Prada’s CEO on Staying Independent in a Consolidating Industry

The Idea: While rival fashion houses have struggled and been acquired by conglomerates, Prada has prospered. Its CEO says that has a lot to do with the company’s culture. At Prada we have had to cope with our fair share of the unpredictable and the unexpected. Originally we planned to go public in Milan in late September 2001, but the 9/11 tragedy, followed by the second Gulf War, the outbreak of SARS, and a global credit crisis, upset our plans. We reacted to these events in a timely and innovative way, seizing new opportunities, and launched our IPO in Hong Kong in June 2011. In the 1990s we believed that our future depended on our ability to gain market share through acquisitions in Western Europe and the United States. But now we are focused mostly on our core brands, Prada and Miu Miu, and the emerging markets—such as China, which supplies 22% of our revenue. Despite the events of the past decade, Prada has prospered even as many other fashion houses have struggled. Perhaps more remarkable, we have retained our independence in an industry increasingly dominated by luxury conglomerates. The difference, I think, derives from our organizational culture. Although we have often had to change our plans, the way we manage the company has remained constant. The values that guide our decisions, the way we organize ourselves, how we communicate with one another and with our stakeholders—these have changed hardly at all. Therefore, if a key to Prada’s success exists, it is related to these principles. In my view, they are universal and can be successfully applied by anyone. Control Through Transparency At Prada we have no secrets. At many companies managers in charge of a particular function—whether design or merchandising—dislike it when people in their department talk to colleagues in other departments. They want to maintain control, and they often do so by hoarding knowledge and restricting communication. Naturally, you must let people have control over what they do. Good designers should be the masters of their designs, or their ideas may be spoiled. Good managers shouldn’t be second-guessed, or no one will want to make decisions. But control must not become obstruction. A designer or a manager should be able to exercise it without limiting access to information. In fact, a culture that values transparency gives managers more control than one that values control. Transparency between functions enables Prada to respond to changing market tastes very quickly. We don’t design for the sake of designing; our creative energy is integrated with our commercial ambitions. We’re not unique in this respect. In the 1970s Yves Saint Laurent, Chanel, Gucci, and Giorgio Armani were also good at blending the creative and the commercial. To a great extent they, like Prada, owe their integration skills to a partnership at the top—in our case, between Miuccia Prada and me. People working closely with Miuccia in design will talk often to people working closely with me on the commercial side. This enables us to be fast. Any department store will tell you that Prada delivers clothing and accessories very quickly after a design has been presented on the runway. It’s difficult to overestimate the importance of this capability in the time-sensitive business of fashion. Transparency also allowed us to easily adopt the reporting standards required of a publicly listed company. Family companies, especially in Italy, struggle with the very idea of disclosure, let alone its implementation. That’s one reason many of them prefer to seek investment capital from large strategic partners. They feel that managing the relationship with a partner will be easier and they will retain control. This is open to question, because partners are on your board. That’s not a problem in itself. It is absolutely legitimate for a key financial partner to be involved in a company’s strategic decision making. However, you never really know what the agendas and the true priorities of your partners are. They may harbor ambitions to take control, or try to pursue goals other than growth and margins objectives and results, in order to advance their own plans. Managing such cases is time-consuming, and very soon you find yourself negotiating all your decisions. By going public Prada has avoided this and can grow without compromising our core values or our design philosophy. It’s easier, I have found, to be accountable to 10,000 shareholders than to manage one or two partners. Our willingness to be transparent to public shareholders has been fundamental to our remaining independent. Go Where the Risk Is A few decades ago, fashion houses didn’t see Russia, India, the Gulf states, or China as an important market for luxury goods. Growth was all about markets in Europe, the United States, and Japan. We started our international expansion in 1983 with stores in New York and Madrid and followed up with stores in Paris, London, and Tokyo. In 1993 we opened a store in Beijing. It’s easy to say now that the future of fashion lies in big emerging countries such as China and Russia. But back in 1993 the world was a very different place. The memory of Tiananmen Square was still fresh. Hong Kong was gearing up for a communist takeover in 1997, and it was by no means clear whether China would tolerate the British territory’s capitalist model. In 1991 Boris Yeltsin had faced down a coup attempt by communist hard-liners in Russia. The West looked like a much better bet: Europe was working toward a monetary union, which everyone was excited about; the U.S. was booming in the aftermath of financial liberalization; and the internet was taking off. Of course, we weren’t alone. Louis Vuitton, Armani, Gucci, and other French and Italian houses invested in China during that period. What was it that made us all so willing to take the risk? To some extent, the answer has to do with our Latin cultures. Anglo-Saxons have a different approach toward foreign markets: They tend to export their own cultures rather than adapt them to suit local ones. They’re afraid, I think, that they’ll be swindled, and they negotiate their deals accordingly. The problem with this attitude, of course, is that no one appreciates being treated with suspicion or with little trust and confidence. The Italians and the French are much less afraid to trust people in, say, China. We’ve always demonstrated confidence in the Chinese financial and legal systems, and our business partners and the people in the government appreciate that and reciprocate. We also respect our partners’ competence. Many foreign investors act as if they can do better than locals at making and managing things. But the Chinese are well educated and competent; they don’t take kindly to being patronized. In our business you cannot get anywhere without taking a leap into the dark. Every new design is a risk: You work hard and invest heavily in it, and it may all end in tears. But you can also win big. I’m starting to look now at Africa, which will be a huge market in 10 or 15 years. I