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Prada needs to focus less on new shops and more on new handbags

REUTERS, Paris/Milan
If in fashion, being late on a trend can be lethal, playing catch-up in terms of business strategy can be just as damaging.
Prada is learning that lesson the hard way. The trend in luxury goods is to drum up same store sales by curbing expansion and wowing customers with new products, yet Prada continues to pay over the odds to open swanky new shops and stock them with handbags little changed from previous bestsellers.
Prada, say analysts, now urgently needs to focus less on new stores and more on new handbags.
The group, which also owns the Miu Miu and Church's brands, opened 250 stores in the past three years, far more than rivals. It has finally slowed the pace but still plans 30-35 more stores this year, which it says is part of its long-term strategy.
"Prada is starting to focus on same-store sales growth three years later than some of their peers as their priorities were elsewhere, but it is clearly better to do it later rather than never," Erwan Rambourg, luxury goods analyst at HSBC and author of The Bling Dynasty, a book focusing on Chinese shoppers.
Analysts estimate same-store sales, which Prada stopped reporting last year, fell year-on-year by 12 percent in the third quarter to Oct. 31 and may have dropped by as much as 9 percent in the quarter to Jan. 31.
Prada's costly retail space, combined with slower growth, has hammered margins and valuation. The group's share price nearly halved in the past two years and most analysts still have sell or hold recommendations on the stock.
Its operating margin fell to 15.4 percent in the third quarter from 21.3 percent in the first half. Some analysts expect small margin growth this year, mainly thanks to the strong dollar that will boost reported earnings in euros. Prada is not alone facing difficulty at a tricky time for luxury goods makers, challenged by cheaper "accessible luxury’ brands like Michael Kors and Longchamp.
Other brands seen as having rested on their laurels in terms of strikingly new products, like Kering's Gucci and Tod's, have also struggled to produce growth.
But the strategy of concentrating on same store sales has nevertheless produced success for some luxuiy brands. Arch-rival Louis Vuitton revealed last week that it had enjoyed a strong rebound by investing heavily in exciting new products under new designer Nicolas Ghesquiere. It also halted the opening of new stores.
When it floated in 2011, Prada's ambition was to catch up with bigger rivals by expanding. It spared no expense, splurging on "key money' - cash up front to secure the best locations.
In Milan, Prada outbid Apple and Gucci to build a menswear shop oppo-
site its historic boutique in the prestigious late 19th Century Galleria Vittorio Emanuele II shopping arcade, paying more than 20 million euros to get the spot, real estate sources said. Prada declined to comment.
In the plush ski resort of Courchevel, it financed the renovation of the entire Place du Rocher to make it a more fitting address for its new boutique.
Meanwhile, some customers say the new shops carry handbags that have not evolved much in recent years, as if the company were afraid to change a product that worked well for so long.
■Just arrived" Prada handbags these days include two-toned satchels and new versions of the TXvin Bag launched last year, fitted with a top flap and double zips. The product is similar in shape and carries many of the same features as previous bestsellers, such as the Double Bag or Galleria. Some bags start at 1,450 euros. In crocodile, they can reach 18,500 euros.
'Unless you have strong feelings about sewn-on handles versus buckles, there's not much in the way of meaningful variety or novelty," wrote Amanda Mull on the widely-followed PurseBlog.
Customers have become sawier and more demanding. Partly thanks to the Internet, they know more about a brand's new products than in the past, and will readily abandon brands that seem to trail in innovation.