(FORTUNE Magazine) – 'Am I volatile?" Patrizio Bertelli asks, getting up from a table at Prada's Milan headquarters to adjust the air conditioning and bawl out construction workers drilling in the office next door. Sitting back down to a spread of mozzarella, riso, and wine, the 55-year-old chief executive of one of Italy's top fashion houses says, "It is the right question to ask, but I don't think so. If a demanding manager behaving consistently is described as volatile--well, then that is the outside world's problem."

The outside world is about to get a lot more interested in Prada. A decade ago the company was barely known beyond the fashion crowd that flits between showrooms in Milan, Paris, London, and New York. Now, 23 years after Bertelli teamed up with designer and Prada family scion Miuccia Prada, the privately owned fashion house is going public. If all goes according to plan, in late October Prada will sell up to 30% of its shares on the Milan stock exchange and to institutional investors in the U.S. Bertelli hopes to raise $2 billion. He needs the money to help pay down the $830 million in debt he has racked up since 1999 buying other luxury brands, such as Fendi, Jil Sander, and Helmut Lang, as well as to build new stores and factories to expand those brands. His goal: to reach $5 billion in sales by 2010--thereby taking on the world's two biggest luxury-goods conglomerates, LVMH and Gucci.

If Bertelli succeeds, the Prada story will become one of the fashion industry's great tales of empire building. Founded in 1913 by Miuccia's grandfather Mario, Prada now encompasses men's and women's clothing, shoes, bags, eyewear, and cosmetics. In the past decade, Bertelli and Miuccia, who are married, have turned the sleepy Milan leather-goods maker into a global emblem of edgy urban luxury. In 1990 sales were just $50 million; last year they reached $1.5 billion, up 57% from 1999, with operating profits up 21%, to $190 million. (Prada has not yet released any 2001 numbers.) Since 1995, Bertelli says, Prada's sales have risen an average of 37% a year. That growth puts Prada within shouting distance of Gucci, which reported $2.3 billion in sales last year. "If you look at what Prada was ten years ago and what it is now, nobody can deny that Bertelli is a very talented individual," says Domenico De Sole, Gucci's president and CEO. "He has done a superb job."

Few people doubt that Bertelli has the brains to pull off his bold expansion plan. The question is, does he have the personality? For the first time, Bertelli will have outside investors looking over his shoulder. That will be tricky, given his famously prickly temperament and obsession for control. Bertelli has no clear second-in-command and says that development of the new brands is too important to delegate. ("It's like delegating raising children," he says. "We want to raise our own.") Will he still be able to run Prada as a padre-padrone, a father figure who controls everything about the company, from the way it attaches heels on its shoes to where it opens its next store? Will he still be able to spend $50 million to enter a Prada boat in the America's Cup, as he did last year, just because he loves racing yachts? "The stock market may be ready for Prada," says Sagra Maceira de Rosen, a luxury-goods analyst at J.P. Morgan in London. "I am not sure if they are ready for the market."

Bertelli's temper is the stuff of legend. People at Prada talk about his tossing handbags out of windows and berating retail staff if they don't tie the ribbons on shopping bags properly. He once smashed a mirror that wasn't installed to his exact specifications. Even Miuccia isn't immune: He recently told her that the strap on one handbag in her winter collection was too long and ordered her to change it. She refused. They argued. She won. "He is not an easy person," says Rossana Bianchi, Prada's retail director. "Yes, he loses his temper--it's a characteristic. It can last five seconds, or it can last an hour. Then he smiles. But I've never had the feeling that he doesn't respect me. If you know him well, you can deal with him."

Not surprisingly, Bertelli sees himself in a different light. "I am demanding," he says. "I expect consistency and correct behavior. But I don't expect people to be perfect. I might appear harsh, but as CEO I don't flatter my ego. I have to oversee 7,500 employees. My behavior is aimed at giving them security of management to protect them." He points out that more than 150 people have worked for him for over 20 years.

Yet his need for hands-on control has cost Prada at least one big talent. In late 1999, five months after the company agreed to buy 75% of Jil Sander, the high-end clothing line, its eponymous founder and creative director quit. Analysts and industry insiders say she objected to Bertelli's reducing her role and taking over the commercial side of her business. (Sander didn't respond to requests for comment.) "I don't know what happened," says Bertelli. "I was away at the America's Cup, and the lady resigned. Personally, I believe she regretted selling the company. Perhaps she didn't realize the implications of selling and losing control."

