Prada S.p.A. (1913) Earnings Call Transcript & Summary

Welcome to the Prada Group Capital Markets Day. We are delighted to welcome you to Fondazione Prada. A few points before we start. Government guidance has been strictly followed for this event. Additionally, all speakers have been tested this morning and will present without a mask. We do have to ask audience to always remain with face [ covers ]. This event will be recorded and broadcasted via web streaming. Simultaneous translation is available, it's Channel 1 for Italian and Channel 2 for English. Lastly and following the guidance of GreenerRoadshows to decarbonize Investor Relations activities, we are pleased to announce that our event will be certified as Carbon Neutral under PAS 2060 Certification. Mr. Bertelli, the floor is yours. Thank you.

[Interpreted] Good afternoon, everyone, and welcome to the Prada Group's Capital Markets Day. It is a great pleasure to see you in person. And I wish to thank all our guests, who are connecting through our webcast. In the next 2 hours, we're going to talk about the Luxury market and the development of the Prada Group in the next few years. And as soon as we finish our presentations, we will have time for your questions. I'd like to start with some comments on the evolution of the Luxury markets. And then we'll talk about recent and future developments of the Prada Group. COVID has accelerated the evolution of the Luxury market. In the last few years, the Luxury market has been going through a major evolution and some trends have been accelerated by pandemics. Younger clients, Gen Y and Gen Z, keep driving our growth. These generations are going to account for more than 70% of the market by 2025. In these last few years, the market has changed quite a few paradigms. Physical stores are not the only way and place where people shop. What people look for in luxury products in terms of values are not just status symbol or exclusivity features. Prada, in line with this needs, is now offering excellence and uniqueness of style and experience that embraces the brand's values over and beyond sales activities. And COVID has really pushed local consumption. As soon as tourism will be back, it will become accretive without penalizing domestic expenditure. In this last period, online sales have been increasing, and we have marked greater integration between physical and digital. New success factors are emerging. So today, we do have new factors to successfully compete on the Luxury market. Prada has improved relationships with its customers through constant dialogue, and we have strengthened our cultural relevance by means of bringing sustainability and social responsibility in the whole value chain and in the relationship with our customers. The growth of local consumption required us to be agile and reactive to meet the needs of our clients quickly and effectively everywhere in the world. So it's going to be fundamental to keep focusing on local customers, without losing sight of international tourism. The actions that the Prada Group decided to implement to accommodate change is what follows. We have increased the product content in terms of quality and uniqueness. We have adopted pricing accordingly. We have eliminated markdowns. We have strengthened control of our distribution. We have developed a fully integrated e-commerce platform, fully integrated with the retail channel. We have invested in the industrial supply chain and streamlined our processes. We have invested in communication and distinctive initiatives for the group and its brands. We have increased our focus on sustainability and invested in human resources and new talent. All those actions have delivered the following results. In 2021, retail revenue is well above the levels of 2019. Full price sales account for almost 100% of retail revenue. The gross margin is steadily above 76%. Online penetration stands at 7% of retail revenues. The retail network productivity is above 2019 levels. The EBIT margin is higher than in 2019. And we had strong cash flow generation, and the net financial position is virtually down to 0. Let me now come to the Prada Group's main values. Prada aims at being the key player in changing consumption in the planet, for people and for culture. Those values include rethinking processes, innovating heritage, spirit of excellence, uniqueness of talents, reaching beyond boundaries and implementing sustainable parts. This tree is fundamental for us. Let's look at the drivers of growth. These are the 5 main drivers on which we base our future strategy. It is a matter of continuing consistently along the pathway we have already started on and keep prioritizing the value of our brands over the long term. At the basis of those drivers, we have investments in both people and infrastructure. Our main drivers are a distinctive vision and identity, style, quality and product uniqueness, focus on direct distribution, vertical integration and industrial know-how and commitment to sustainability. So let's look at our distinctive vision and identity. Our growth will depend mainly from the group's ability to keep a distinctive vision and identity, which we have summarized in this sentence. The Prada Group has a thoughtful and pioneering vision of fashion. At the time of significant cultural and societal change, like the ones we're going through now, luxury needs to continue evolving coherently with the markets. Our dialogues and fluid perspectives continually allow us to reinterpret luxury. By being relevant, sustainable and impactful, we will drive long-term growth. So design, quality and product uniqueness. Thinking of the collections structure, we will continue to increase the value of our products in terms of style, quality and uniqueness. We will pursue balanced growth across product categories. We will maintain a broad price architecture and continue to increase average price. We focus on direct distribution. So the third driver is distribution. And here, we will continue to prioritize our focus on the retail and direct online channels for better customer experience. We will increase the productivity of the store's network. We will expand selectively in those markets that have higher potential and lower penetration today, and we will double online penetration and deliver superior omnichannel journeys. Vertical integration and know-how. We believe we stand in a very strong position, thanks to the investment we've made in both companies and people ever since the 1990s. And we will continue through consolidation and further investments in vertical integration of the supply chain, rationalization of production, improved process control and product excellence further time to market reduction and state-of-the-art and sustainable factories, both for workers and for the environment. Our commitment to sustainability. We have started a sustainability journey, which is actually becoming more and more concrete for us. We have a vision for sustainable growth, embracing the planet, people and culture. We have a climate strategy, which is quite bold and we integrate high-profile ESG experts in the company's Board of Directors. Investment in people and technological infrastructure. We will proceed in investing in people and technology, which is a key enabler. It is fundamental for young people and for production in particular. We will keep focusing on diversity and fresh perspectives. We hire and nurture new talent. We want to focus on our clientele with the advanced state-of-the-art policies and strategies. Let's now come to my -- to our medium-term targets. Thanks to the strength of our brands and our industry know-how, we quickly went back to growth with retail revenues that are higher than 2019, starting from the first quarter of 2021. We can look back with pride with the strength of long-term investments in our brands, in our supply chain, in people and culture. For these reasons, we can look ahead with a lot of optimism to a future of sustainable growth. Our target is that of reaching EUR 4.5 billion of revenues and an EBIT margin of about 20% over the medium term. In the next presentations, we will go in further details, and we will look at the drivers, we'll exploit and leverage them to reach those targets. Let me now come to the importance of the control of distribution and customer experience for our strategy. Focusing on direct channels is delivering good results. We have already retail penetration, which is nearly 90% of overall revenues. And this choice was very beneficial for customer relations, full price sales, and as a consequence, we also posted growth of the gross margin. The online channel increased from 2% to 7% of retail revenue. And we have increased the store productivity despite many of them having been closed during the COVID pandemic, which still had an influence even in 2021, in particular, in January and February. And we will keep controlling the development of the wholesale channel. Now looking ahead, we will keep implementing the following actions. We'll keep a high level of attention on store productivity. We will optimize retail networks with selective openings in the geographies that have the highest growth potential. We will still create new retail pop-up stores, especially in store installations in high-visibility locations. We will double our e-commerce presence. We believe penetration will be 15% of retail sales in the medium term. We will further develop our databases and artificial intelligence system in order to design personalized customer strategies and optimize operations. As far as wholesale is concerned, we will keep a controlled presence in the wholesale channel. Let me now come to the role that our stores play. Even in a digital era, we do have a fundamental role in our stores. They are fundamental in communicating brand vision, and we pioneered epicenters. The first Epicenter store opened in New York City was designed by architect Rem Koolhaas, and we opened it with mayor -- then Mayor Giuliani in attendance on December 15, 2001. It was originally scheduled to open on September 18. And then, of course, 1 week after 9/11, we had to postpone the opening of the store. All of our local offices, all of our engineering resources were actually sent over to help with the Ground Zero situation. Then we opened the Epicenter store in December 2011 (sic) [ 2001 ], and we were pioneers in also making sure that people could use virtual intelligent systems in the changing rooms. Then we went on to open in Tokyo, in 2003, with architects Herzog and de Meuron. Then in L.A., we opened our Epicenter with architect Rem Koolhaas in 2005. And finally, in Tokyo, in 2015, we opened the Miu Miu boutique in Tokyo, Aoyama, with architects Herzog and de Meuron. Now we have an objective of increasing sales density by 30% to 40% in the medium term. We are going to reach that goal, working to increase traffic in the stores by means of using pop-ups and special installations. We want stores to be a contact point within the omnichannel experience. We will focus on engaging and building customer loyalty and personalized activities, and we will actually invest in personnel training. So from sales assistant, their role will evolve that of -- into that of a client adviser, and we will empower our sales associates with high-tech systems. We think of expansion and optimization of retail network. So we will continue to optimize and develop the existing retail network through selective expansion. In the United States, the distribution of wealth and demographics have changed significantly in recent years. The Prada Group doesn't yet have stores in cities like Atlanta, Austin, Baltimore and more. We will think of many new opportunities coming up right now. In Europe, we will optimize the existing store network, and we will continue with selective expansion. In the Middle East, we'll keep expanding in the new malls that are going to be built in the next few years. Asia will still be the main growth driver. And once again, we will extend our distribution network there. So this was all for my presentation. So thank you for your attention. And now I'll leave the floor to Alessandra Marsicola, who's going to talk more in detail about the Prada brand. Thank you.

