Shamone Anglin Strategic Fashion Management Report

Introduction

Part One

1.0 External Analysis

• PESTLE Model Adapted

• Porters Five Forces Adapted

2.0 Internal Analysis

• Revenue

• VRIO Model

• TOWS Matrix

3.0 Motivation For Change

4.0 Key Objectives

5.0 Prada’s Recommended Strategy

6.0 Implementation Strategy

Part Two

This report is an analysis of Prada at the business level focussing on their leather goods split into two parts. The luxury leather goods industry is a growing sector generating a revenue of $75.79 billion USD in 2023 (Jeong, 2023).

Part one will analyse the external and internal environment that may affect Prada’s current strategy, followed by the outline of the company’s motivation for change. In addition to that, part one will identify the key objectives for the brand and suggest a recommend strategy as well as how to implement it. Part two analyses the current sourcing model of Prada and how it can be enhanced utilising the 6R’s model.

Prada is an Italian luxury fashion brand founded in 1913 (Prada Group, 2024b) and they offer a range of products such as ready-to-wear, footwear and leather goods. The company has a five-stage business model as shown in figure 8.1 (Prada Group, 2024a). Their company structure consists of board of directors and board of statutory auditors who oversee the Prada’s operations (Prada Group, 2023a).

exteRnAl AnAlySiS

Figure 1.1: PESTLE Model Adapted

Source: (Author, 2024)

Source: (Author, 2024)

Figure 1.2: Porters Five Forces Adapted

2 inteRnAl AnAlySiS

Revenue

Prada is renowned for its use of premium materials (Prada Group, 2024b) specifically the use of Italian leather, their leather goods such as handbags, wallets, purses etc account for almost 50% of their revenue at 45.6% (Statista, 2023). Prada’s global net sales in 2023 equated to 4,189.68 million euros worldwide and their revenue in 2023 amounted to 3,912,309 million Euros (Prada Group, 2024b). Furthermore, across all brands under the Prada Group leather goods brought in the most sales with 1,910,061 million euros. As for their drastic decline in 2020 as shown in figure 1.3, this drop in revenue is due to the impact of Covid-19, however since then the brand has been making a steady year-on-year growth in terms of sales (Statista, 2023).

The Luxury Leather Goods market worldwide generated a revenue of $75.79 billion USD in 2023 and is projected to increase to $79.36bn USD in 2024 (Jeong, 2023). Globally, the United States leads in the generation of revenue at $19,400 million in 2024, however Asia is the biggest market with a revenue of $23.8bn USD (Jeong, 2024). Luxury leather goods are in demand worldwide, with Italy and France known for their craftsmanship (Statista, 2024).

VRio moDel

Value

Prada regarding sustainability is one of the many luxury brands that are becoming more transparent and actively implementing strategies to respond to environmental opportunities as well as threats. The brand offers their customers high quality leather goods and have started to gradually make their leather production more sustainable, which few of their competitors offer.

For an example, Prada has now begun to convert all the production of virgin nylon into regenerated nylon to show their commitment to sustainability (Prada Group, 2019). They have also changed their packaging from virgin plastic to regenerated plastic and recycled or certified paper. Furthermore, they have recently launched a sustainable fine jewellery collection using 100% certified recycled gold being the first global luxury brand to do so (Prada, 2019). For their leather goods, Prada has almost reached their target of sourcing their leather from the Leather Working Group (LWG), however they still need to improve on their traceability for leather (Prada Group, 2023b).

Rarity

As of April 2024, the Prada Group currently operates a total of 638 owned and franchised stores worldwide with the Prada brand being 428 of them as well as Europe being their largest number of directly owned stores (Sabanoglu, 2024). In comparison to its competitors Prada has one of the highest numbers of stores, therefore allowing the brand to become more accessible to their consumers around the world. This helps Prada to expand their consumer base and generate revenue from a variety of regions as they are growing their reach. This is a rare resource that the brand has as few sole brands can match these numbers.

