Devil in the Details: The Accountant who saved Prada
9th February 2018
Founded in Milan 1913 as ‘Fratelli Prada’ the iconic Italian fashion house is a globally-recognised brand. A name synonymous with style, creativity and luxury. How then, were their fortunes turned around by a finance team setting a trend of their own?
Growing from a small family shop selling leather handbags to a revenue of US$3.91 billion and over 12,000 staff (Forbes, 2016) is a major achievement, but any business that survives 104 years will inevitably see some ups and downs.
2016 wasn’t a great year for Prada in a purely financial sense. A flurry of new products, company reorganisation and new locations were attributed to a sharp 25% decline in net profits during H1 of last year. With falling revenues across all geographical locations and ever-declining sales, something needed to be done.
It’s at this stage of the story that we might expect a moment of creative genius from a young designer, swooping in to save the day with the seminal fashion item of the generation. The mini-skirt, the flare… An era-defining garment that changes the world.
The truth is, in many ways, not too dissimilar. Ok, perhaps the world won’t be quite as enthralled by a change in the way Prada writes down the value of its retail premises. Somehow it lacks the ‘catchy’ quality of something like Dungarees and certainly wouldn’t look as amusing on Top of the Pops 2. It was a moment of genius as far as Prada’s finances were concerned however.
In August of last year, the luxury brand announced that it will now assess depreciation over the life of a lease (up to 18 years), instead of adhering to the standard capping period of 10 years.
Prada, who state that the changes were made in accordance with accounting standards and its auditors, argues that the infrastructure of their buildings don’t disappear after 10 years. After all, they held on to a store in Milan for a few decades…
This change slashed depreciation and amortisation charges by over 24 million pounds (27.3 million euros) in the first half of the financial year – with the full-year benefit at around 50 million euros (Bloomberg). Of course, depreciation charges will now need to be paid over a longer period, but although this change doesn’t affect cashflow, the timing of these savings couldn’t have been better.
In a period of shrinking sales, Prada’s heavy investment in retail estate had put a real dent in the books. This smart financial team managed to turn a problem into a solution and in the process played their part in keeping this fashion behemoth alive and breathing. It’s also probably fair to assume that the team that came up with this strategy might be the best-dressed accountants in the world!
In 2017 sales began to steadily rise again, with most of the gains seen in Asia: a growing market which saw much of 2016’s investment allocation. It seems that the iconic fashion house has once again proven its pedigree, but time will tell if Prada will again see the explosion in growth they had over the last 30 years. In the meantime, we can all dream of being sharply-dressed Italian accounting icons.
Looking for a financial whizz to shake up your luxury fashion brand? Email or call now and speak to our specialist interim and permanent recruiters, Chris Short and Alex Sharp.
0203 773 3530