Thank you, Mr. Bertelli. Good afternoon, everyone. I'm Alessandra Marsicola, Prada Retail Director. Before my section, I would like to introduce a brief video, where Miuccia Prada, Raf Simon communicated their vision. [Presentation]

The Prada brand DNA is unique. Prada has thinking fashion that inspired thoughts from its conception, and this is in all the brand aspect from product through retail concept to ideology. There are 3 pillars specific to Prada DNA. The brand. Prada brand means intelligence, curiosity and super -- reinvented luxury and superlative and aspirational. The product. Our products are always unique. As demonstrated by the example on the slide, which are still relevant and iconic. Finally, the customer. The customer is a center of what we do. And thanks to a customer-centric approach, we will be able to have a following global community of sophisticated customer, who continue to inspire us and keep us engaged. On the next 3 slides, you can see what we call Prada-ness, which embodies the values, which I just described, and is the very essence of our brand. Radicalism. Challenging convention, pushing boundaries, changing outlooks. Authenticity. Prada is honest and real, with a view universally value and connected with the present. Duality. Prada is never one thing. Designs always represent a dialogue creating paradox that are bold and fresh. The Prada brand has evolved and grow significantly since 1913. In this slide represent our key milestone over the last century. As you can see, the brand has gone through a truly impressive journey from 1913, which was the year when Mario Prada, Mrs. Miuccia Prada grandfather opened the first Prada store. Until today, when the brand is led by unparalleled creative direction of Mrs. Prada, Raf Simons. We are on a growth trajectory, which is delivering excellent results for our brand. The Prada brand saw impressive level of growth over the last months, with revenue for the first 9 months of the year reaching EUR 1.9 billion above 2019 levels. We experienced growth across all product categories this year and all above 2019 levels. Growth came mainly from U.S., Asia, Middle East, where we continue to see an increase of local consumption. Strong local demand also favorite trend in Europe, which has been improving over the period. We have also reinforced our direct channel offering. The brand. The brand was able to experience such a growth, thank you to 3 levers, which have been a fundamental part of our business strategy for years. Our continuous focus and investment in our brand, product and customer care are ensured that Prada brands remains unique while constantly growing. The brand maintaining the fashion and cultural leadership, thanks to our strategic actions. We grow our product offer across all categories, yet maintaining a balanced product mix. We continue to experience a fast growth in new customers, driven especially by Gen Z and by U.S. and China customer, while consolidating our existing relations. We were already focused on creating shows, which reflected the unique experience of Prada brand. The pandemic accelerated our approach to this and allowed us to think even more deeply about emotional engagement and the role of Luxury brand during such a terrible time. I'm happy to say that our thoughtfulness and innovative spirit was well received as our shows reviews have continued to be outstanding before and during the COVID as well as following our most recent show, which presented a new format never seen before in the sector. In fact, our most recent show the Prada Spring Summer '22 Women Show was the first ever show presented at the same time in 2 cities, Milan, Shanghai. As you can see here, the initiative was better received by the press. The successful reception of the show was strongly reflected online. Not only the show received the most earned engagement across Milan and Paris Fashion Week, it also doubled the closest competitor and experienced an overall plus 115% growth in video views across digital platform. For example, as you can see in the slide, we are enjoying impressive growth in brand awareness and engagement across the major digital platform worldwide as well as confirmed with our leadership in the world's hottest brand. According to Interbrand, plus 20% value in Prada brand. Lyst has recognized Prada as a #1 most searchable women product and in the top 5 hottest brands. The magic of Prada brands also came from its truly polyhedric approach to creating products that resonate across generation. As mentioned before, our product covers heritage and classic, modernity, sportswear, fashion vanguard, which means Prada will always caters to a wide group of existing and new customers. Our products are also iconic because they have always embodied our past value while making them modern, exciting and new for the present, relevant for the future. Prada brand is consistent. As you can see from this image from the 1988 advertising campaign that is looked as modern as contemporary as today campaign. Another example of how our brand is a leader is our Linea Rossa collection. Prada was the first brand to explore blending luxury and high-performance sportswear, and these started in our iconic Linea Rossa, which was born in '97 at the same time as Luna Rossa participation in America's Cup. I am exciting to share our ambition to build a global beauty house by adding makeup and skin care. We have already launched a partnership with L'Oreal and the Luna Rossa Ocean September '21. Our objective is to double our global market share in fragrance by '23. Another ambition is to reinforce Prada Group position as a leading group in luxury eyewear through innovation and the sustainability, which we plan to achieve by continuing to focus on product development in Sun and Optical segment, ensuring close alignment with other core fashion categories. We are also exciting to explore new opportunities in home and fine jewelry. I will now leave the floor to Benedetta Petruzzo, to talk about Miu Miu, and thank you so much for your attention.

