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Prada Sees Lowest Profit Since 2011, Hopes Digital Strategy Will Turn Things Around

The owner of Miu Miu called 2016 a "turning point."
Prada Fall 2017. Photo: Imaxtree

Prada Fall 2017. Photo: Imaxtree

After a pretty terrible 2015, Prada revealed on Wednesday that the worst had yet to come with even steeper declines in both sales and profits in 2016. However, with revenue picking up towards the end of the year, the Milan-based company is describing this past fiscal year as a "turning point."

In the 12 months through January, profit fell 16 percent to €278.3 million ($295 million); that's the lowest it's been since its 2011 IPO. Net revenues declined 9 percent to €3.184 billion ($3.39 billion), brought down by poor performance in its directly operated stores. Prada saw signs of a rebound in the second half of 2016, however, when its sales decline narrowed to 6 percent and it saw double-digit growth in China, where growth had previously slowed. Overall sales returned to positive growth in January.

CEO Patrizio Bertelli called 2016 a "challenging year of transition." With retail sales down and wholesale up (by 15 percent), the company is in the process of rejiggering its overall retail strategy. On the brick-and-mortar front, instead of opening more stores, it's revamping its existing ones to improve the customer experience, as well as testing out new concepts like pop-up shops. But the company is making its biggest investment in digital — perhaps inspired by the fact that its wholesale growth was driven by strategic partnerships with e-commerce retailers like Net-A-Porter and MyTheresa.

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The company has hired a new team fully dedicated to developing its digital strategy. Plans include rolling out e-commerce globally (China, Korea, Australia, New Zealand and Russia will have it by year's end), launching women's ready-to-wear on Prada and Miu Miu's e-commerce platforms so that all products are available by year's end, relaunching Prada and Miu Miu's websites to improve functionality and story-telling, and increasing sales conversion from social media posts. The brand has also introduced more gently priced handbags to lure in more customers, particularly in that all-important millennial market.

Prada is just one of many luxury brands struggling to modernize and capture younger shoppers as the retail landscape rapidly changes. If this report is any indication, 2017 will be a crucial year to see whether those customers want to get on board.

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