It all started with a leisurely afternoon reading of my favorite magazines; FORTUNE. Flipping through the pages, reading about businesses, ventures, fashion moguls, hedge fund gurus, and then suddenly, this September 1st 2008 issue on page 75 got me, how do I put it… “disturbed”.
It was an article on Prada. It talked about how Prada unlike many fashion labels, is still very much family owned, and that it desperately needed to go publicly listed in order to compete, expand and pay down debt. Here I go reading how this company’s net profit had risen 66% to $187 million in 2007, sales had grown 17% to $2.5 billion, and how it is worth billions. Then suddenly, on the last page of this long 5-page article, it stated that the Prada family is responsible for the $956 million debt – mostly accrued through numerous failed acquisition sprees…
Now, as a consumer and an entrepreneur, I started asking myself, how does this work? How can a company be in this much debt, still have increasing net profits, but need to go publicly listed to get money from investors to pay off debt and expand? Am I missing something?
Then off I go, embarking on this mission, picking the brains of every MBA person I meet, colleagues, engineers, entrepreneurs, and still no one really knows how to explain this to me. Most answers I got were that “Prada is a BRAND”, or “It’s called goodwill Mel.”
But with the whole Wall Street melt-down alongside failed CMBS (commercial mortgage-backed securities), it made me question if the same “model” or “rule” had been applied there as well? Making us believe that something is worth MORE than it actually is? Where stock prices are driven high based on intangible values and future earnings based on these “fake” securities and “assets”.
Then, one smart creative VP, told me about this book called “The Brand Bubble”, by John Gerzema and Ed Lebar. (I knew somehow, someone out there would be able to point me to the right direction!!)
Within the first chapter, it had answered most of my questions, about branding, intangible values, future earnings. I do not wish to give away the content of the book, and I highly recommend this to anyone building a business or helping others in branding & marketing. This book basically explains how brands that are built on trust, reassurance and simplification of choice are no longer positioned for long-term success.
The Brand Bubble is a must read. Also check out their wonderful blog.
Mel, I saw the same article – Fortune is a favorite must read. I will get a copy of the Brand Bubble!
Mel,
I am so glad to hear that the Brand Bubble was able to clarify the gap around between Prada’s reality and its perception. Fiduciary responsibility doesn’t stop with financial engineering, a company must constantly be thinking about brand innovation.
Look forward to following your blog.
John