Thank you, Alessandra. Good afternoon, everyone. Let's talk about Miu Miu. In this section, I would like to give you an update on the brand and where we are today, how we got here and most importantly, where we plan to go in the future. Using the words of Miuccia Prada herself, Miu Miu is immediate and reflects her unique and distinctive vision. In telling different chapters of a unique story in the last 28 years, Miu Miu has gone through an emancipation journey. The brand equity in those years, though, has never been compromised. And this is where we started and decided to take a turn. I'm going to speak about an overall transformation that the brand has been experiencing in the last month. But before going into the initiatives that we are undertaking, allow me to take a step back and speak about Miu Miu foundation and the key steps of our emancipation journey. Miu Miu expresses the heartfelt point of view of Miuccia Prada and there's a clear brand, product and customer DNA. The brand. Miu Miu is a universe of exploration, which reflects the complex and unconventional character of the women behind it. Taking its name from Miuccia Prada herself, Miu Miu is playful and personal. Most importantly, Miu Miu empowers women. And apparent lightness belies its pioneering and firstly [ feminist stance ]. The product of Miu Miu is immediate, breaks the rules and is irreverently sophisticated. The Miu Miu Women is a rebel. She is empowered, she's brave, she's free, and most importantly, she's youthful in spirit. This means that Miu Miu doesn't have a specific target in mind, but we speak of an attitude, of a connection in between Miuccia Prada's vision and the community. A community because the Miu Miu Women is part of a group of like-minded souls, what we call the Miu Miu Club, united by the love of fashion and culture more broadly. But how did we get there? This journey, this emancipation journey, starts in 1993, when the brand is founded as an experimental alternative vision of Miuccia Prada expression. Miu Miu opened its first store in Via della Spiga, Milan, immediately followed by Paris and New York Soho. This international flare is an important character of the Miu Miu brand and allowed the brand to showcase the collection in Milan, in New York, in London before heading into Paris Fashion Week in 2006. The mid-2000 marked an acceleration in our growth, and the first store in China was opened. In those years, important format like the Women's Tales, the Miu Miu Club, but also more recently, the Miu Select become part -- became part of our DNA. Today, we are a truly global outpost of modern femininity, a total look brand that continues to connect with the broader audience of women in a meaningful way. And Upcycled by Miu Miu, a recent project, speaks about that too, but we are going to talk about it later. This leads me to where we are today. Yes, looking at the first 9 months of 2021, our overall performance remains lower than 2019. But there are several strong trends that are important proof points that indicate the strength not only of our brand, but also of our growth path. First and foremost, we are greatly encouraged by the results we are seeing in Asia and Middle East. U.S. full price retail sales are also strongly accelerating. Ready-to-wear is a clear success. And we have seen an outstanding performance, double-digit growth, with a strong acceleration of accessories as a total look brand. Our strengthened channel mix promotes a higher control over the brand. A result of it is the fact that we have full price resales improvement as well as an outstanding triple-digit digital growth. In terms of consumers, we have a robust millennial and Gen Z customer base that, as you all know, are the segment and that are the most important in this market. Let's now discuss about the future and about the strategic lever that will sustain our growth strategy. In order to unleash the full potential of Miu Miu, we will work on a set of specific initiatives that have already been activated in the last 18 months. I'm going to speak about 3 areas, again, brand, product and customer. Brand. The Miu Miu brand will expand and grow, thanks to investment in brand awareness and consideration, so the upper funnel. Miu Miu is a strong, clear and distinctive identity, and we will make sure to seamlessly execute this identity across all the touch points. We will continue to cultivate desire and sustain brand equity in the long term, around the concept of club and women identity. Our product will become more established, creating an ideal wardrobe for the empowered women. We will maintain a strong DNA, reinforcing the ready-to-wear and accelerating accessories, covering all of our segments. This means price points, occasion and subcategories. Most importantly, we will maintain the DNA of being immediate through seasonal drops and special projects. Finally, the customer. We will win more customers. So we will continue to fuel the base of millennials and Gen Z, but we will also enlarge the club through and expand reach through communication and footprint, but also through a Miu Miu customer journey, which is playful and experimental, and through consistency across all the touch points. As I said, the execution of those strategic pillars has already started. The Spring/Summer 2022 Fashion show was very well received and was defined one of the strongest and most exciting fashion statement of the season. Another important point was that was recognized the ability of Mrs. Prada to subverting the norms and connect with the younger customer base. With the objective of connecting with the larger and more engaged customer base, digital and offline [ melted ]. And this was brought to a next level with the genuine artist Meriem Bennani. Also, this was very well received because as you can see on the left side of the slide, we ranked the #1 in our engagement in Paris Fashion Week. On the right side, you can see that there was a plus 726% impressive growth in YouTube views versus Spring/Summer 2021. The investments and innovative communication strategy we are executing led to increase the awareness of the Miu Miu brand, with growth in website traffic, search effectiveness, but also fans growth on Weibo, which, as you know, is a very important social channel in China. Our product strategy is key and will remain key. As I said, there is a specific objective for Miu Miu, which is to be immediate and meeting the moment. In this context, we launched at the end of 2020 Upcycled by Miu Miu, an important project around a more sustainable product life cycle that was extended through the collaboration with Levi's in April 2021. The concept of reworking existing pieces was extended in Spring/Summer 2022 with the collaboration with New Balance around 574 sneakers. Being immediate and maintaining a strong point of view is key, and we can see this from the last fashion show, not only ready-to-wear, but seamlessly executed across all product category. We will continue to crystallize identity and making sure that the complex and unconventional point of view of Miuccia Prada is consistently articulated towards the consumer. As I said, we have already started, and we are well aware that the market ecosystem has profoundly changed. The customer has to be at the center, and this page shows clearly how much all the touch points towards the customers are coherent and meant to engage digitally and physically with the Miu Miu Club, through press, social campaigns, pop-up in stores, windows. So to conclude, we have a clear and solid plan to unleash the full potential of Miu Miu. The turnaround has started or is on track and is already bearing fruit. Miu Miu is a priority for the Prada Group. We have planned EUR 150 million in communication in the next 3 years. The product strategy that meets the now has been activated and will be executed through seasonal drops, specifical -- special project, coherence with brand DNA across categories. Millennial and Gen Z, the objective will be to stay relevant to those customer segments, but also to grow the Miu Miu Club, recruiting and nurturing the customer of the future. Thank you, and I leave the floor to Lorenzo Bertelli.

Good afternoon to everybody. Thank you, Benedetta. So today, I don't want to bore you too much with our marketing platform and with too many technical datas or digital datas. So I will bring you quickly through the presentation, touching some key elements. So there are 3 main areas, where we approached them, that one is to have more and better communication for the consumer, so with the consumer in mind, and this is the second area. And this has all been possible, thanks to our acceleration in the digital transformation. We're going to see each of them. So more communication. What does it mean? We invested comparing 2019, plus 25% in terms of budget. But as you can see, it's been improved by more than 80% in digital spend. This is what does it mean? It doesn't mean that we want, let's say, give away the non-digital investment, but simply that we have more platform, more digital platform, the behavior of the consumer and especially the younger generation consumer is changing. So we need to tackle that and remain relevant across the whole platform, across whole consumer and across the whole competition. But what does it mean more investment in communication. To do so, we need to keep in mind that we do it for our consumer and for our customers. And so with this in mind, we evolved our clienteling evolution, has evolved in the sense that it's more personalized, thanks to other tools that we're going to see later. And this is all done with in mind the human touch and to bring this human touch a full potential, this is fundamental. And why the human touch is so important? If you look at this slide, the human touch, the boutique staff, in particular, usually, thanks to our survey that we run in the past year, is 4x more relevant compared to other touch points. We are not going to disclose all them, but other touch point could be like Windows. And so this is why the feeling that the customer has, while he goes in the store and how the sales associate behave with them is so fundamental. We analyze this, and thanks to several activities that we put it in place. We improved the NPS compared to 2020 by 15% across all the brand. And this is, I think, is a remarkable result. How we improved the NPS. In 2015, already before I joined the company, there was a clienteling up that back in the time was, I would say, already quite an advanced to compare to what was present in the market, also compared to other competitors. But when I joined the company in 2017, it was not so updated and we were lacking a bit behind in terms of capability. So now after a lot of refresh of this application and other tools, we're able to have a single customer view. We do personalization, thanks to AI-driven recommendation. We give task and clienteling. So we really give to our sales force a really powerful tool in their hands, physically in their hands. And this -- those engagements is increased by 70% -- 67% compared to 2019 and 2021. I want to add a point that is not present in the slide that, the increase of the sales compared to 2019 to the present day, 2021, 20% -- more than 20% of it has been driven by those activity. All those achievements and all those improvements are happening across the whole range of a generation. For sure, baby boomers and Gen X are improving even if generally is normal diminishing the share, but the strength of the improvement that we're doing in Gen X and Gen Z is incredible, and we are happy and proud of the performance we're having because we are backing on track on average of the sector. And so I think everything is moving in the right direction. So -- but which are the enablers to do all of this? For sure, the e-commerce, so all the online channel, the whole omnichannel strategy. So to integrate the online channel with omnichannel. So a customer when goes in the store or in e-commerce store, doesn't have to notice the difference between one and the other channels. So I know what you're doing in the physical store, and they also know what you're doing in the online store, in a way also client service is able to release just one person. We'll leverage the data. We are going to talk later slightly. And then thanks to a best-of-breed approach, we'll leverage our IT architecture and AI to deliver all those capabilities. The performance. So thanks to this massive effort from the company. We improved from 2019 the online sales by 5x. So now we are 5x, our sales are 5x bigger than 2019, and the share of the mix compared to retail is moved from -- more than 4x today from the 2019, and we expect in the midterm to double it, and so to really be in the average of the sector and -- yes to be in average of the sector. Just one more point I want to pose on the footprint of our online capabilities. We are present in 33 countries, that is quite a big number. And our next objective is to optimize the china.com. We are really focusing on building a strong team in China because, as you know, China is a kind of a different ecosystem. We want to reach the full potential on T-Mall and then we have to expand and consolidate the existing platform and in case explore new opportunity. Another point that I want to point out is that I think the company has been in the past, thanks to my father vision in advance of the time. So even we've been criticized because we were not up to time in terms of digitalization, but the vision of my father was we need to fulfill e-commerce sales through our stores because I don't want to invest in warehouses or additional stock. And this, I think, has been a clever move that now is paying off because everybody is moving to this strategy, but this is the most complicated part of the strategy. And now to fulfill the bigger demand of the e-commerce, we need to invest in regional warehouses that were already in place. And thanks to algorithm, we are able to better fulfill our needs and give us really an agile platform also in terms of fulfillment. To recap, this has been our road map. So what has been done -- what was in the past, in 2019, what is today, and what is going to be in the future. We have a singular customer view. In the 2019, it was fragmented, was to pick information from the customer from all the -- for different platforms and now is just in one place. So it's very easy to take those information and use as you wish. And then in terms of omnichannel, in 2019, we had just pick up in store, book an appointment, in-store availability check. Today, we have home delivery, remote order, virtual appointment, omnichannel return and exchanges and omnichannel gift cards. And those capabilities put ourselves really in the peak of the pyramid in terms of digital capability. So what I say to my team from now onwards, we just really need to have to fun to unleash our creativity and really shape the future omnichannel experience. We are confident also in the future, thanks to the quality of the data. 93% of the in-store transaction are identified. This is a very high target for our sector. We know about transaction, website behavior, client adviser interaction, NPS, after sales, stock and data and so on. And again, the data culture that we have in this company is now second to no body. We have more than 10 years of information that has been digitalized, and we can leverage to create a better performance. The redemption rate versus not targeted one, thanks to AI is increased by 2.5x, and also the product engagement versus the one not personalized, thanks to the AI increased by 50%. We are not happy where we are today because we want to really lead the conversation and be the best of the best. And so we are planning in the next 2 to 3 years, EUR 80 million of investment to even accelerate and be ready for the future challenge, and we have in mind, a real agile platform. And this platform has to approach 3 main areas. The most important for sure is the front end, what the customer sees, but it's not possible to have a great performance for the customer, a great experience for the customer, if you don't have an omnichannel orchestration that works properly behind the scene. But even more important, we are working with Massimo closing to really set the new ERP system in a way to fulfill whatever we want in the future customer-wise. So thank you to everybody. I leave the floor to Massimo.

