The Prada saga

It's a busy lunchtime and Sloane Street is seething with well-heeled fashion hunters. Inside Prada's elegant store, however, there is a cathedral-like hush. Six black-clad shop assistants are standing about, gazing blankly at the cream carpet. A single customer desultorily tries on shoes. In the next-door Prada men's store, there is nobody whatsoever.

This lack of buzz about the shops is amazing, given that Prada was where supermodels and fashion editors came to blows over nylon bags throughout the Nineties.

The classic Prada look was minimalist, modern, intellectual. Iconic collections followed hot on each other's heels: from the revolutionary nylon of the early Nineties to the librarian look of spring 2000, to the Paco Rabanne-esque Sixties look unveiled in 2001.

Every six months, Prada produced a completely new and original collection. Prada shows became the most eagerly awaited of the fashion calendar. By 1997, Prada was being described as the 'hottest fashion label in the world' and sales had rocketed: from $50 million in 1990 to $1.5 billion in 2000.

All the supermodels wore Prada; so did Diana, Princess of Wales. The American actresses Jennifer Jason Leigh, Robin Givens and Jennifer Tilly were all snapped in the same checked Prada coat one summer and Madonna declared that Evita was only interested in politics 'because Prada hadn't started making dresses'.

But recently, the shine has come off the little black triangle. Figures released by the company for 2002 show that British sales fell for the first time since 1997, after five years of enormous sales growth.

To be precise, in 2002, UK sales dropped from £24.8 million to £24.4 million, and 19 staff were laid off in the UK, a reversal the company blamed on 'depressed trading conditions following the September 11 terrorist attacks'. And given the recent feel-bad economic climate, perhaps Prada's prices (£1,975 for a corset dress, £455 for a printed bag with gilt chain) do seem somewhat hard to swallow.

The trouble started as a result of an overconfident spending spree by Patrizio Bertelli, one half of the Prada empire, in the late Nineties. Following the example of Gucci and the luxury group Louis Vuitton Moët Hennessy, he started snapping up other fashion houses in order to turn Prada into a multibrand conglomerate.

Prada bought stakes in Jil Sander and Helmut Lang, Genny and Church's shoes, as well as 51 per cent of Fendi in partnership with LVMH - and saddled itself with a total debt approaching a billion euros by the end of 2001.

As well as stretching itself by acquiring other brands, the company also launched a major revamp and expansion of Prada stores which has cost it many tens of millions of dollars. This year Prada intends to open a third 'epicentre' store in Beverly Hills, to join the ones in New York and Tokyo.

Designed to create a unique shopping experience, a cross between emporium and art gallery, these shops are by no means cheap. The New York store, designed by the iconic Dutch architect Rem Koolhaas, reportedly cost $40 million to build and opened with spectacularly unlucky timing, just weeks after 9/11.

And then there are the millions Bertelli spent on entering a Prada yacht in the America's Cup.

Incredibly, the state of the company's finances made the front page of The Wall Street Journal last week. Prada announced that it intended to sell real estate to the value of around e120 million to reduce its borrowings, and is seeking a further e90 million from the sale of 80 per cent of its enormous, cutting-edge Tokyo store, for which it would then pay rent.

For the truth is that despite Prada's iconic status as a brand, and its influence over the fashion world, it currently labours under a net debt of e675 million.

The company has recently been paring itself down. It sold its share of Fendi to LVMH, and, in November last year, a 55 per cent stake in Church's to the private equity fund Equinox.

Going public and selling shares in the company would be one obvious way for Prada to raise money. Since 2001, the company has announced three times that it intends to float. Each time it has pulled out, citing unfavourable economic circumstances.

Deutsche Bank has issued a bond of e700 million on behalf of Prada's parent company ITMD Investments, which expires in 2005 and can be converted into Prada shares if and when the company floats.

'One could argue that they bought a bit too much a bit too quickly. Bertelli is always talking about releasing up to 30 per cent of the company,' says David Duncan Smith, brother of Iain and managing director of Prada UK between 1999 and 2001.

'But it wouldn't be easy for him, because of the way he runs the group, to have to be answering to shareholders. I'd be surprised if they floated any time soon.'

By drawing in his horns, Bertelli is inevitably spending more time on the core brand, something that Duncan Smith approves of: 'He's been focusing more on Prada and to a lesser extent Miu Miu, ensuring that his real gem is going to continue to shine.'

Prada is not usually associated with bad news of any description. Its early success was spectacular and apparently unstoppable. When Miuccia Prada inherited her grandfather Mario's luxury luggage business in 1978, aged 28, it consisted of a single shop in Milan, and nobody could possibly have predicted the global empire it has become.

