MILAN — To retire or not to retire?
That is the question swirling over the potential succession at major Italian luxury houses — recently even more insistently, with Giorgio Armani arguably top of mind despite his ongoing hands-on approach — but on Thursday, during Prada’s first Capital Markets Day since 2014, the issue of Patrizio Bertelli’s retirement was once again a topic of interest for analysts and the press meeting at Fondazione Prada’s cinema here.
Following a Bloomberg report that day that Prada’s chief executive officer was going to pass the baton to his son Lorenzo in three years, Bertelli was almost surprised by the questions about his retirement and tried to clarify his stance.
“I was asked by the journalist, but it was a bit of a trap question — we’ll see. The important thing is to plan the succession the right way. I am 75 and, statistically, there’s only a 10 to 12 percent possibility I’ll be alive in three years, but I am not anxious, I’ve spent my years well, I’ve had fun, done things. See where we all are, not in a rented hotel or a public cinema.”
Of the potential retirement, Lorenzo Bertelli said with a smile that “it’s news to me and I don’t believe it too much.” He echoed his father by saying that “it doesn’t matter whether it’s in two or three or five years, when there is a generational succession, the important thing is to plan it in time.”
Bertelli senior’s choice is not a surprise as his son has increased his responsibilities and been a driver of change since joining the company in 2017. He was named group marketing director in 2019 and, additionally, head of corporate social responsibility in 2020. In May, he joined as a director of the board. He underscored that “the Prada name is so relevant, there is the ambition to still deliver amazing results and inspire the future, like my parents have done, and Prada can inspire the most.”
His father was also asked about Miuccia Prada’s potential retirement, but he deflected the question to his wife. “You have to ask her, she will decide what she will want to do.” While the designer asked Raf Simons to join her as co-creative director in 2020, at the time she brushed off any idea of retiring.
The group has been publicly listed on the Hong Kong stock exchange since 2011 and, addressing a question about the location and a potential double listing, Patrizio Bertelli said: “We are satisfied with Hong Kong, it was the right choice.” However, he admitted “we could explore a listing in Europe. That said, we don’t feel the need to now, we are OK this way.” He acknowledged “certain investors” do not consider channeling their investments in Hong Kong, but, “after all, we [the family] have 81 percent of the capital.”
Another hot topic was the potential merger of Compagnie Financière Richemont’s Yoox Net-a-porter platform with Farfetch, building on a partnership forged a year ago. Asked if Prada would consider making an investment, responding to Richemont’s chief Johann Rupert’s call for collaboration in creating an open e-commerce platform, Lorenzo Bertelli did not rule it out, but said he did not have enough elements to commit to an answer.
“I think we can expect they will come and talk to us, we are their partners, but it’s premature, they have not even closed the conversation. We are open to any opportunity but the scenario is not clear enough yet to give an answer.”
Asked about the lack of consolidation in the Italian fashion industry, Patrizio Bertelli said: “The question should not be made to Prada, but to the Italian entrepreneurs.” In any case, the ship has sailed, he contended. “The premises are overdue, an expanded vision was needed 10 years ago, now we must defend the Italian know-how, help the small and medium-sized companies that are dealing with issues such as digital and sustainability.”
To be sure, Bertelli has been busy vertically integrating his group for years. In June, Prada and the Ermenegildo Zegna group joined forces to acquire a majority stake in Filati Biagioli Modesto SpA, which specializes in the production of cashmere and other precious yarns.
After investing 80 million euros in the 2019-21 period, further vertical integration is planned with strategic acquisitions. The group is earmarking 70 million euros for planned investments in 2022 and scouting for further opportunities.
Prada is expanding its own manufacturing capabilities. It grew its headcount in its Italian plants by 100 people in 2021 and plans to add 200 jobs in 2022. The company has 23 manufacturing sites and has been investing 100 million euros in a new 432,000-square-foot logistics plant in Levanella in Tuscany, which is almost completed and will be fully operational by the end of 2022. The hub will have a potential handling volume of up to 15 million units shipped a year and it aims to improve the e-commerce dispatching time with 80 percent of sales within 24 hours.
Prada is expanding its manufacturing capabilities, with in-house production eventually accounting for 60 percent of the total, up from the current 40 percent in the medium term. It plans to simplify the architecture of the collections across all categories to improve sell through and reduce inventories. It will reduce the number of styles launched by 43 percent compared with 2019.
In terms of product, Lorenzo Bertelli said the group is “planning a bigger launch next year for the jewelry category, always a passion” of his mother.
Patrizio Bertelli said he was not worried about the price or availability of raw materials, but rather about the rising costs of transportation and energy, which will lead to an increase in prices. He did not provide details but said “the increase will be spread throughout 2022.”
The Prada group is targeting an operating profit of around 20 percent of sales in the medium term. When one analyst suggested Prada lagged behind its peers in terms of operating profit, the executive said “the company has worked on many different aspects at the same time, investing on plants and to give identity to the products, penalizing its EBIT [earnings before interest and taxes]. Other [companies] target the short term, we work thinking of the next 20 years.”
In comparison, Kering and Hermès in 2019 had a recurring operating income margin of 30.1 percent and 34 percent, respectively.
Chairman Paolo Zannoni chimed in: “We like to under-promise and over-deliver. The brand is bigger than the business and there are opportunities to grow.”