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Prada Store Closures to Offset Openings and Protect Profit Margins

MILAN Italian fashion house Prada S.p.A. will offset new shop openings with selective retail store closures this and next year in an effort to protect profit margins from weaker demand.

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The Italian luxury group reported on Friday a larger-than-anticipated drop in full-year profits. Earnings before interest and tax fell 28 percent in the 12 months through January to 14 percent of revenue from 20 percent a year before.

“I don’t see a real change in the market trend,” Prada chairman Carlo Mazzi told on a conference call in New York on Monday.

“The problems of the market in terms of the world’s economic situation and of changes in consumers, especially the new generations are quite clear for everybody.”

Prada embarked on a breakneck retail expansion after listing on the Hong Kong bourse in 2011. A slowdown in China, which affected the entire Asia-Pacific area, and flat sales dented Prada’s profits last year.

“Throughout 2015, the luxury-goods market had to deal with an economic environment characterized by volatile financial markets and by heightening geopolitical tension in different regions across the world,” said Patrizio Bertelli, chief executive officer of the Milanese group. “These conditions are still present and 2016 is expected to be affected by instability which makes any short-term forecasts uncertain.”

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Alessandra Cozzani, who took over in February as Prada chief financial officer after the sudden exit of long-standing chief financial officer Donatello Galli, said Prada would balance new openings with store closures and work to keep operating expenses flat.

“The retail network will remain the same in 2016 and probably also 2017. We’re working on increasing the productivity of stores,” she told analysts.

Prada had 618 directly-operated shops as of Jan. 31 after 22 net openings in the year. Expensive shop leases have fed its cost base as sales stagnated.

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Prada’s retail sales fell 5 percent in 2015. The group has stopped publishing same-store sales but JPMorgan estimates that they fell 9 percent in the fourth quarter.

Prada Head of Strategic Marketing Stefano Cantino said the group would bet on e-commerce with a goal of doubling revenues over the next two years.

To this aim it will start working with partners such as Yoox Net-A-Porter to sell its products on multi-brand e-shops.

Digital and marketing initiatives will also be used to strengthen relationships with clients.

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