So Massimo Vian, Prada Group Industrial Director. So let's now quickly deep dive on what our CEO just anticipated a few minutes ago. First of all, we firmly believe in our vertically-integrated model. We design and develop in-house all products in all categories. We own 23 manufacturing sites and we have a long-term partnership with strategic suppliers. This year, despite the initial difficulties of Q1, we've been able to add 100 people to our Italian sites, and we are planning to more than double the number next year. Starting March, when we had the opportunity, we also reactivated Prada Academy. And out of those 100 new employees, 40 were new apprentices coming directly from school. They will be, again, double next year. In the past 3 years, we invested in the industrial supply chain, EUR 80 million. And thanks to our very solid financial position of today, we are planning to invest almost the same amount only next year. We are active to grow organically, but also we are ready for further nonorganic opportunities. We are growing not to get more solid, but also to enlarge our vertical model. We want to go upstream in the value chain and one example, above all, is the very recent acquisition of 40% stake in Filati Biagioli, is one of the Italian leader in fine yarn production. This is quite crucial acquisition from our point of view. We did it together with Zegna for our luxury ready-to-wear division. Prada operations are getting more solid, but we know we have to get leaner at the same time. Last year, we were forced to slow down activities in distribution and therefore, also in product development. In those months, we were able to maintain a positive approach. And we took it as a challenge. We proactively took the opportunity to look at our collection architectures. And definitely, we found opportunities to remove complexity from our system. In '21, we maintain an obsessive attention to introduce new style to the market. And as you can see from this chart, we have been able, in less than 3 years, to reduce by 30% the number of new models introduced to the market, and this is true across all categories. We want to keep this momentum and we do have room, and we do have plans to reduce further in the next year. Positive outcomes are obvious and will have definitely, thanks to the simplification, an important impact on our business. For sure, it will enable us to have more targeted communication and hopefully, higher sell-through of our products. Overall, it will help us to reduce furthermore our inventories. And we will reduce also our industrial and manufacturing complexity. As you can see on the left -- right-hand side, our average manufacturing batch has already increased by 20%. And our variability of raw material usage has decreased 35%. This improvement from a transformation point of view are very relevant. And all these, of course, translate in cost efficiencies and will contribute to a higher gross margin for the group. In the past years, actually, starting from the origin, from the idea of Mr. Bertelli, our operations, industrial operation has been stronger and stronger. We are convinced that we are the best in what we do. Therefore, we are constantly investing on our own assets and moreover, on our people, our maestros, in our factories. We're well ahead in the process of in-sourcing all the activities in our own plants. We employed and trained workforce to retain our critical know-how. And today, we can say that we are quite proud to have our secrets. In the pie charts, you can see the journey that is taking the group to the situation of today. We are performing 100% in-house already today, prototype and samples production, the leather cutting, leather kits preparation, the finished good quality control and of course, the distribution. In the central activity, the one that is related to assembly, we are, let's say, 40% of in-house operations. We are planning to grow there, but not to grow above 60%. This is a very high labor-intensive activity, and it's quite safe to allow some flexibility, relying on long-term relationship partners. Of course, to in-source those products, our supplier base has been under quite tough screening. In the past 3 years, we performed more than 170 audits for our suppliers. And as a consequence of those screening actions, we ended the cooperations with 30 of them. In addition to people know-how and other critical resource in our business is time. The way we launch new products to the market is constantly evolving with more and more frequent events in our stores and a higher number of pop-ups. We have to be more precise in product delivery dates and therefore, faster in our supply chain. I have to say, even thanks to COVID, we went through a massive evolution on our operations in the past 3 years. We reviewed the way we plan for raw materials and semi-finished components. The way we industrialize our products and even the way our plans are laid out. Again, the chart shows how we successfully have been able to reduce TAT time by 30%. This is actual days from order confirmation to store delivery. This happened across all categories. And again, while we're going to present you today that we have still room for quite solid improvement in the next periods. Clearly, with faster time to market, we increased our ability to react to market change preferences. For new products, it means a higher precision in store delivery, which is essential for pop-ups. You can now deliver products not even a day after pop-up starts. And for carryover, a faster time to market means possibility to reassort the same product during the season. And obviously, this gives us the possibility theoretically to gain extra business. The speed of the supply chain is finally also further relevant for efficient inventory management and obviously, a stronger cash position. Finally, we want to update you about one of our most important recent project, our new state-of-the-art distribution center in Tuscany. This project now is 80% complete and will be fully operational by the end of 2022. In the past 6 years, we invested roughly EUR 100 million to produce this new state-of-the-art facility. It has a total surface of 40,000 square meters. It has a LEED certification. It's fully covered with solar panel, as you saw in the picture, that is a real picture. And it has also a geothermal system for heating and cooling. Thanks to that building, we saved 2,000 tons of CO2 emission per year, and we are able to produce more energy than we need with a total of 3 gigawatts production per year. Final note on e-commerce is not yet in that building. But still in the older location, we've been able to reach our goal and operating our warehouse on a single shift base of only 8 hours. We are able to dispatch 80% of e-commerce order in the same day we receive them. We're very satisfied with progress so far, but even more, we have a very, I would say, very, very ambitious plan for the years to come. Thanks for your attention. I will leave you with 3 takeaways, 3 main takeaways. The first one, continuous investments on our vertical integrated business model. We will be very active in scouting for external, nonorganic opportunities in the next years. Second, we do have in front of us a journey of growth, but at the same time, a journey of simplification that will free energy to be reinvested. And lastly, think about our time-to-market reduction has a strong enabler for business growth. Thank you for your attention. And again, I leave the floor to Lorenzo.

