Prada Looks to Hit the Reset Button With Latest Sales Results

THE CHEAT SHEET

Hong Kong Looms Over Prada Earnings

A Prada store in Hong Kong | Source: Shutterstock

Prada reports first-half results on Aug. 1
In March, Prada's stock sank after the company said profits fell and revenue in China was flat
Prada's revenue grew in 2018 after several years of declines; this year the brand has reined in discounting and cut wholesalers to boost profits

Luxury brands have reported stellar second-quarter results so far (though in Gucci’s case, not as stellar as they used to be). Even the industry’s most troubled major brands, including Burberry and Bottega Veneta, are showing signs of life under new designers. Then there’s Prada. The Italian luxury house reported a surprise slump in profits in March, sending its stock to a nearly three-year low. Ominously, the brand partially blamed weak spending by Chinese tourists in Hong Kong for its disappointing first-quarter results; with the city’s commerce paralysed by protests for much of June, a rebound there is unlikely to be in the offing. Prada has made some smart, if overdue moves of late, shrinking its wholesale network and reviving its Linea Rossa athleisure line. But unlike its fellow stragglers, the brand has pinned its hopes on changes at the margin rather than full-scale reinvention.

The Bottom Line: Prada may or may not be turning a corner, but as Bernstein analyst Luca Solca put it in a recent column for BoF: "Prada has become a follower and a follower makes no money."

Barneys Looks for a Lifeline

Barneys New York on Madison Ave | Source: Getty

Barneys could file for bankruptcy protection as soon as this week, Bloomberg reports
A 72% rent hike on the department store's Manhattan flagship has weighed on the company's finances
Barneys revenue rose last year to between $840 million and $861 million, the first increase since fiscal 2015, according to industry estimates

Fashion insiders have been predicting Barneys' fall for a long time, but signs point to the end truly being nigh. The department store appears headed for bankruptcy, and is reportedly in talks with Wells Fargo loan to buy time while it negotiates a restructuring agreement with creditors and landlords. Topshop-owner Arcadia managed to survive a similar process — barely — and landlords wound up with a big chunk of the company. Barneys has skated by in part on its reputation as a temple for hard-to-find and highly covetable luxury goods, but even that is jeopardised by its perilous finances (store associates told BoF’s Lauren Sherman last week that unpaid cleaners had stopped emptying trash bins or maintaining bathrooms). Indeed, a store once known for turning emerging designers into stars now has a reputation in some quarters for stiffing them on their cut of the sales.

The Bottom Line: Without its cooler-than-thou reputation, Barneys is just another multi-brand retailer in an increasingly direct-to-consumer world. It can't fight in that arena without finding a way out from under its crippling rent bill, even if that means a bankruptcy filing.

How Long Will the US Economic Boom Last?

US shoppers | Source: Shutterstock

The Conference Board releases its July estimate of US consumer confidence on July 30; last month the index fell to a nearly two-year low
The Federal Reserve is expected to cut interest rates at its July 30-31 meeting amid concerns growth may slow
Americans drive about one-fifth of luxury spending, second to Chinese consumers, according to Bain

Even as luxury brands report booming demand, an unspoken question hangs over the market: is America’s longest expansion on record coming to an end? Few expect the world’s biggest economy to tilt into recession in the immediate future, much less stage a repeat of the 2008 crash. Consumer spending has been particularly robust in recent months, increasing by 4.3 percent in the second quarter (GDP growth was also a healthy 2.1 percent). But consumer confidence - a key indicator of future spending - has looked a bit wobbly lately. Add on slowing growth in China and the UK's prolonged retail slump, and the outlook may not be as rosy as the recent round of earnings reports make it appear.

The Bottom Line: The outcome of the US-China trade dispute will prove pivotal, as rising prices on imported goods and an increasingly uncertain economic outlook could convince shoppers to stay home.

COMMENT OF THE WEEK

A shopper outside Barneys New York | Source: Getty

"Over-expansion was its problem on the business side ... no one cool wants to go to a chain store and Barneys was becoming one." @stylezeitgeist, commenting on "What Pushed Barneys to the Edge?"

SUNDAY READING

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How fashion brands strike gold outside NY and LA.
What pushed Barneys to the edge?
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How Hearst makes it work.
How digital brands make wholesale work.

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

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