The test of Bertelli's executive skill comes during a rough patch for the luxury-goods market. With economies around the world on the verge of recession and terrorism on the rise, this isn't the best time for a company that sells $400 shoes to go public. While luxury watches and jewelry still seem to be selling well, LVMH and Gucci both have issued profit warnings. Bertelli acknowledges that Prada's sales growth has slowed--the Japanese, in particular, aren't buying as they used to--but he won't say by how much. "It's a slowdown, but it's a healthy slowdown," Bertelli says. "We are digesting growth of the past." He adds that the downturn won't affect profits, because the company is cutting costs.

But the squishy economy is also raising questions about the very nature of the luxury business. When a brand is selling more than $1 billion worth of clothes, shoes, and bags a year, as Prada does, is it still exclusive? Some executives say they won't be surprised to see a backlash among affluent consumers who are starting to see the logos of Gucci, Prada, Hermes, Chanel, and Louis Vuitton on so many items that they will instead turn to boutique brands. "It's the most interesting and controversial question in the industry," says Antoine Colonna, Merrill Lynch's luxury-goods analyst in Paris. "Is big beautiful in the luxury-goods industry?"

Fashion executives speculate that this question may be driving a wedge between Miuccia and her husband. Miuccia, they say, wants Prada to remain a high-end design house, focused on Prada and its lower-priced (but still expensive) secondary line, Miu Miu. Bertelli, some Prada people say, wants to go mass-market by buying brands such as Italian tennis-shoe company Superga and sticking the Prada name on everything from fragrances to jewelry. "We don't see ourselves as a luxury company in strict terms," says Bertelli, who points out that people who buy Rolex watches also buy Swatches. "Luxury is not necessarily expensive. It's things that have an attitude." Says Paola Durante, a luxury-goods analyst with Merrill Lynch in Milan: "We have heard these rumors about disagreements. As investors, we need to understand from Miuccia what she thinks the strategy is."

Bertelli insists that he and his wife "never have a disagreement on strategy." But few people know what Miuccia, who declined to talk to FORTUNE for this story, really thinks. "I'm very shy," she told W magazine in a rare interview in 1996. "You don't want everyone to know what your thoughts are." While she has proved prescient at knowing what fashion-conscious consumers will want to wear next, she has little influence over Prada's commercial decisions. When Miuccia joined a meeting with Prada's investment bankers July 28, it was the first time she had ever attended a management strategy session.

FORTUNE spent four hours talking with Bertelli at his offices in May, then caught up with him again in August as he raced his 12-meter vintage yacht, Nyala, at the America's Cup Jubilee off the Isle of Wight. At the first meeting the restless and somewhat disheveled CEO, dressed in navy-blue cotton slacks and a rumpled cream-colored shirt--neither designed by Prada--asked almost as many questions as he answered. Is it true, he wanted to know, that there is no such thing as a single American identity? What do you think influences people's behavior more--history or money?

Bertelli also talked about how he plans to spend the money from the IPO. He'll use most of it to pay down debt and expand retail distribution for Prada and the brands he has already purchased: English shoemaker Church; design houses Azzedine Alaia and Helmut Lang; 75% of Hamburg-based Jil Sander; and, with LVMH as a 50% partner, 51% of Fendi. He also wants to buy new brands and to continue buying all or part of the factories that make Prada products.

To comprehend Prada's rise so far, it helps to understand that Bertelli and Miuccia view themselves as outsiders to the clubby world of fashion. Miuccia, 53, a former member of the Communist Party who studied political science in college, joined the family firm in 1970, running Prada's shop in the Galleria Vittorio Emanuele II in Milan with her sister, Marina, 56, who still oversees the store. (Brother Alberto, 50, is not involved in the business.) At the same time Miuccia was trying her hand at design. Bertelli, who studied engineering at university in Bologna, was a manufacturing guy. The two met in 1977. A year later Bertelli signed an exclusive agreement to make Prada bags at his Tuscany leather-goods factories. In 1988 they married and had the first of two sons; in 1995 they formally merged Bertelli's factories and stores with the Prada design and retail business, and Bertelli became CEO. Today Bertelli and Miuccia each own about a third of the company. Marco Salomoni, a family consultant, owns about 4%, and the rest is split between Miuccia's sister and brother.

From the beginning, Bertelli and Miuccia shared a vision of building the Prada brand. To do that, not only did they need to capitalize on Miuccia's design talents, but they also had to create a brand machine, an organization that would control everything from the retail store to the design studio and the factory floor. "Something that amuses me," Bertelli says, "is that analysts and journalists always see the fashion world as a dreamland. The style is daily work and commitment. Brands aren't successful by accident." The power of Prada today, says Bianchi, the company's retail director, "is having absolute control over everything--merchandising, buying, image, the whole business."

