Prada to close some stores in a bid to save profit margins

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Prada to close some stores in a bid to save profit margins

Prada plans to offset its new store openings with selective store closures over the next 2 years in a bid to protect its profit margins from weaker demand.

This new strategy follows a report on 16 April 2016 of a sharp 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.

Prada reported that the problems that had plagued it in the past- the world economic climate and changing consumer habits especially in the new generation- had not changed.

Prada’s chief financial officer, Alessandra Cozzani, reiterated the point that Prada would balance new openings with closures and work to keep operating expenses low. She explained that the company was working on increasing the productivity of its stores.

As of 31 January 2016, Prada had 618 stores that it directly operated after opening 22 new stores last year. Expensive store openings, particularly after Prada became a publicly listed company on the Hong Kong stock exchange, have contributed to Prada’s costs while sales have not grown. This goes a long way in explaining why there was a sharp drop in full-year profits at the company. Additionally, Prada has been hit by China’s economic slowdown as well as a clampdown on extravagant gift-giving in the country, where it reaps more than one-fifth of its sales. Prada is also struggling to attract demand from customers who sometimes aim for cheaper brands and at other times seek out more exclusive and niche products.

It is not all doom and gloom at Prada though. Its head of strategic marketing, Stefano Canti, has indicated that there is hope on the horizon. The company plans to revive its fortunes by shifting its focus onto e-commerce by selling, for example, on multi-brand platforms such as Yoox Net-A-Porter. The aim is to double revenues over the next 2 years whilst also strengthening relationships with clients via digital marketing initiatives.

Prada to close some stores in a bid to save profit margins

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Written by Brenda Mulenga

Brenda, a London Journalism Centre alumna, is our fashion business news writer. She enjoys attending fashion shows, shopping and writing.

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