For one thing, Miuccia seemed an unlikely candidate for a fashion designer. A PhD graduate in political science from Milan University, she was a member of the Communist Party and a dedicated feminist who, prior to taking over at the family business, spent her time confronting local government officials and nurturing a budding political career.

And although she wore Yves Saint Laurent on the barricades, it is little wonder if her attitude to the fashion business - hardly a feminist-friendly industry - has been ambivalent.

'Being so involved in the women's movement, I thought that making bags or shoes or dresses was the worst way I could spend my time,' she once said. 'I never actually decided to become a designer. I wanted to be something more, but not everybody can be Albert Schweitzer or Karl Marx.'

But she turned out to be very good at it. Her grandfather had made his name designing walrus-skin luggage, each trunk so heavy you needed two manservants to lift it off the ground.

Unimpressed by such luxury, Miuccia started to run up nylon totes on her grandfather's sewing machines, gave them a £250 price tag and attached to them a triangular tag like the one she found on the steamer trunks.

'I like industrial fabrics, and I like luxury,' she explained. 'We were coming into the Eighties and everything had to be gilded. I wanted to do something different - something practical to help women with busy lives.' But although Jerry Hall traded her Asprey luggage for a complete set of Prada bags, the idea was too avant-garde to have mass appeal.

It was at this point that Miuccia met her future husband and business partner, Patrizio Bertelli, at a factory that was producing leather goods for both of them. They went into partnership, making plain black loafers and practical, flat black boots; in 1989, a year after the couple married, the first line of Prada clothing appeared.

'It was the only thing to do,' she said. 'Any businessman knows that if you stand still, you go backwards. So forward was the only way to go.' The collection was austere, described as ' appropriate for a Communist youth rally', but a breath of fresh air in the excess of the Eighties and in keeping with Miuccia's feminist past. In 1994 the company launched the slightly cheaper Miu Miu range (Miuccia's childhood nickname).

By now, power dressing was beginning to give way to dressing down. And it was at this point that the nylon bags came into their own. They were the epitome of stealth wealth, expensive (from £200) and recognisable only to those in the know. The Prada frenzy had begun.

Only Miuccia, it seems, remained unimpressed by the hysteria. 'Let's face it, fashion is not really very important,' she said. 'I mean it's only skirts and a few bags.'

But skirts and a few bags have brought her family the sort of wealth that Karl Marx would thoroughly have disapproved of. The family (the Bertellis have two young sons, Giulio and Lorenzo, who are kept strictly out of the limelight have homes in St Moritz and Tuscany, and own Miuccia's old family home in Milan. The couple also collect modern art by such names as Anish Kapoor and Robert Irwin, and have opened a private art foundation of their own.

One thing that is not in doubt, whatever the company's financial decisions, is Miuccia's talent. But paradoxically, some fashion watchers claim that even this is a problem: Prada's enormous influence over trends has actually worked to the company's disadvantage.

'Prada is one of the few houses that can still set the fashion,' says an editor at a men's glossy, 'so the clothes are immediately copied by the high street chains, because they know they are going to sell.' M&S's summer range is said to have been inspired by the label.

'I saw a big Fifties-style skirt on M&S's press rail that looked very Prada-influenced,' says Alexandra Shulman, editor of Vogue. 'I think that Prada's spring/summer collection will be one of its most influential in terms of what you'll see on the high street.'

'From a fashion point of view, Prada is back on the map,' agrees Bridget Cosgrave, fashion director of the influential Wimbledon fashion store Matches.

'We've always had very good custom for Prada basics - the cashmere knits, the great pants - but in the past few years, we haven't been selling so many of what I call the fashion show pieces.

This spring, though, the look is spot-on, and the buying has been very strongly weighted towards the fashion pieces.'

Jason Mitchell Jacobs, head of finance and corporate communications at the Prada Group, claims that the business situation is healthier than commentators suggest.

'Our sales were off by one per cent in 2002, which means they are stable,' he claims, and states that the company plans to go public in the second half of this year or the beginning of 2005, as long as market conditions are favourable. 'And in the same year, the company posted a bottom-line profit in the UK. We regard Britain as one of our key markets.'

He says that the company's net profit for 2003 should be 30 per cent greater than 2002's e27 million. And Bertelli, too, clearly feels that things are looking up for the group.

'After ten years of exceptional development and the slowdown in 2002 and 2003, we have reached all the necessary conditions to move ahead on the path of sustained growth, starting in 2004,' he recently announced.

But the real responsibility for the company's lustre and reputation rests on the slight shoulders of one woman. 'Miuccia Prada is a genius,' says commentator and fashion historian Colin McDowell. 'She is followed, and copied, by everyone.

All the great fashion houses have gone through a bad period, but in my opinion, Prada will definitely weather the storm.'

Even the fickleness of fashion, it seems, is no match for the enduring flair of a shy, intellectual, Italian ex-Communist.