Prada is required to adapt because they have a strong global presence, and the Asia Pacific region makes up the largest amount of their net sales (Sabanoglu, 2024) with 34.5% coming from this region and 31.3% in Europe (Statista, 2023). This is because the brand must adapt to different cultural norms, fashion, and society, therefore they will have to adapt their marketing and products to accommodate customers from various regions. Prada creates unique marketing campaigns for different regions of the world for an example, they have a long running campaign called Prada Mode and their most recent event was held in Seoul, Korea where they highlight Korean creatives and cultural foods (Prada, 2023). In addition to that they released a Chinese New Year special project to connect with the Asian Market using during Lunar New Year Celebrations with famous Chinese celebrities (Prada, 2024).

Inimitability

Prada can be considered imitable as they have big issues with counterfeit products that they joined forces with the Counterfeit Crimes Unit (CCU) of Amazon to tackle a counterfeit case (Singsit, 2023). They provide information and evidence to Chinese law enforcement, which led to the seller’s guilty plea and them being sentenced to 3 years in prison (Singsit, 2023). Counterfeiting can impact Prada’s brand identity and sales as they may begin to lose consumer loyalty because 76% of consumers are less likely to purchase from a brand that is associated with counterfeits (Inside Luxury, 2023).

Moreover, there are many leading luxury brands that use high quality Italian leather and specialise in leather goods production, which can be a threat to Prada as they lack in unique designs for their leather goods department. Therefore, consumers can easily shop elsewhere if they are looking for alternatives in terms of design, such as Diesel, Gucci, and Versace.

Organisational Support

Prada’s organisational structure gives them a competitive advantage against their competitors, because they have a variety of distribution channels, allowing them to penetrate different markets. Their distribution channels consist of directly owned stores, franchised stores, e-commerce sites and independent customers (Sabanoglu, 2024).

The brand’s leadership style and structure ensure that Prada follow through with the direction and strategic goals for the company. Therefore, the company’s Board of Directors manage the affairs of the (Prada Group, 2023a) and the Board of Statutory Auditors supervises the company’s management (Prada Group, 2023a).

For an example, the brand makes their design and merchandising processes internally with either Board of Directors’ Paolo Zannoni’s, Miuccia Prada’s or Patrizio Bertelli’s approval or assistance, CEOs, and creative directors to produce consistent leather goods in the brand’s vision and goals.

Figure 2.1: Chart to show Prada’s Net Sales

Source: (Statista, 2023)

Source: (Author, 2024)

3 motiVAtion FoR ChAnge

By considering the internal and external analysis of Prada, the brand needs to improve and must drive to maintain sales within the leather goods category to improve their business. Some areas that need improvement are as follows:

Sustainability – Prada is active in implementing sustainable practices; however, their leather supply chain needs more improvement.

Counterfeiting – Prada can prevent their leather goods being counterfeited by improving their designs to be more unique and utilise blockchain to trace their products.

Social Media Presence - Although they have a large following across their social media accounts, Prada can develop a better presence to be more creative in the promotion of their leather goods.

Figure 2.2: TOWS Matrix

Key oBjeCtiVeS

1. To acquire the younger consumer base by building a social media presence to promote their sustainability strategy.

2. To reduce the threat of substitution by tackling counterfeiting through improving their designs to be less imitable.

3. To improve the traceability of their leather production to 100% and improving their transparency score.

4. To make their leather goods supply chain 100% sustainable at every stage of craftsmanship.

PRADA’S ReCommenDeD StRAtegieS 5

Differentiation Focus Strategy

Within the luxury leather goods industry, Prada should improve their differentiation focus strategy, because compared to their competitors they are not in the top five key players in the luxury leather goods industry (Jeong, 2023), and their bags are prone to counterfeiting. This can put Prada at a disadvantage because their current designs have a timeless look, but with the use of patterns and more colourful designs it will be harder for sellers to counterfeit. Unique designs are something the brand is good at doing with their other product lines such as women’s ready to wear, but lack in for their leather goods, specifically bags. This is vital for Prada as their leather goods account for majority of their revenue.

