Our web poll last week asked readers if luxury brands such as Prada and Hermes will continue to thrive in China, or whether they will eventually face tough competition from home-grown brands.
Readers were not in much doubt. They clearly reckon that China’s emerging millionaires represent a bottomless pit of demand for companies such as Prada and Hermes. Indeed, China could soon overtake Italy and Japan as the leading market for such upscale names.
Even so, that does not mean Prada’s IPO is an obvious buy. The company’s history stretches back almost 100 years, but its emergence as an influential high-fashion house is much more recent — only since Miuccia Prada and her husband Patrizio Bertelli took over the business in the late 1970s.
Their legacy has been mixed. On the fashion side, they have been an outrageous success. Miuccia launched the company’s first totes and backpacks in 1979 and expanded outside Italy in 1984. Shortly after that, the classic Prada handbag became a fashion icon and during the 1990s the brand went global. By the mid-1990s it had 20 stores in Japan — half its global footprint.
Hubris soon took over as Bertelli, who was chief executive by this time, spent $500 million to turn Prada into a luxury brand owner to rival LVMH. Debts piled up as the company bought non-controlling stakes in Gucci and Fendi, and took control of Helmut Lang, Jil Sander and Church’s.
The dream of a multi-brand fashion empire didn’t work out and the firm’s bankers eventually forced it to sell Fendi and most of its other acquisitions, and recommended an IPO to pay off its debts — the listing in Hong Kong will be its fifth attempt to do so. Goldman Sachs reckons the money it raises could help to clear the company’s debts by 2014.
But it is not just debt that worries investors. The company’s entire history of success is down to the fiery husband-and-wife team that provides the company with its creative direction — Bertelli is reported to have smashed the windows of Prada’s new Milan store in the 1990s after one tantrum, and even his wife says he is temperamental.
Ensuring the brand outlives the couple that created it could be Prada’s most difficult challenge yet.
Asian buyers will likely be key to that transition. Already, it is reckoned that more than half the company’s customers are Asian and a Hong Kong IPO will only improve the brand’s recognition in China.
Prada might be indebted and owned by a volatile married couple, but in just 30 years it has established itself as an iconic global fashion brand. The Chinese will surely lap it up.
