic places.

Prada is coming from behind on retail area productiveness in comparison with friends. The jury is out on how a lot the corporate will have the ability to obtain. However the headroom for enchancment is unquestionably there.

Luca Solca is head of luxurious items analysis at Bernstein.