Prada’s Steady Growth in an Unsteady Economic Environment

April 17, 2013

          As we’re all aware, the U.S. economy has experienced and some would argue is still experiencing, a major recession in the last few years. Consumers just aren’t purchasing goods like they used to. Globalization, which Merriam-Webster defines as “the development of an increasingly global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets,” means that all economies are affected. Because the U.S. imports substantially more than it exports, which is why the U.S. has a trade deficit (Trade Balance = Exports – Imports), this means that everyone is affected negatively.

          But how could that be? You’d think it would be all good for countries like China and India because we’re outsourcing to them and boosting their job markets, but that’s just the problem. All those jobs that used to be here are now over seas because the labor is cheap there, which means the merchandise can be priced cheaper (or the company can just pocket the extra cash). It’s sort of a “catch 22.” As Americans we want to buy five t-shirts for $10 each, but we can’t even do that anymore because everyone is being laid off or taking a pay-cut, so instead of buying five we can only afford two t-shirts, and maybe a third if we charge it {which, by the way, is another reason the economy sucks; nobody saves money}. My point is, the American consumer no longer has the buying power they once did, and therefore you will start to see the economies of the countries we outsource to start to dip because of this.

          With all of that having been said, it is impressive that, despite uncertain consumer demand, Prada posted a 44.9% increase in net income last year, from 560.99 million USD in 2011 to 812.72 million USD in 2012. Prada projects that they will have continued growth this year, by at least the single digits. (wwd.com) To me, this sounds like Patrizio Bertelli, the CEO, knows what he’s doing and that Prada S.p.A would make an excellent company to invest in. {But you should definitely do your own research before putting your money anywhere}

“Prada’s stock price, which more than doubled last year, is up 4 per cent this year, outperforming a 4 per cent fall in the Hang Sang Index.” (scmp.com)

          But how did they manage such an impressive increase? Well, the simple answer is smart investment and expansion. With plenty of consumer and market research, Prada’s executives were able to determine where to open more stores and invest in advertisement. Prada opened 78 new stores last year; 22 of which were opened in Europe, 15 in Asia {excluding Japan}, where a majority of the 32.9% of growth occurred, 14 in the Americas, and 11 in the Middle East. They were also smart to close the five stores that weren’t successful. Maybe they were poorly placed in the first place, maybe the demographics changed because of the recession, either way they had to go. Sometimes, it’s just more financially intuitive to get rid of an unprofittable part of your business, than to dump more money into trying to make it work. Prada is definitely a company that I would encourage you, as an aspiring CEO, to pay attention too, if not to invest in, then to observe their business model.

Best of Luck!

~Brittany B.

Works Cited

http://www.scmp.com/business/companies/article/1208088/prada-bullish-despite-consumer-slowdown-fears

http://www.wwd.com/business-news/financial/prada-fy-net-jumps-449-6882683

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