Customer Acquisition

Prada should invest in building their social media presence to acquire new customers specifically generation z as they are the future consumers of fashion, because on both their Instagram and TikTok their content lacks engagement from their enormous followings. Prada should promote their sustainable practices on their social channels, through video series of becoming more transparent and highlighting the process of how their manufacturers make Saffiano leather. This is important as gen z have huge purchasing power within the luxury industry of $143bn in 2022 (Larsen, 2022) and they value sustainable practices such as circular economy.

6 imPlementAtion StRAtegy

The first step will be for Prada to begin implementing their differentiation focus strategy for their next seasonal collection within the next 12 months. This addresses the threat of substitution and counterfeiting because intricate designs will be harder to imitate especially on a cheaper leather that lacks in the same quality as Prada’s Saffiano Italian leather. Furthermore, this strategy also considers the threat of the luxury leather goods industry being highly competitive, therefore it will give the brand a competitive edge to become a key player in the industry, so their consumers do not substitute for another brand.

The next step is identifying and mitigating the risks of the strategy. The levels of risks for this strategy are minimal, because Prada have over 100 years of experience in designing and crafting leather, therefore by making more intricate designs a staple to their range. In addition to that, Patrizio Bertelli oversees the crafting of the products (Conlon, 2023) and Miuccia Prada oversees the designs (Prada Group, 2024a) within the brand, so with their expertise this risk will be mitigated. Moreover, the shareholders will accept this especially Miuccia as she has created many of Prada’s most iconic bags during the 2000’s that increased the company’s sales and strengthened their reputation among the younger consumers (Todd, 2020).

This strategy will work in practice, because Prada won’t need to worry about using leather for the first time due to their current experience and the Galleria bag, which is the brand’s most complex bag to craft takes one day to make, due to having 100 different components (Conlon, 2023). However, the artisans need at least five years in training to master making this bag (Conlon, 2023), which could be an issue with introducing more intricate designs. Moreover, Prada hones their employee’s talents using the Prada Group Academy to teach them these skills and train them to become experts in their field. Additionally, the Prada Group has the funds to implement the differentiation focus strategy as they are financially stable with their total current assets worth 2.16bn euros and their total current liabilities worth 1.45 billion euros (Prada Group, 2024a). Therefore, they have enough money to pay of their liabilities without concern and fund their collections for the next season.

Overall, this strategy will be successful for Prada to tackle the threat of substitution in terms of counterfeiting and competitors, as well as acquiring a younger consumer base due to the involvement of Miuccia Prada.

Figure 6.1: Prada Group’s Consolidated Statement

Source: (Prada Group, 2024a)

7 CuRRent SouRCing & SuPPly ChAin

Prada’s current sourcing strategy is onshoring as they are based in Italy, they have 23 manufacturing facilities in Italy out of their 26 facilities that they own to give them a competitive edge (Prada Group, 2023b). In 2022, Prada became a member of the Leather Working Group (LWG) to improve their sustainability strategy by sourcing their leather from the group ensuring it is certified sustainable (Prada Group, 2023b), therefore they have the right source for the right place. However, they need to improve the traceability of their leather supply chain for the entire process, so far, they have traced 82% to the slaughter stage (Prada Group, 2023b).

Prada uses Saffiano grain type of Italian leather (Todd, 2020) and they currently supply custom-made materials to their factories (Prada Group, 2023b) to craft this leather for their bags ensuring that they have right quality for their leather goods. In addition to that, the quality of their leather bags justifies Prada’s pricing, however some bags are overpriced. The company’s current business model collects orders of their designs prior to sourcing to retain mix flexibility in production costs (Prada Group, 2023a), therefore they can produce the right quantity and know the right timing to stock the products.