There is no doubt on the value of this group, on the value of the Prada Group. We need to align our business to our value. And this is my next decade objective is to make a sustainable growth for the next decade. We need to translate our values in action. How can be done this commitment? For sure, we have to start from the peak of the pyramid and the peak of the pyramid is a Board level. And so we take -- we took several actions to bring aboard the whole Board. We implemented a new ESG strategy that has just been approved from the Board of Directors. We have a robust engagement with the organization, with the Board. And also, we have trained on ESG matters for the Board member. And finally, we're going to establish our ESG commitment by half of the next year. But today, the most important announcement is the 2 new members that will join the Board, that will work with me on the ESG committee, but not only, and will help the company to better deliver result on ESG matter. It's my pleasure to present to you Pamela Culpepper and Anna Maria Rugarli, who will join the Board. They have many years of experience on this matter. We think they are the right people to help me and my team and the company to address those objectives and address those tasks in the future. They come from experience from Pepsi, Golin. Anna Maria Rugarli, she is working for Japan Tobacco, and she's working VF Corporation and Nike before. Well, let's go back to our agenda. Our ESG agenda that will allow us to be really a driver of the change, roots on 3 main elements: the planet, the people and the culture. For the planet, we have to mitigate our impact on climate change. People, we have to be champions of diversity and promote inclusion. And culture that maybe is the last one, not least, but I think it's the one that's the most related to the company is to contribute cultural debate. And this is, I think, is the one that is more close also to my family. We have to do all those things and action with our partners, internal partners and external partners, and only together, we will achieve those results. But let's see the data of those 3 aspects. So let let's show you our climate strategy, road to net zero. We start from the 2019 baseline. We just cited this year our Science-Based Target that has been approved, and we aim for 2022 to be carbon neutral for Scope 1 and 2 emissions. And from 2026, we aim to reach our first important milestone that is to reduce emission of greenhouse gas of Scope 1 and 2 by almost 30%. How? Thanks to more sustainable electrification of our plant and facility and stores to increase the number of green cars in our fleet. So we're going to reach 60% by 2022. And also to have more LEED and Gold, platinum certified stores. Then in 2029, we have, I think, the most challenging milestone to be reached is to reduce by 42% greenhouse gas emission of Scope 3. And Scope 3, as you know, is all our supply chain. All the people or the company that are working with us and with Massimo, we are working really closely to engage them and to set the future standard to reach those goals. And then finally, in 2050, to reach the net 0 target, also in according with the Paris Agreement. Last but not least, we're going -- we -- I'm so proud to announce that by the end of this year, we're going to end the conversion of the re-nylon. And by 2023, all our leather will be certified by the Leather Working Group. And last, we are going to improve our packaging that is already sustainable, but we scale it up even more. Talking about people. As you know, we have several activities are going on, on DE&I topic, and we announced them in the past months, and there is more to come in the future. Then December 3, we are going to announce other initiatives with Valuable 500. And then on the cultural side, we're going to keep -- we're going to keep focusing on the ocean literacies and to educate the future generation, and we're going to partnership with UNESCO, IOC, like we've done in 2019 for the Re-Nylon Project. Thank you so much to everybody. I leave the floor to Alessandra Cozzani.

Thank you, Lorenzo, and good afternoon to everybody. We have almost finished. As Mr. Bertelli mentioned before, our strategic actions are already delivering positive results, both in terms of sales performance and productivity and profitability. And before moving to Q3 trading update, I would like to briefly recap what happened in the previous quarters. We have seen a very strong sequential improvement across all geographies versus 2019, especially in U.S., in the Asian market and in Middle East, showing strong double-digit growth in Q1 and a further acceleration in Q2. Domestic consumption was very strong, pretty everywhere, and retail sales performance overall was well above the pre-pandemic level. Also in terms of product categories, you may appreciate the strong acceleration versus 2019 in all categories with ready-to-wear outperforming and leather goods and shoes set to follow. The strong top line performance has immediately been reflected into profitability improvement. In terms of gross margin, in the first half of the year, we reached 74%, almost 250 basis points above 2019 level. This strong improvement driven by a more favorable channel, geography and product mix is not to be intended as a one-off, but the structural improvement set to further increase. EBITDA margin at 11% was also well above the pre-pandemic level, driven by gross margin and the level of operating expenses well under control. Moving to the latest quarterly sales trend of our retail channel, you may see that the acceleration trend continued in Q3 at 18% on a 2-year stack basis. Moreover, we are very pleased to see this strong sales momentum continuing in Q4, with October and November trend that is higher than the third quarter. Let me go through the sales performance in Q3 by regions. In Europe, sales trend improved significantly compared to H1, supported by local demand following the reopening of the stores. Sales performance in Europe turned positive in September and October versus 2019. Asia Pacific continued to deliver strong double-digit growth in Q3 despite the new COVID restriction in August, mainly in China and Southeast Asia. Sales trend accelerated again in September and in October and is now as strong as it was in H1. Americas achieved another quarter of remarkable growth, up 86% on a 2-year stack despite tougher comparable base. All countries in U.S. recorded a very strong progress. In Japan, retail sales improved, but remain impacted by in the quarter by pandemic and the lack of tourism. It's worth mentioning that in October, Japan delivered double-digit growth. Sales momentum in the Middle East region saw a very strong acceleration in Q3, driven mainly by local consumption. Besides the very strong retail sales trend, also, group profitability showed a very good progression in Q3 versus first half of the year in terms of gross margin, EBIT and net profit. The net financial position was close to 0 at the end of September compared to negative EUR 102 million end of June as a result of a strong operating cash flow driven by improved net working capital. Based on this very encouraging trend, we expect that our EBIT margin will be increasing further in the medium term. And we have summarized our key pillars, leading to our 20% EBIT margin target. On the retail side, our priority is to improve store productivity through organic growth across all product categories, also leveraging our sophisticated CRM system and continuous announcement of in-store customer experience. In terms of channel mix, we are currently controlling about 90% of our revenue through directly operated stores, both offline and online, and we expect to go beyond this threshold. It's worth mentioning that online growth will be accretive for the group profitability. On supply chain, our priority will be industrial process rationalization and efficiency of scale. Last but not least, we had strengthened our organizational structure during the last few years, thus providing a proper set for future growth. The improvement in the existing store productivity will trigger operating leverage in the medium term. Finally, let me give you some color on our capital allocation policy. Going forward, capital expenditure will be between EUR 200 million and EUR 250 million, with about EUR 150 million dedicated to retail network, including some selective new openings, refurbishment and relocation and about EUR 100 million allocated to investment in production and IT infrastructure. In addition, given the increasing level of net profit and cash flow generation, we aim to resume a dividend policy in line with prepandemic level. Now it's my pleasure to leave the floor to Paolo Zannoni.

