The Prada Predicament: Is The Ailing Italian Icon Ripe for an Acquisition?

In the late ’90s and early 2000s, Prada was arguably high fashion’s hottest label. With its signature triangle logo plate and vibrant nylons, the brand quickly became a pop culture sensation. Celebrities like Kim Kardashian and Paris Hilton toted huge Galleria bags around LA while top models like Kate Moss and Naomi Campbell strutted down the MFW runways in simple slip dresses and mules that instantly became the must-have looks of the season. In recent years, however, Prada has declined in popularity. Once the creator of every “it-bag” on the market, Prada now seems to be following trends, not creating them, a flaw that has translated to the brand’s performance.

Kate Moss walks in the Spring-Summer 1996 Prada ready-to-wear show. Photo credit: Vogue Archives
Helena Barquilla walks in the Prada Spring-Summer 1992 ready-to-wear show. Photo credit: Vogue Archives
Naomi Campbell 1993 rtw ss.jpg
Naomi Campbell walks in the Prada Spring-Summer 1993 ready-to-wear show. Photo credit: Vogue Archives

According to Prada’s H1 2019 report, retail declined by 2%, with leather goods sales only increasing by 1% and footwear revenues remaining stagnant. Most strikingly, Prada reported negative growth in China, its most lucrative market, with sales dropping 2%. In fact, the Prada brand as a whole only increased its earnings by 4%, and the revenues of its sister brand, Miu Miu (also a member of Prada SpA) dropped by a whopping 6%. And, with recent racism allegations that have earned Miuccia Prada and her team sensitivity training, sales are unlikely to improve.

Prada Net Sales by Brand-H1 2019.png
A chart from Prada's H1 2019 report showing an extremely modest increase in sales for Prada, and large losses for Miu Miu. Photo credit: Prada Results Presentation, H1 2019

In addition to these poor results, the brand’s report demonstrates an intent to sell. While Prada recognizes its underperformance, it also highlights strides the brand is taking toward “strengthening brand desirability and product value to support long-term sustained growth,” including new wholesale partnerships, creating a “consistent pricing policy,” and getting rid of seasonal markdowns, a tactic that feels like a pitch for potential buyers. The most notable of Prada’s potential preparations for a buyout? The brand’s agreement to sell four company stores in Milan for $72 million, including the brand’s flagship in the historic Galleria Vittorio Emanuele II, a move that, according to Business of Fashion, allowed Prada to report an additional $21 million in profits on the year, offsetting the brand’s poor sales performance.

Prada Galleria .jpg
Prada's flagship store at the famous Galleria Vittorio Emanuele II in Milan, Italy. Photo credit: Prada

With this in mind, who are Prada’s potential buyers?

While LVMH is always lurking, their recent acquisitions—Tiffany & Co. and the Belmond Group—were expensive, costing Bernard Arnault a princely $19.3 billion, collectively. Not only that, LVMH already has a full fashion and leather goods portfolio and a stunningly successful heritage leather goods house: Louis Vuitton. Finally, with an overwhelming majority share of the luxury market, an acquisition of Prada’s scale and notoriety could slap Arnault with anti-trust violations, just as his attempt to acquire Hermès did in 2001.

Next up, Kering. Though it has not made any major acquisitions recently, the conglomerate’s free cash flow only amounts to about $1.5 billion, while Prada’s valuation sits at $4.8 billion. Additionally, Kering already commands Italian superpower, Gucci, whose revenues skyrocketed to an unprecedented $10 billion last year.

Finally, there’s Richemont, the smallest of the three. In 2019, the group’s sales increased from around $12 billion to $15.2 billion, with its jewelry and watchmaking sectors bringing in $7.5 billion and $3.25 billion, respectively. And, while the group is heavily invested in the jewelry and watchmaking industries—including famous houses like Cartier, Van Cleef & Arpels, Piaget, and Jaeger-LeCoultre, among others—it lacks a strong presence in high fashion, controlling only two notable maisons: Chloé and Alaïa. In fact, in 2019, Richemont’s fashion and leather goods sector brought in a mere $1.95 billion, nearly 7 times less than that of LVMH.

Conglomerate-Richemont-Harrie Waasdorp.jpg
A visual showing all of Richemont's houses, most of which fall into the jewelry and watchmaking sector. Photo credit: Harrie Waasdorp

Ultimately, I believe that Richemont is Prada’s most likely buyer. With no recent acquisitions and a need to establish its presence in high fashion—especially in leather goods—in order to compete with the likes of Arnault and Pinault, Richemont is not only Prada’s most probable buyer but its ideal buyer. With Richemont, Prada will get the cash infusion it needs, the attention it demands, and the rebranding it deserves so that it can reclaim its 90’s fame and reign supreme once again.

Carolyn Hammond

You May Also Like