Miuccia and Bertelli began by creating a new image and product line that would capitalize on her bohemian yet refined style. Classic Prada clothes are marked by spare designs in high-tech fabrics with small details, such as tiny buckles or leather buttonholes, noticeable mainly to people clued in to the Prada sensibility. "Miuccia's style is very idiosyncratic and slightly eccentric," says Alice Rawsthorn, director of the Design Museum in London. "Yet it manages to look improbably elegant."

Miuccia began designing women's shoes in 1982, then added women's clothes in 1989 and men's clothes and shoes in 1993. In the mid-1990s, Prada's $350 black-nylon backpack suddenly became de rigueur with the fashion crowd. Sales soared, bolstered by new store openings. In 1986, Prada had only three retail stores, two in Milan and one in New York. Today the company owns 122 Prada stores around the world (another 19 are franchises); when you add in Prada's other brands, those numbers rise to 307 and 143, respectively.

Early on, Bertelli came to believe that the company couldn't be successful only by relying on Miuccia's sixth sense for designing fashion's next big thing. To control costs, quality, and, above all, image, Prada needed to be vertically integrated. At the time, that was a radical idea. Most fashion houses made money by selling their goods in franchised stores, boutiques, and department stores, and by licensing their brands to manufacturers who slapped them onto everything from jeans to sunglasses. That caused many brands, such as Yves Saint Laurent, recently purchased by Gucci, to lose cachet.

Owning majority stakes in factories allows Prada to react quickly to market changes and to manage costs, quality, and technical innovation. While each Gucci bag is made by a single artisan whose number is stamped on the label, each Prada bag is made assembly-line fashion. "A fashion company is no different from an electronics or a car company," says Bertelli. "Like General Motors, we have to have production and manufacturing stability. Our key concept was to use craftsmanship and know-how on a more industrial scale."

Another key concept is consistency. Prada offices in New York and Tokyo are equipped with the same Italian chairs, desks, lamps, pencils, pens, and even staples as the Milan headquarters. Those headquarters have the same polished concrete floors and blank white walls as the airy, high-tech shoe factory in Levanella, Italy, which looks more like a semiconductor clean room than a leather shop. At Prada stores, "there is a different air, which feels a lot more corporate and a lot more professional," says Eli Chegini, the head buyer for the Fulham Road branch of high-end London store Joseph. "Everything is white and gray, all the uniforms are gray, and everybody behaves the same. Buying at Prada feels like machinery, in a nice way. It's very efficient and pleasant. It runs like clockwork."

Analysts say the company pays unusual attention to the bottom line. Prada packages its year-old line of skin-care products (which contain few or no preservatives) in monodoses, with one packet to be used each day. Customers shell out $100 for 30 packets of cleansing lotion--that's $1,200 to wash your face for a year. Changing small details on jackets and trousers every year means that a Prada jacket never looks as great as when it's paired with the same season's Prada pants. So customers buy complete outfits. Miuccia may present an outrageous design on the catwalk, but what the company puts in the stores is stuff that sells. The designer herself, for instance, almost never wears black, preferring navy blue. But Prada stores are full of black suits, dresses, and pants, because that's what people want to buy. "They always pull off this wonderful combination of having the bag that all the key celebrities really want to own," says Rawsthorn of the Design Museum. "But they make their money on quite conventional pieces that are classic contemporaries and can be made very effectively in mass quantities."

Bertelli has just begun applying the Prada formula to his new brands. With LVMH, Prada has bought back all Fendi's distribution licenses in Japan, reducing the number of Fendi franchised stores worldwide from 100 to 46. It has opened new Fendi stores in London and Paris, revamped Church's headquarters in Northampton, England, to resemble those of Prada with an English touch, and is scouting locations for new Helmut Lang stores. It's too early to tell whether such changes are working. Jil Sander's pretax profits and revenue last year jumped 18.6% and 16.4%, respectively, the highest growth since 1996. But sales rose just 6.6% in the first six months of this year, and profits plunged 98%, as Bertelli poured money into new Jil Sander stores.

While Bertelli says he's sorry Sander left, he contends that he can do just fine without her. "The most important thing is if a brand has history, if it has left a mark on the market," he says. "Then everything can be redefined and re-evaluated. History is always stronger than people."

Does that mean that Prada, too, could survive without Miuccia? Bertelli pauses, then follows the logical conclusion of his argument. "Yes," he says, "we would find a solution."

FEEDBACK: jguyon@fortunemail.com