Prada, Ferragamo unfashionably late to luxury sector’s rebound

Bloomberg

As sales of Gucci’s snake-covered handbags and heels lead the luxury industry’s upswell, many of the brand’s Italian rivals are struggling to catch the wave.
Shares of Prada SpA, Salvatore Ferragamo SpA and Tod’s SpA have all posted double-digit declines in the past six months as profits fall, while privately held Giorgio Armani SpA is pruning its lineup after a 5 percent drop in sales last year. Their weakness contrasts with newfound strength at French rivals LVMH and Kering, whose Italian brands Fendi and Gucci are racing ahead after a multiyear slowdown in China.
Italy’s listed fashion companies “are losing market share in a more competitive category for both footwear and leather goods,” said Rogerio Fujimori, analyst at RBC Capital Markets.
The likes of Prada and Ferragamo are being punished for dragging their feet on investments in e-commerce, as well as failing to read consumer trends such as the rise of sneakers at the expense of more formal shoes. Now they’re trying to catch up by revamping their digital strategies and rolling out flashier new designs to compete with the eye-catching creations of Gucci designer Alessandro Michele. Shareholders remain unconvinced, worried that smaller companies focussing on just one or two brands will struggle to drum up the investments or take the creative risks needed to match faster-growing rivals owned by the French conglomerates.
“The market is correctly anticipating a lower growth profile for the more mature mono-brands,” said Louise Singlehurst, an analyst at Morgan Stanley who has an “underweight” recommendation for Tod’s and Prada, and “equalweight” for Ferragamo.
At Prada’s runway show during the recent Milan Fashion Week, the brand showed off new alternatives to its staid Saffiano handbags, including accessories emblazoned with pop-art cartoons and encrusted with metal studs.
Backstage, designer Miuccia Prada brushed off questions
about whether the collection could reinvigorate the brand’s sales, which have been declining for three years.
“I don’t want to be judged by sales,” she said. “My life is so much more important than sales. I never think about that.”
Prada, the company, is more concerned about declining revenue. On a call with analysts and investors this month, Chief Executive Officer Patrizio Bertelli, who is married to the designer, outlined plans for a turnaround. He plans to shift more spending to digital communications, deepen the online selection and expand the e-commerce site to more markets, including China. The brand will also start offering more sneakers, he said.
Analysts say Prada’s troubles run deeper than digital strategy. Miuccia Prada has kept a reputation for cutting-edge designs, but the company hasn’t released enough of them. Its handbags are more expensive than similar products from Gucci and Fendi, starting at $885 for a solid nylon tote.
Fewer customers are willing to pay Prada’s premium, especially because some products are no longer made in Italy, MainFirst Bank analysts Nicky Cheung and John Guy said.
At Ferragamo, CEO Eraldo
Poletto is under growing pressure to deliver a turnaround a year after starting the job.