The company also uses nearshoring sourcing strategy as they expand their leather goods supply chain to France, Romania, and the UK (Prada Group, 2023b). Furthermore, Prada’s leather supply chain is not very ethical, due to animal cruelty because animals slaughtered for their leather are being cruelly tortured whilst alive (Sachkova, 2024). Some animals used for Prada’s production are crocodiles, ostriches, snakes, and lizards (Sachkova, 2024).

Advantages

The advantage of Prada using Italian leather craftsmanship is that it has been practiced and experimented for over 100 years, therefore the factories they have built long standing relationships have been making leather for so long that they can produce amazing results (Ansar, 2024). In addition to that, the Italian leather industry can adapt to new developments and technology, as they are very innovative in trying to become more eco-friendly (Ansar, 2024).

Furthermore, because Prada has manufactured their own Italian leather during their early years as well as sourced from multiple factories in Italy, through utilising the onshoring outsourcing strategy it allows the company to oversee and control the operations, specifically the quality. This is an advantage because when outsourcing offshore, companies must be familiar with that country and regions’ policies and laws when it comes to trading. Therefore, it is easier to use the onshoring strategy as Prada can regulate employees’ work and ensure they are using ethical practices in addition to producing high quality leather.

Another advantage of Prada using the onshoring strategy is that they can avoid disruptions such as shipping delays during the production stage and they can also avoid long lead times, because many of their manufacturers are in Italy; therefore, they are accessible for the company to directly resolve any problems that they may face. Prada will also avoid any global politics outside of Italy that could impact the delays of production in their supply chain.

Disadvantages

One of Prada’s main disadvantages due to using an onshoring sourcing strategy is that it is more expensive compared to offshoring in countries such as China. This is because the labour costs in Italy are higher as they must meet the minimum wage policy within the country and Europe, which is much higher compared to third-world countries like Bangladesh. In addition to that, the company is paying for the convenience to produce their leather goods based in the country of their main headquarters, so they do not have to worry about factors such as different time zones.

Finally, another disadvantage of utilising the onshoring strategy is that it has the limitations of talent available to Prada to further expand their supply chain and production. With an offshore strategy, businesses can find manufacturers that are experts within their field and skilled, which could make the brand’s leather goods have even better quality. However, Prada is limited to talented workers in Italy and the European Union because they use both onshoring as well as proximity sourcing for their leather goods.

8 enhAnCeD SouRCing StRAtegy

Source:

For Prada to achieve their sustainable goals, the company needs to start by producing 100% sustainable and ethical leather at every step of the production process. According to the Prada Group (2023), they have reduced the use of virgin leather by 90% with the aim to reduce the use of virgin leather by 95% by 2026. This is important because they are close with 2 years left to meet this goal. However, if the brand does not have 100% traceability of their leather, then it allows for unethical practices to occur such as animal cruelty, therefore they need both their supply chain and shareholders to become more transparent. As a result, Prada should enhance their sourcing strategy to ensure that all leather manufacturers are using plant-based tannins, eco-friendly dyes, and finishes (Ansar, 2024). Additionally, their partnership with LWG ensures sourcing high quality sustainable materials and the ability to trace the leather fully by 2026. In the future, Prada can consider experimenting with vegan leathers as there are various options available (Sachkova, 2024), but they may not provide the same quality.

(Author, 2024)

Figure 8.1: Enhanced Sourcing Model

(Prada Group, 2024a)

ConCluSion

To conclude, Prada’s current strategy is doing well as established in their internal analysis, however there is room for improvement to enhance this strategy. Prada is one of the most sustainable luxury brands in the industry, but there is still more they can do regarding the production of their leather goods to make products ethically and prevent counterfeiting. Therefore, Prada can use their recommended strategies to improve their overall business and meet their objectives of improving their transparency, reducing the threat of substitution, and making their supply chain 100% sustainable.

ReFeRenCeS

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