think Africans will respond well to our approach to business, because they, too, are tired of being patronized. And does Africa really look any more challenging than Russia in the 1990s? Give Respect to Get Performance It sounds clichéd, but to get the best from your people, you have to show respect for them. This can result in surprising decisions. There was a time when some people regarded workers in England as lazy and careless, but I recognized that England has a very strong appreciation of craftsmanship and tradition, so we purchased a high-end footwear company, Church’s shoes. People in Italy thought this was crazy. Our first challenge was to decide what to do with the factories. Church’s owned a plant in the middle of Northampton that employed 600 people, and the smart move appeared to be to relocate it out of town, which would give us more space at less cost. But when I visited the factory, I saw that people’s lives were organized around its location. Most employees lived nearby and would go home for lunch. If we moved them out of town, we’d be robbing them of an hour at home and forcing them to bring sandwiches to work. Their quality of life would be compromised, and they wouldn’t be getting anything in return. So we kept the factory in town. That decision has paid dividends. We retained nearly all the company’s very hardworking and talented people, who have rewarded us with increased productivity. And we’ve proved a larger point: English workers are both cheaper and more industrious than Continental workers. You could say that work is about duties. People have a duty to work hard for me, but I have a duty to respect them as individuals. Another duty I have is to help them learn. That’s a duty I owe to the company as well as to my employees, because a company whose managers take seriously the obligation to help their people improve will be a lot more competitive. Prada is rather good at developing talented employees. Many of our senior managers joined us as young people, and many of the people who have left us have gone on to launch successful businesses of their own. Sell Only Your Own Designs One principle we learned the hard way: Never buy a company where the founding designer is still working. Designers will sell a label only because they need the money. They will deeply resent what they see as a commercially focused interloper, and they will fiercely protect their rights over design. We made that mistake with the Jil Sander and Helmut Lang labels. When we made those acquisitions, no one expected explosive growth in luxury products for the emerging economies. We believed that the best way to grow was to ally ourselves with U.S. and other European brands that shared our design sensibility and then apply our experience in bringing good designs to market. It was a reasonable belief, but if I had it all to do again, I would not make those acquisitions. It was challenging to even talk with those designers, let alone meet their marketing expectations. Had we devoted all our energy to developing Miu Miu and Prada, we would have become a lot bigger even sooner. That said, we did avoid the mistake of trying to integrate our acquisitions. It’s tempting to reduce costs by eliminating parts of the value chain that are duplicated across labels. But that’s shortsighted when brands have strong identities. If you own a fashion label that someone else made, it’s not just the designers of the acquired brand who may have concerns about brand integrity; it’s also the customers. So we kept the acquisitions separate from our house brands, and although we struggled with them, our own labels were not compromised in the market. Obsess over Details In our business, people buy products not for their usefulness but for their own sake. Let me explain: In Prague and Milan, for example, the centers are paved with cobblestones. It’s hard to walk on cobblestones in high heels, so you might think that our stores in Prague and Milan would sell mostly flat shoes. But in fact most of the ladies’ shoes we sell there have high heels. Clearly, comfort is not the main selection criterion in luxury. Because luxury is about the product itself rather than its function, small details—the touch, the exact look, the feeling it imparts—really matter. At Prada we expect everyone to appreciate this. We have to make sure that everything we do, from manufacturing to marketing, is done in just the right way. We sell thousands of products every year all around the world, which imposes terrific demands in terms of quality control. If the people making our products don’t see our managers taking every detail seriously, how long will our reputation survive? We’re not alone in this. Steve Jobs famously got deeply involved in designing the look and feel of Apple’s products and engaged personally in dealing with customer complaints. I, too, like to stay on top of the manufacturing and marketing of our products. So you won’t find me in my office very often, because I’m always walking around looking at what people are doing. A product-identity focus is also behind our preference for the own-store distribution that has driven Prada’s growth. We want to set the context in which people decide to buy our products, and that, of course, is easiest if you own the stores in which purchases are made. So although we do distribute some of our products through the internet, we don’t favor it as a distribution channel. It works well for mass-market products that compete on price, but perhaps less well for luxury products that engage touch and smell as well as sight. We’re also concerned about compromising our image by using a channel where secondhand cars and books are sold. Of course, the internet is a powerful communication channel, and we are actively developing our ability to take advantage of that. But communication is very different from distribution. Give Young Managers Real Responsibilities I am a great fan of young people. We spend far too much time worrying about their having sex and smoking marijuana, and we lose sight of their energy and idealism, which can be hugely productive. For that reason, I don’t believe in starting young managers off on the bottom rung. They won’t learn a lot there, and I won’t benefit from what they do know. When I hire young people, it’s because they have something to offer. They must appreciate what other people in the company do, but I don’t expect a young marketing hire to spend time stitching, because I need her to stay on top of what young customers are thinking. You also have to let the younger generation experience the world. That doesn’t mean spending time in places like New York, Paris, and Los Angeles. Prada needs young people who know something about Africa. As I look to the future, I am sure that we will make more mistakes. But so long as we stick to our principles and continue to keep outward-looking young people at the top of the company, I feel confident that none of those mistakes will be fatal.

Prada’s CEO on Staying Independent in a Consolidating Industry

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