Strategy and Operations, Trends

What Upscale Outlets Can Learn from Prada

I’ve been to a lot of outlet and off-price stores in my life, but nothing prepared me for SPACE, the cavernous emporium in Tuscany that is referred to by its more-descriptive nickname, the Prada Outlet.

Recently, a business friend and I were in Florence for a trade show with a Sunday morning to kill. I’d heard about SPACE for years, and even the most jaded of my industry colleagues had been gushing about it, so I decided to see for myself what all the fuss was about. Getting there from Florence by car took about 40 minutes with no traffic.

After exiting the highway, we drove through the sleepy little town of Montevarchi, home to a large Prada factory. A tree-lined driveway leads to the one-story gray modern structure bearing a simple sign: SPACE Outlet. There is no Prada branding anywhere on the building’s exterior.

We arrived at 10:00 AM, a half hour before the store opened. Only 200 people are allowed in the store at a time, so waiting is almost a certainty on the weekends. Since it was already 80 degrees, we ducked into the starkly furnished, but thankfully air-conditioned café for an espresso to preserve our energy, while keeping an eye on the line forming outside in case it started threatening our chances of getting in with the first group of shoppers.

Prada was founded by Mario Prada in 1913 to sell beautifully-crafted leather goods to well-heeled Milanese. By the end of the 20th century, with his granddaughter Miuccia at the helm, it had become a global luxury powerhouse, offering handbags, footwear, men’s and women’s fashions, jewelry … plus more. Last year, Prada Group SpA posted sales of more than 3.1 billion euros, with distribution in more than 625 self-owned locations in 70 countries and a rapidly growing e-commerce channel.

Stepping through SPACE’s double-glass doors, one is immediately enveloped by the brand’s aura. Tasteful lighting and beautifully-designed fixtures fill both the men’s area on the left and the much larger women’s department on the right. A mind-boggling selection of Prada and Miu-Miu bags beautifully arranged by style and color fills the entire first salon. The next room has fragrances, jewelry, scarves and small leather goods. I bought a classic quilted tote bag (Miuccia’s black nylon handbags first catapulted her to fame in the 1980s), several pieces of jewelry and other accessories as gifts.

The amazing shoe department occupies a quarter of the women’s space. Elegantly dressed store associates toting mobile devices scan a display sample’s bar code to tell you if your size is available. Popular sizes like mine tend to run out late in the day, so as an early bird I was fortunate to find classic black loafers with silver hardware for 60 percent below regular retail.

The real treasures at the store, however, are the clothes. The wide selection of meticulously made garments ranging from socks to outerwear was priced an average of 75 percent off retail. A lovely young saleswoman with a great eye sized me up (literally) and brought things to my spacious dressing room that she thought would suit me, including black mohair and silk tuxedo pants, a beautifully draped paneled skirt and a long, slim Miu-Miu coat in an eye-popping navy and cream geometric print. The average price per piece was around 400 euros, compared to a staggering 1800 euros in the full-priced boutiques.

At SPACE, shoppers aren’t allowed to carry their selections around the store. Once an item is being considered for purchase, it is held at the cash-wrap until it’s time to do a final curation and check-out. At one o’clock in the afternoon, my friend and I left the store with four large “Prada Milano” shopping bags full of merchandise with nothing on any packaging that suggested “outlet store.”

Unlike at Gucci, Ferragamo and other Italian designer outlet stores near Florence, price tags at the Prada store carry only one price, with no “compare at” or “suggested retail” prices (which, frankly, are unnecessary, since the store’s savvy shoppers seem to know full well the retail value of the products). With pricing integrity so critical to the health of a global luxury brand, SPACE’s ingenuous pricing tactics help avoid the negative impact of promotional pricing that can dilute a brand’s value. Further protecting the brand from dilution is the fact that the store is legitimately a factory store. It’s hidden off the beaten path, down the road from one of the brand’s largest factories. It doesn’t carry current merchandise, so customers who want in-season styles will still have to pay full price.

In its most recent fiscal year financials, the company reported that full-priced sales increased and gross margin improved thanks to fewer markdowns and the creation of new styles with higher prices. It’s possible that having this formidable outlet store in which to sell overstocks gives the company more control over its markdowns, keeping any whiff of promotion out of the full-line boutiques.

Many luxury brands manufacture product for their outlet stores that is of lower quality than full-line merchandise. Given the size of SPACE, the number of shoppers that visit each day and the amount of merchandise the average visitor walks out with (I eavesdropped near the cash register for a half hour, and the average transaction size was 2000 euros ), I’d bet that Prada doesn’t need to make product especially for the outlet. The product quality seems to be every bit as good as in the regular stores and the store experience very much “on brand.”

Now back home in New York, I’m even more pleased with my haul. My family will be receiving a stream of special gifts that, unless they read about it here, will never know how little I paid for them! And I have some incredible new “investment” wardrobe pieces that will never go out of style.

However, I’m still kicking myself for not having bought a pair of black princess-heel pumps, and will probably order a pair at full price. SPACE’s brilliantly executed outlet store strategy has done more than just enhance revenue: It acquired a new loyal Prada customer. I was able to spend a few hours engaging with, and getting to know the brand in a relaxed way, the best start of a long and meaningful relationship.

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