Prada Group Analysis

I. Introduction:

The fashion industry is a product of the 20th Century, and a consequence of both industrialisation and globalisation. It has led to the emergence of some of the world’s most famous and recognisable brands, and to the creation of a highly competitive market. Today, Prada is one of the biggest fashion names in the world. From its debut in 1913, the company has grown to become one of the most influential designers in the industry. Today, it has the potential to grow substantially under the creative and innovative genius of Miuccia Prada, the founder’s granddaughter. Prada’s distinctive excellence and prestige derive from its unique process management, and its core beliefs and values allow the Group to develop and offer products of unequalled quality, creativity and exclusivity. Over the last century, these elements have transformed what was a family business into a major powerhouse in the global luxury market.

In this paper, we aim to analyse the Prada Group closely in order to gain a better understanding of the competitiveness of the international luxury fashion industry. Our focus on this company will allow us to see how an international firm with nearly 400 stores across the globe operates. In order to achieve this, we will first observe the luxury fashion industry in which Prada competes. Through a competitive analysis, we will be able to identify several key characteristics of this market. We will then study the company’s profile, from its history to its current market and financial position, before conducting a SWOT analysis of the Group. Following this, we will try to unearth the components of Prada’s business model, and we will pay particular attention to the six factors for Global Competitiveness. Finally, we will provide recommendations to insure that the Prada Group maintains the success it has known in recent years.

II. Industry Overview:

The Luxury Goods Market

In economic terms, luxury goods are defined as goods for which demands rises more than proportionally as income rises. Although they are not essential, they are associated with exclusivity and affluence, and are often defined as high quality, unique, rare and sensual. Today, the luxury goods market is one of the most profitable and fastest growing markets in the world (Berry). Strikingly, it is one of the few to have profited from the global financial crisis. In fact, the rate of growth of luxury goods has significantly outpaced that of most other consumer goods: in 2000, the world luxury goods market was worth close to $170 billion while in 2013, sales of personal luxury items were estimated to have grown to $300 billion. The rise in 2013 from 2012 was disappointingly small however, as it only represented a 2% increase, a fifth of the previous year’s pace. Despite this deceleration, Bain & Company estimates that the luxury goods market will expand to over 250 billion euros by 2016.

Currently, China is the leading manufacturer of luxury goods and the predicted growth rate of the Chinese market is about 18% to 20%. North America is the largest regional market for luxury goods, and is forecast to grow by 5% to 7%, compared with a 2% to 4% growth rate in Europe (Transparency Market Research). Japan, which was the biggest luxury goods buyer in the past few years, now holds third position in the luxury goods industry.

Luxury fashion, which includes apparel, accessories, handbags, shoes, watches, jewelry and perfume accounts for the largest proportion of luxury goods sale, with a 42% share (Moore and Frionda).

Luxury Fashion in Italy and Canada

Fashion in Italy was already perceived as the most stylish in Europe by the end of the 12th century, and reached its peak during the Renaissance as the merchant cities of Genoa, Florence and Venice started to produce luxury goods. After a decline until the early 20th century, Italy regained its place as a leading nation in fashion. In 2009, Milan was ranked the top fashion capital of the world, and Rome was ranked 4th. In 2011, Florence entered in 31st position, although both Rome and Milan had lost a few places (Global Language Monitor). Notable Italian fashion house names include Gucci, Armani, Valentino, Dolce & Gabbana, Bottega Veneta, and of course Prada. Despite these big names, the Italian domestic luxury market has been doing poorly during the crisis, in contrast to most other EU countries (Bain & Company). The resulting sharp reduction in consumption is largely due to the country’s sovereign debt crisis, and the worst hit are multi-brand wholesale channels across the state.

In contrast, retail value sales of luxury goods in Canada have improved in 2012, following an already positive performance in 2011. As the country is slowly emerging from the crisis, consumers, especially younger ones, appear to be investing more in luxury goods (Euromonitor International). Despite rising public debt, national spending on luxury goods has increased, spearheaded by the Generation Y (CTV News). According to an American Express analysis of its transaction data from 2009 through 2011, consumers born after 1983 have led to increased spending on luxury fashion by 33%, especially on established multinational brands like Gucci, Louis Vuitton or Prada (Euromonitor International). Even more surprising was the fact that 60 per cent of those shoppers were men. American Express Canada says spending on high-end fashion will continue to grow in Canada, especially through the arrival of luxury U.S. retailers such as Saks. The credit card company also expects that Canadian online spending in general will double by 2015.

Trends, Drivers and External Factors The luxury fashion industry is influenced by a myriad of factors, and social and economic issues are particularly important. This has led to the emergence of three major trends within the industry: Globalization, Consolidation and Diversification (Bain & Company). Globalization is the result of increased availability of luxury goods, a greater number of luxury brands, and an increase in tourism, which now accounts for 40% of luxury goods sales. It has also led to the realisation that there are many untapped potential markets and consumers across the world, particularly among the BRIC countries. Consolidation involves the growth of big companies across several segments of luxury products, notably through acquisition. While in 1995, 70% of the fashion houses were owned by entrepreneurs or family members, this figure was down to about 30% in 2011 (Bain & Company). Firms like LVMH, Richemont, and PPR Gucci dominate the market in areas ranging from luxury drinks to fashion, and experience much higher margins than their competitors. The third trend is diversification,

...