FSW Briefing: Harrod’s Invests in Personalization; Prada Releases Q3 Earnings; Creative Tech Experts Gather in NYC; Luxury Stocks Perform Poorly

FSW Briefing examines the luxury strategy news and stories that caught our eye this week.

This has been a busy week in luxury strategy, including a new personalization strategy from Harrod’s and the release of Prada’s Q3 earnings. Members of the FSW team also attended a creative technology conference in New York City last week, which resulted in some interesting implications for luxury strategy and content. Our FSW Markets team also takes a step back to analyze how poorly luxury stocks are performing in 2024.

Harrod’s Invests in E-Commerce Personalization

With luxury and luxury digital in a continued state of uncertainty, many brands are actively re-evaluating their strategic approach to customer experience. This week, Harrod’s announced that it was making a step towards improved personalization for its e-commerce experience through a new partnership with Scayle, an enterprise commerce platform.

According to the press coverage, the goal of this effort between Harrod’s and Scayle is to deliver “a premium, state-of-the-art ecommerce service … [to] elevate the online purchasing experience; providing customers with a seamless journey across the British luxury retailer’s impressive product assortment…. Harrods will leverage Scayle’s robust set of out-of-the-box, intuitively configurable capabilities which offers high flexibility for customisation and personalisation, including Product Information Management (PIM), Shop Management and an Order Management System (OMS). Additionally, Scayle has built custom brand landing pages for Harrods, developed the headless frontend, and integrated an ERP alongside all other third-party systems.”

With over 400 of Al-Fayed’s alleged victims demanding a boycott of the Harrod’s brand, it will be interesting to see if these foundational digital strategy investments will be enough to keep the brand’s e-commerce operations afloat.

Creative Tech Conference in NYC Puts Content Front and Center

Last week, the FSW team was on-site in New York City at the Creative Tech 2024 conference, which was a subset of the larger Henry Stewart Conferences Digital Asset Management NYC conference.

The conference featured a variety of sessions related to technology and creative operations, from visionary explorations from Matthieu Lorrain of Google Deepmind on the idea of “liquid content” or an AI-powered future of infinitely adaptable content to AI-powered SaaS solutions for lower-level content production.

One of the most fascinating panel discussions for our team was a five-person panel moderated by Clair Carter-Ginn on practical steps for creative tech success, which honed in how “we need technology that supports our people and processes – not the other way around.” The panel featured thought leaders from across the technology and retail space, including Ali McLeod, VP of Photo Studios & Digital Operations at Saks Global, Scott Lux, EVP of E-Commerce and Technology at Esprit, Dan Oros, CEO of Creatopy, and Juliana Vail, Technology Leader and Consultant.

Discussions in this panel centered around the challenges creative technology decision-makers face day-to-day across different industries, particularly retail e-commerce. While conversations covered a range of issues, everyone kept coming back to the critical role of content in achieving brand goals and reaching customers the right way. Lux noted that a content-first approach could help brands strike the right balance between tech and creative and, in turn, improve collaboration and communication both internally and externally.

Prada Group delivers strong Q3 growth, powered by Miu Miu

Prada released its Q3 earnings in the mid-afternoon, Central European time, on October 30 and met analyst expectations for continued strong volume growth at Miu Miu.

Net revenues in Q3, compared with Q3 2023, were up 18 percent for the Prada Group. The Prada brand (which comprises just under 75 percent of group revenues) was up around the Q3 industry average of 2 percent while Miu Miu (around 25 percent of revenues) hit another remarkable growth number at 105 percent.

In terms of positive contributors to growth, the biggest contributor was volume growth at Miu Miu with pricing and mix making a small contribution for Prada. The observation was made that Prada has room to stretch pricing more across its range of products so that is something to have on the radar looking into next year.

Unlike most industry peers this earnings season, Prada Group reported balanced growth across geographies. Growth was in double digits across all regions lead again by Japan at 48 percent growth followed by the Middle East (36 percent), Europe (18 percent), Asia Pacific (12 percent), and the Americas (10 percent).

Forward guidance was for continued strong growth into H1 2025 unless there is a broader luxury market crash. Some specific observations were made during the earnings call:

* European growth continues to be resilient and dynamic, which is not the case for much of the industry and runs counter for the weak economic growth that is expected this year and next.

* Dynamics in the U.S. were described as being driven by dynamics consistent with pre-election periods. The meaning of this is not clear given strong consumer demand in the U.S., which has generally powered good luxury industry sales in H2 so far.

* Asia Pacific growth, ex China, has been rough this year but is expected to improve in the next 3-9 months. However, expectations are for continued weak growth in China into next year. The IMF lifted its 2025 economic growth forecast for China but consumer luxury demand seems like it will not rebound soon.

The extraordinary growth of Miu Miu is the result of strong creative decisions made by the brand, supported by the resources of the broader Prada Group.

Prada brand will continue to focus on improving margins by pursuing more cost efficiencies.

As the below chart details, the year-to-date return from Prada has significantly outperformed our FSW Markets All Luxury Index throughout the year and outperformed the S&P 500 on its strong year. Despite this strong growth, Prada continues to look like a good value with a P/E ratio of about 20x as compared with 22x for LVMH and 46x for Hermès.

Luxury Assets Have Performed Poorly

The Q3 premium market earnings have been a bit of a mixed bag as we have been reporting over the past two weeks.

To take another cut, let's look at the year-to-date returns for a wide variety of global asset classes and compare with them with our FSW Markets All Luxury Index.

Though luxury earnings have been mixed, the largest names by market cap have, reported fairly weak sales with particularly poor volume growth in China offsetting some positive contributions from price and mix. This has pulled down our index to -8.5 percent over the course of the year.

This performance stacks up poorly against other major global assets. U.S. stock markets have had a strong year, driven heavily by the tech sector with the Nasdaq up over 20 percent. The majority of the FSW Market All Luxury Index is comprised of European-based firms, but the index has performed poorly when compared with the broad sector Euro Stoxx 600, which has recorded low single digit but still positive YTD growth.