Good afternoon. I'm Paolo Zannoni, Group Chairman. I joined Prada less than 6 months ago. This makes me the new kid on the block. And this new kid will tell you how he sees the company's path forward. Today, Prada as a brand is bigger than Prada as a business. That gives us a wonderful opportunity to grow sales and profitability. The group is focused on the long-term strengths on both brands and business, not on short-term gains, as you have seen from all my predecessor. All our investments are for the future. And they will bring an improving financial performance, but also brands that grow more powerful and relevant all the time. At Prada, evolution starts at the top. First, we added a senior creative talent. It was a gutsy move, but it worked. Miuccia Prada and Raf Simons have just told you how they create together and how they are in touch with diverse people and cultures in tune with their demand and expectation. They are joint talents, fuel product innovation. Today, you have seen that the vision of our 2 main brands, Prada and Miu Miu are as firm as they are clear. Prada is brainy, subtle, clever. Miu Miu is instinctive, playful, brave. The different vision appeal to diverse customer. Both brands have ample room to grow. We made our products richer, more unique, cherished. We freshened up the way we market our [ ways ]. The show, Prada Spring and Summer 2022 was the first synchronized event joining Shanghai and Milan. Miu Miu in Paris was equally original with its blend of fashion and art by Meriem Bennani. Prada today sells through physical store, digital platforms, pop-ups and events. Physical store are the embassies of the brand. Pop-ups and events target narrow segments of demand. This way, we sell more items at full price and at a higher price point, while keeping our core customers and reaching new ones. Today, our financial performance is better than that of 2019. Gross margin is firmly above 76% and EBIT is on an upward trajector. You have just heard the group of enhanced manufacturing. The group rates control of the supply chain, so vertical integration, improving quality, working condition and becoming more respectful of the environment. We manufacture in state-of-the-art facilities, lean and environmentally friendly. COVID pushed up to focus on local customer in every region Hopefully, restriction will soon ease, travel will resume, our challenge then becomes how to keep local customers while capturing those that move between cities and regions. We are not idle, and we are gearing up to face a challenge with diverse products and targeted pricing and merchandising. Changes in the demographics and distribution of people and income bring new opportunities. As you have seen, the United States is the best example. The North American market for luxury goods has been growing double digit. Group sales have outpaced the market. Yet in the U.S., we are still underrepresented. We will grow sales and profits there. Prada is implementing a full range of steps to be respectful of the planet, its people and culture. To do that better, we are adding 2 new members of the Board, both with deep ESG experience. With them, our Board of Directors will achieve gender parity, not a trifle achievement. I am truly confident that Prada, by being relevant, sustainable and impactful, will achieve revenues for EUR 4.5 billion and EBIT margin of 20% in the medium term. And I am happy and honored of having been asked to join the Board. Now we'll get to questions.

We have now reached the Q&A session. Please note, this will be divided in 2 parts. The first part for financial institutions, followed by a short coffee break and the press Q&A. We will start by taking questions from the financial audience present in the room followed by questions from the webcast. [Operator Instructions].

Luca Solca from Bernstein. Thank you for your presentations today. It is refreshing to see the catch-up that Prada has been producing in the most recent period. Is it fair to understand that you are continuing in this catch-up and that what you were showing today is primarily a continuation of this catch-up? And is that the reason why the medium-term objective that you set for the company, especially on the EBIT margin line, seems to be rather under ambitious when you compare such a big brand like Prada to other peers in the industry. And as a second question, I wonder, if there is further efficiency opportunity, you were highlighting, for example, Massimo, quite a significant improvement in complexity cost reduction and time-to-market improvement to reduce costs and invest more in brand support so as to drive retail space productivity. I would assume that higher retail sales productivity could boost operating profit margins well above the 20% that you were indicating today. Thank you very much.

Hi Luca. No. Honestly, we don't think that this 20% EBIT is an under ambition with this level of sales we are. We didn't give you a precise number, we say about 20%. I think it's reasonable also considering the level of the target revenues. It comes from -- mainly from organic growth. So it is true that there is an important operating leverage that we need to capture. There is also some additional opportunity, as we mentioned before in the gross margin progression, but we do feel that this is a target that is reasonable and we are, let's say, reasonably confident to reach.

And we like to under promise and over deliver.

Luca, back to your second questions. Is there an extra margin in cost efficiencies? Maybe there will be. I don't want to say again what our Chairman just said. But clearly, what we've been focusing recently and what we will focus is more to drive out simplicity and speed to serve stores and keep our inventory at a very minimum. And I think we've been successful in doing that, and I'm sure we will be further next year because we have some lag of what we were doing pre COVID. Second element is that you will -- part of the gain of the gross margin that Alessandra mentioned, are coming from cost efficiency. But part of what we're going to save will be reinvested into raw materials even more luxurious compared to what we yesterday, talking about mainly leather and ready-to-wear basic material. So I think we've been realistic in our journey of very solid and leaner growth, which is not that linear.

Elena Mariani from Morgan Stanley. I'm going to stick to 2 questions. My first one is for Mr. Patrizio Bertelli and also Lorenzo Bertelli. In the past, you have been asked quite a few times whether the Prada Group could become an industry consolidator. And I think that the answer was we need to focus on the Prada brand first. We need to recover. And it feels to me that today, you're showing that you are on the right trajectory. So do you see yourself now more as a group and as an industry consolidator, given that everybody agrees that in Italy, we lack a big holding company. And there are very few groups that can actually reach that objective. So that's question number one. Maybe also for Lorenzo, who's going to take over quite soon in the future. And then my second question is, again, on the target. Is it possible to put a date? Is it like a 3-year ambition, which is pretty much what consensus is seeing right now? Or is it more like a 5-year plan? And still part of this question, I mean -- and going back to what Luca just asked, and you also mentioned I love the sentence that Prada is a bigger brand versus the Prada business. So what prevents you in terms of size to be more in line with the key leaders in the industry. And I'm going to mention Gucci. I'm going to mention [ Vuitton ]. It doesn't seem to me that the Prada brand has something less that is industry leaders.

[Interpreted] Let's see, yes. It's a very complicated story. And I mean, we've been a group that has simultaneously dealt with very many assets with a 30-year track record. We have invested on certain activities, such as factories and other activities to give an identity to a young brand, which was founded 30 years ago. Probably, we have suffered in terms of EBIT. There are other brands instead, which have higher EBIT results because they bet on the short term. We instead work thinking about the next 20 years, and this is a huge difference in my opinion. So history is not something you can buy, and this is something we must all try and understand. We can work really hard with marketing, but also to create a strong brand identity. And this is what we've been doing better than anybody else, for sure. As for our ambition, is it 3- to 5-year ambition? Well, obviously, we did not provide you with the date because we think very many things are at stake still, but we will try and do the best possible as quickly as possible. Prada is as a possible industry consolidator. Well, I don't think this question should be asked to Prada, but rather to Italian entrepreneurs. Why is it that they didn't consolidate in the past? And why is it that they avoided consolidation in the past? I think that currently, it's a bit too late. I mean, we needed a different and wider vision 10 years ago when we saw the launch of iPad in 2010. And that was possibly the latest date when we could have thought about the possibility of consolidating this industry. Currently, I think, at least from our point of view, we want to defend the Italian know-how. We want to help SMEs that will encounter huge problems with stronger digitalization in the future and with stronger limitations when it comes to ESG and green matters. I mean consolidation should be a natural fact not because you have a stronger company. There should be a totally different attitude in assessing the global market as such.

[Interpreted] I will try and answer very quickly as to the point of me taking up the company in the future. Well, first of all, I agree with what you said about the group. I mean it's not for us to consolidate the industry. If there's no will from other entrepreneurs this cannot happen. There must be a buyer, seller and there must be the will there to do so. I mean if chances will come, we'll assess those, but we have no anxiety in this respect, let's say. As for succession, well, in 3 years' time Dad said he's going to retire, but I don't believe it.

[Interpreted] I don't know I was asked. Then I said in 3 years' time, I don't know, we'll see. I mean it's an option. It's a possibility because we also have to take into account that I have a certain age. And if we look at stats, we are all aware of the fact that if we look at averages, when somebody is 75 years old, stats -- international stats tell us 10%, 12% as a survival rate. So it's normal to think about these things. It's very difficult for everybody to transform the path of a lifetime into percentages. If we all started thinking in percentage terms, we would eliminate some anxiety. I'm not anxious because my 75 years were spent very well. I enjoyed myself. I did very many things. And also, this room where we are today is a demonstration that we don't take you to public cinemas or to rented hotels, but rather to our cinema. Thank you.

Yes. It's Antoine Belge from BNP Paribas Exane. 2 questions. First of all, when you look at the last 4 or 5 years seen fantastic acceleration. I remember that there was a period, where, especially for the Prada brand, there were -- I mean some of the products had lost a bit their appeal and there was a question like been too dependent on a few ranges, et cetera. So how confident are you that we found the right balance between new products and evergreen products in the brand today? My second question is a bit more financial and I understand you don't want to give the sort of time frame, but that 20% EBIT margin would correspond to what gross margin? Because I think you remember -- if I understood correctly already in Q3, so it was 76%. So is there -- is that like the sort of a target, not only on a quarterly basis but on a full year basis? Or do you think that maybe you can get to 78% or 80%.

