If Prada does go public, investors would be buying a piece of a legendary fashion house built by Bertelli, a savvy yet volatile CEO. Today Bertelli oversees Prada's 211 boutiques, including a Rem Koolhaas-designed flagship in Manhattan's SoHo district and a Herzog and de Meuron five-sided glass crystal structure in Tokyo. But for its first 70 years, Prada operated out of a single shop, opened in Milan's famous Galleria in 1913 by Miuccia's grandfather Mario.
By now the rise of Prada is a familiar tale in fashion circles. Ph.D. and former communist (her) meets enterprising Tuscan entrepreneur (him). Bertelli learned to be entrepreneurial after his father died when he was 7, leaving the family nearly broke.
When he was 15, his boyhood friends in Arezzo received motorbikes as gifts from their parents. Bertelli's mother couldn't afford one, so he found a decrepit old German Zundapp and refitted the engine himself. By the time he met Miuccia, he owned a network of manufacturing companies. The pair got together, sometimes over pizza, to discuss business. They fell in love, married, and had two sons, now 18 and 20.
Along the way they turned her dusty old family luggage business into a conglomerate that by 2000 included not just the Prada brand and a second line called Miu Miu, but also stakes in Jil Sander, Helmut Lang, Fendi, and Church's - the last four acquired in 1999. Prada, however, lacked the capital and managerial strength to cultivate those acquisitions. And that's when the trouble started.
The 'passione' of Bertelli
No one denies that Bertelli is a driven genius. An avid yachtsman and America's Cup competitor, he has an uncanny knack for knowing which of all Miuccia's creations will be the commercial winners.
"He's brilliant," says Domenico de Sole, the former chief executive of the Gucci Group. But his management style - marked by temper tantrums (in Italian they call it "passione") and a tendency to micromanage - has led to high turnover among Prada's executives. "You need a certain personality to work for the company," says Brian Henke, who survived ten years with Prada before leaving in 2007 to become president of Jimmy Choo USA. "To achieve near perfection, you have to understand that it may take five or six times to get something right."
During the construction of a store on Prince Street in 1996, Bertelli went into a rage because the sheetrock was uneven. To express his displeasure, he took a sledgehammer and smashed a mirror that was hanging on the wall. A company spokesman confirmed the incident but attributed it to Bertelli's desire for perfection.
Such attention to detail, while laudable, can at times be counterproductive. Unhappy with the work of American contractors during construction of Prada's Madison Avenue store, Bertelli flew in Italian painters to finish the job. "He cares so much that he can be his own roadblock," Henke says.
Creative freedom hard to come by
While Bertelli gives Miuccia latitude to create her collections, he has not been so free with the other designers in the fold. He pushed Jil Sander to add accessories at a faster pace than she thought appropriate, creating a rift that caused the designer to leave her company. In 2006, Prada sold Jil Sander to a private equity firm. At Helmut Lang, a decision to cut back production of the designer's signature denim proved disastrous. Prada closed the line in early 2006 and sold the trademarks at a loss to Japan's Link Theory Holdings. Lang, who left in 2005, declined to comment. Sander could not be reached.
"Our mistake was to expect that the designers we acquired would accept our rules," Bertelli says. "But they still wanted to act as owners."
Other luxury firms have made the transition from quirky family business to professionally run corporation, but Prada still resides in a netherworld between the two. "Prada has not had strong management, and they have paid for their mistake," says Armando Branchini, executive director of Altagamma, an Italian luxury-goods trade association. "Now they are trying to change their ways."
It is only within the past year that Prada has hired new country heads, such as a president for its U.S. operations, a slot that had remained vacant for two years. Still, there is no sign that Bertelli, 62, is ready to step aside. "Should I live until I'm 75, I still have 20% of my time left," he says.
Bottom line necessities
Bertelli, though, has little choice in his decision to go public: he needs the money. He and the rest of the Prada family are responsible for the $956 million in debt - most of it accrued through the failed acquisition spree - that is on the balance sheet of a holding company through which they exercise their control.
On top of that, the operating company paid $172 million last year to service its $747 million in debt, cutting into cash available for expansion. In 2007, for instance, Hermès, a company roughly equal to Prada in size, invested $229 million in new stores and other capital outlays. By contrast, Prada devoted just $138 million to such projects. "Prada has too much debt," says Lalatta, the BCG consultant. "If they can't go public, they will be walking a fine line."
For all its lingering problems, demand for Prada's designs remains insatiable. A few days after the fashion show, Miuccia sits in her office and talks about her inspiration for the recent collection. The unusual coats and long shirts were meant to evoke "fragility and strength," she says. "For me, it is always about bringing together opposites."
Those contrasts are an apt analogy for the company too. Prada exudes strength - there is something indestructible about all that black - but also vulnerability. Its designs are trendsetting, yet many of its business practices are old-fashioned. Prada wants to operate in the public realm, yet retain the secrecy and control of a family business. A few more stumbles, and Prada could find itself at the mercy of stronger, more nimble competitors. Like its fashions, Prada is always on the edge.
Prada in financial straits?
