Why Prada Should Go Public

CASE ANALYSIS OF WEEK 4

In order to repay maturing debt and raise money to exploit the Asia market, Prada needs to take effective measures. IPO is one of the significant methods that should be considered. Therefore, more detailed information about fashion industry and financial situation of Prada are really important.

Fashion industry are now made up of five segments. Prada belongs to the luxury which can be described as goods with high quality and price. However, in the near future, segments for luxury goods are more likely to include fashion accessories/clothes, jewelry, cosmetics, leather goods as well as shoes. These categories can help companies to analyze every kind of goods’ sales situation with more details and help senior executive make more accurate decisions.

After 2010, The fashion industry developed rapidly due to emerging market, especially in China. And development prospect seems to be optimistic. Prada needs to consider the amount of its maturing debt, expansion strategies, funding raise cost，funding risks as well as financing flexibility. Compared these three methods, IPO looks the best. Specifically, for Prada, firstly, going public can attract investment quickly with diverse sources and help Prada repay debt as soon as possible. Secondly, Prada paid more attention to the Asia market, that is to say, if Prada decided to go public in Asia, it can not only repay its higher debt, but also it can have a very high equity premium to meet it demands like expanding market. Thirdly, going public can improve flexibility and reduce the risks because Prada can choose repurchase stocks or issue additional stocks according to its real situation and the stockholders have to share risks with Prada. Finally, Prada is a family-owned company so that it needs to have more diverse suggestions to break the traditional operation methods and be supervised by the public. So to some extent, it is a suitable way for Prada to increase scales and market share. Strategic Partnership Is also one of the alternatives. Private equity is interested in Prada because they want to have a return. Prada had used this method to obtain capital. Partnership can always offer new market resource and bring new revenue with resources complement. Product lines are likely to extend. If Prada owns strategic partnership such as professional shoes maker, Prada can increase potential market share in this lacked market segment to earn more profit. But it has possibility making Prada lose control duo to the seat in the board. Debt is an option for Prada. If Prada issues bonds, it will not damage the shareholders’equity. “dim sum bond” seems to be suitable, however, it can only be issued for a short term and it has large exchange risks that should be taken into consideration. And also issuing debt will add some burden on the Prada’s  balance sheet and Prada has shown over leveraged so it will bring more pressure from stakeholders. What’s more, it can not provide Prada any increasing profit.