[Interpreted] As to more appealing products, well, I think what we've done is we really looked at ourselves at the way we do things, at the way we think. So we thought about it carefully, and we find the right way to refresh and renovate the products, the collections and our way of working. I think it's important to have the capability to do it. Then it may happen, you have some slowdowns. That's life.

The gross margin that is implied in this 20% EBIT is 78%, the one that we have also -- that Mr. Bertelli has also declared in a recent conversation with you.

It's Louise Singlehurst here from Goldman Sachs. First of all, thank you all very much for all the information that we've had so far. So it's a delight to be here in person. So thank you for that. My first question, I just wonder if we can talk about the level of transition that we've seen. I thought the presentation from Mr. Vian and talking about the reduction in production and SKUs in a very short period of time between 2019 and 2021 has been quite spectacular. And I just wondered if you could talk to us about the journey of what accelerated that, was it accelerated during COVID versus your plans probably 4 or 5 years ago to where we are today? And then secondly, with regards to digital, the 15% number that you're targeting is a big number given the absolute sales that would imply, but it's still quite low. Is that a target that can go further? Is that pure digital? We did talk about omnichannel quite a lot in the presentation, which I presume is quite difficult to disaggregate. And when we think about omnichannel, does that make the YNAP proposal quite an interesting opportunity that was talked about by regional last week?

I would start in transparency telling you that I joined the group 18 months ago. So I joined in smart working. And the first thing -- one of the first thing that Mr. Bertelli presented me was reduction plan of SKU. So who's been driving that? I mean, I think it's quite clear who was the start of that. I think what the team did well, took that really as a challenge and see what we could do after this big push starting directly from the CEO what would it be next. And I think we did well in terms of setting up a system to control the number of new SKU being generated and to start measuring the results after these strong diet that we were forced to do. As I said before, we discovered that in some areas, I mean we were doing even better than before with not only pure SKU to manage in the supply chain, but feedback from retail, fewer SKUs to present to customers in the store to have also a proper amount of time to showcase our product in the windows and in the shelves of our stores. So discussing with the CEO, we said, why not continuing? And of course, we benchmark our situation with other competitors, and this is how we generate the plan that we showed you for the next years. I think that Prada will never set for itself a limit to newness to be introduced -- to introduction like other players, they do. Prada is devoted to innovation and we hate to talk about limit the newness. But on the other side, we have to be clever and not create problem to ourselves. So in this respect, yes, we might have been conservative with what we showed you today. But clearly, this is a very realistic plan. And probably we haven't seen so far all the positive outcomes that we could get from that result.

To answer to your question, First of all, we could stay here hours to discuss about this topic, but I wanted a bit to break the cliche that more penetration of digital means you are better doing digital. For sure, it gives you an idea of your level of maturity, but it's up also to your overall strategy. Let's say, you have few big stores around the world, for sure, your level penetration of the online is going to be higher. If you have a bigger physical penetration, your level of online is going to be lower. And that is a customer choice. It's not a company choice. So you have to follow what the customer wants. And I make this example. Let's say that in 20 years, we're going to have a company with 50% of digital penetration and company made with 20% and with a similar net, but -- and the overall value of this company is similar. What does it mean? It means that one company is better in driving a better physical experience than the other one, have better opportunity to increase the advocacy of the consumers. So generally talking -- generally speaking, a higher penetration doesn't mean better. It gives you the feedback of your maturity level digital-wise. But it's more the capability that gives you the real feedback of where you are. Then for sure, we need to improve. We are doing so, and we have a clear view of what we need to do in the future, but it's going to be the customer to decide at the end. And on YOOX NET-A-PORTER, I don't want to comment too much what is going on in these days. For sure, Farfetch and YOOX NET-A-PORTER, being company the first facing these new challenges, and like every business has to update themselves. So I think there are a lot of things going on. And I'm sure if we're going to have nice opportunity to take, we will take it and we will participate to the discussion. But at the moment, I don't want to comment. Thank you.

It's Susy Tibaldi from UBS. So my first question would be on your growth by categories. I think as a group in the sector, you are quite a lot more supposed to ready-to-wear compared to some of the other groups that are very much exposed to leather goods. And I was -- and there has also been quite a stark difference in the growth. So I was just wondering as a strategy if you're happy with this balance of ready-to-wear versus leather goods. And generally, for the industry, the gross margin for ready-to-wear is a little bit lower than leather goods, but you managed to get to 78%, which is very impressive. So is ready-to-wear not dilutive to your gross margin? That would be the first question. And the second question is on the pricing, a bit of a broader question on the industry overall. I think we've seen some companies taking prices up quite aggressively. And so there is quite a big disparity now between the groups, some really sticking out on the high end. So how do you position Prada, especially on the leather goods side, in terms of pricing? What kind of customer are you trying to target? And what's the ideal level for you?

[Interpreted] Let's start by talking about this ready-to-wear question. So the reason why we have a lot of ready-to-wear more than others is obviously that other groups tend to aim at EBIT more than at the brand position within some markets. So let's take an example. Everybody thought the European market was the sick man of the market, But actually, it was the opposite. Today, it's performing really, really well because consumers went back to the stores. And it's quite evident that in individual countries like France, Spain, Germany and so on people's interest towards ready-to-wear has been particularly strong. So I think our balancing is correct. 60% leather goods in general, including the small leather goods and accessories; 22% roughly ready-to-wear; and 18%, footwear. This is a balance we've always had in the past. Actually, in the past, leather goods were -- and when I say in the past, I mean before 2010, before the IPO. So leather goods were even lower than that in the past. So this is a part of our know-how and our identity. We don't want to lose touch with ready-to-wear. Ready-to-wear is all about lifestyle. And so we don't want to reach beyond any specific level there because we believe this might be detrimental for the brand identity. Then of course, it's not necessarily said that leather goods have higher profitability. You also said it. I mean, we can go as high as 78% gross margin with a lot of ready-to-wear, too. So it's not necessarily said. Then you were asking about pricing and leather goods. Well, leather goods pricing may actually vary quite substantially depending on what kind of segments we want to penetrate. So there's no single price point we have in mind. Depending on the products we are talking about, we think we may allocate price positioning and price points quite well, depending on the market needs and the customers' expectations. Thank you. May I answer your other question on higher prices -- sorry, higher compared to the peers, I was forgetting, sorry. So I should say Prada has a lot of room for maneuvering. We can easily get up to 78% gross margin.

This is Flavio Cereda from Jefferies. I have really quite a simple question. The process of efficiencies that Massimo Vian has gone into some detail on. How much of a catalyst was the pandemic? So without COVID, in a meeting today, would we be looking at the same targets? Or did it spur you on to significantly accelerate the process?

[Interpreted] Well, I must say the pandemic has been a tragedy for everybody for everything we're all aware of, of course. But I must say that this moment, we all had to go through, which has been constructive to a certain extent for our company. We thought in our homes, we thought all the things a lot. We looked inside ourselves. And so I certainly think that the pandemic has somehow accelerated certain choices such as that of deciding to use certain specific systems rather than others. It has helped people continue having a nonphysical relationship with others, and this will be an important benefit coming from the pandemic because we all went much more digital. So this unpleasant stop we had to suffer with all the disastrous consequences has been somehow also an accelerator. And I would say that we ourselves having to review and reexamine our path to move to the future have come to decisions. We are examining together here today. So you now see the effects of the work that has been done and which had already started in 2019 and just slow down given the situation. So basically, what we had already activated at the end of 2018 and beginning of 2019, then stopped or slowed down considerably in 2020. And then in 2021, we continued along what had already been decided before. Thank you.

I think that this was the last question coming from the audience. We now would like to take some questions from the webcast, the audience. Thanks. And the first question comes from [indiscernible]. The first one -- there are 2 questions. The first one is, is circular economy going to be a key pillar of the ESG strategy? Do you want to reply this?

Circular economy is going to be one of the element part of the ESG strategy. But we have to keep in mind what is our business model. And so sustainability, it means sustainability is in all sense, so economics and for the environment. So we want to bring as much effort as possible according to what is realistically feasible. On the second question...

And the second question is, again, for Lorenzo, I think. It's about marketing. Your Shanghai markets takeover received very good feedback. Can you tell us how is the Chinese marketing team organized? It has the Head of Marketing in China, local or an expatriate. How can you make sure you keep on localizing the marketing effort in China, especially given the new government scrutiny?

Yes. I think the basic principle, I think, if we think about the beginning of this line in the 2000, we didn't have smartphone, we didn't have Zoom, we didn't have a lot of tool that allowed us -- the world to be smaller. And I think now we have a powerful tool and we should take advantage. So the organization, the governance of the company that we have today in a lot of situations are very close to that kind of environment. But today, we have to take advantage of those tools to have better agility and more shorter time to react and a shorter time to market. And I think that the governance and organizational structure should be more -- and this is generally talking for market, but only more point-to-point. So we don't want to have intermediate between us and the market. So we really need to shape ourselves to be straight connected to the markets because otherwise, you lose a lot of information. And so we are working to strengthen the team there, but there is every week a strong governance discussion between the team there, like if they were seated in this room. So honestly, it's just a virtual expanded room. So I would not say that this is going to be independence in the sense they will be able to do whatever they want. It's just a close working -- it's a working table close to them where we discuss every week of the opportunities. But for sure, then you need there strong people because you need to understand what is the market there. So this is more or less how we think is today and I think we should be tomorrow even better than this.

Then we have a couple of questions from Thomas Chauvet from Citi. And the first one is the 78% gross margin and the 20% EBIT margin target imply a cost to sale ratio in the high 50%, well above historical and industry peers, what is driving such big cost inflation in the next few years? Honestly, we have, of course, an inflation rate in the operating expenses in this plan, but it's not a big inflation rate. It's about mid-single digit increasing every year. Because there is a pressure on costs that we are living in this moment, there are some uncertainty. And also, of course, we need to strengthen the organization, and we have seen and we need to invest something in -- also in marketing, if you want to fuel this kind of sales. There is an element also of variable cost in our P&L that can, of course, have an impact on operating expenses. And the second question is, you have not mentioned Church’s and Car Shoe today. What is the future of these brands in an increasingly competitive forward market? Are they still core to the group strategy?

[Interpreted] For Church’s, I'd like to remind you all that the factory is in the U.K. -- was in the U.K. You know what happened in the U.K. You know the factory was closed to 6 months, the market and stores closed for more than 8 months. So it was obviously a very negative situation. It's obvious that we are interested in continuing with Church’s and Car Shoe, a smaller brand. But in the situation of the pandemic, they suffered the most, right, because Church’s sales were mainly localized in the EU market -- in the European market.

The other question comes from Mavis Hui from DBS. And the first is with an increasing amount of customer touch points, how do we strike the best balance among flagship store, pop-ups, online events, campaigns and other touch points? And the second is we have seen the best gross margin from leather products and bags in high days. As we have done extremely well in ready-to-wear in recent years, do we expect to redeploy more efforts and resources on the leather bag segment, so as to accelerate the group margin expansion further?

So I take the first question because there are questions that are -- yes, so the first one, I mean, yes, they're increasing and related a bit to what we were saying before, how you put in place your governance process within the market, you simply have more job to do and you have to handle it. That's it. So there is no plan B or a shortcut. So you have to do more and better. And it's about a recipe that will shape according to your strategy. It's like if you have to do a recipe with few ingredients, it's easier. But maybe it's not tastier. If you do a recipe with more ingredients, it's harder but maybe it's tastier. So I mean it's just more ingredients. I don't see any problem. We just need to handle it because I mean I don't believe the way that there are too many. I mean, it's like this and we will handle it.

I read again the second question. We have seen the best gross margin from leather good products and bags in the high days. As we have done extremely well in ready-to-wear in recent years, do we expect to redeploy more effort and resources on the leather bag segment, so as to accelerate the group margin expansion further?

[Interpreted] Yes. Definitely, we are investing to improve our business in leather goods, and we are also working on the product position because we want to improve their gross margins. The work we've done on ready-to-wear is something we are actually replicating in leather goods as well. Now on the other hand, as far as footwear is concerned, we had already achieved a good positioning already and a good average price point and gross margin positioning in the past.

Third question is about what proportion of our group revenue currently comes from the 23 directly owned manufacturing sites? And what will be the optimal proportion of in-house production in the medium term?

So as I said during the presentation, currently, let's focus on the high labor-intensive assembly operations, 40% of what we do come from our 23 plants. This is more or less the right value for leather goods, 40%. That percentage is far, far higher for shoes that are deeply in-sourced and is lower in ready-to-wear that is divided in many, many categories with many, many merchandising type of products. So we are highly integrated in shoes, less in ready-to-wear. Best percentage will be 60% -- around 60%.

And the other couple of questions come from Liwei Hou, I'm not sure if I'm pronouncing well, from China International Capital Corporation. And the first is could you share more detail on your physical store expansion plan globally and particularly in China?

[Interpreted] Yes, we also need to know how the physical store expansion mechanism will be in China. Because in China, we don't have department stores as we have in the U.S. and activity takes place within the malls. So this makes a huge difference. When today we talked about the U.S., we could have highlighted the fact that in the U.S., we started a process of opening up stores in malls. Whilst in the past, there was a distribution by department stores. In the last few years, department stores dropped in value. And so now the distribution has changed also in the American market. So basically, malls become the center for physical distribution more and more at global level. The same doesn't hold true for Japan because in Japan, there is still a strong distribution via department stores. Thank you.

The second. Do you think you will benefit more from common prosperity in China being viewed as a more subtle brand than peers? Has common prosperity discourages vulgar display on wealth?

I think you should ask to the Chinese government, what does it mean common prosperity? Because at the moment, it's not that clear. But generally, for sure, it will come, like we've seen in crisis period big logos tend to disappear. In wealthy period, big logos tends to appear. I will say, we will tackle this like we've done with -- in the past. And luckily, I mean, Prada is not a big global brand. So if it's going to be the case, it's good for us. So I'm not worried at all.

The other question comes from [ Nikki Ho ] from Jefferies. Hello, Mr. Bertelli. Great to see Miu Miu turnaround on track. Could you comment on Miu Miu's profitability? It's still loss-making, what is the margin target from Miu Miu within the 20% margin target given the marketing step-up in the next 3 years?

[Interpreted] Miu Miu has not just achieved a breakeven point, but it's actually improved its EBIT. Now, of course, in the next 3 years, the objective is that Miu Miu will reach the expected EBIT level, i.e., 20%. Thank you.

We are going to take the last question that comes from Linda Huang from Macquarie. Metaverse becomes the buzzword in the luxury industry, too. How would the management think about to fit Prada into this concept? And when would we see more concrete strategy?

When they ask me those kind of questions -- I mean, metaverse is like [indiscernible] we will handle it like we've done with [indiscernible]. So we are discussing internally since more than 1 year. I would say I personally very clearly have an idea on metaverse and what is their mechanics. So I'm not worried at all. I know exactly what we need and which are our next step, but we take confidentially for the moment. But it's like [indiscernible], it's just another thing to be handled. So not worried at all. And you will see in the next future, how we're going to tackle this topic even if -- for now is -- I mean, it's not that whenever we have a new, let's say, channel or a new place to display our product or whatever it is, you have to tackle it as soon it comes on the market because you have to also weigh the right level of maturity of the consumer that are there and then the market as well. So I mean, we're working since 1 year, 1.5 years, but I'm not anxious on do it tomorrow.

I think that we have finished with the...

Thank you. This concludes the financial questions of this Q&A session. We will have a short 15-minute break, after which we'll invite press to return to take seats in front rows. In compliance with COVID safety measures, we will ask attendees to exit in 2 groups, starting from the front row seats. We will ask the rest to remain seated as we empty the space. Note that the room will be cleaned and disinfected during the coffee break. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]