Losing its shirt
These are tough times for German fashion retailer Esprit, which has had four CEOs in the last decade and is now facing a planned 40 percent cut in its global workforce of 6,400.
Like many of its peers, it’s being squeezed by low-cost competitors like Primark, online stores like Zalando and vertically integrated, nimble retailers that control the entire product cycle from design to distribution.
It made an operating loss of €246 million ($279 million) last year on revenue of €1.7 billion and new CEO Anders Kristiansen, a Dane who took over in June, is embarking on yet another restructuring in an attempt to restore the global retailer to its former glory.
Don’t mention the job cuts
At Esprit’s global headquarters in Ratingen, near Düsseldorf, staff morale has hit rock bottom. Employees said they were disappointed that Kristiansen didn’t speak much about the planned redundancies during a presentation and instead focused on issues like strategy, marketing and product lines.
“The announcement about the planned job cuts was only broached fleetingly,” said a source at the company. The job cuts will mainly hit the head office. It’s unclear how many staff will have to go.
Kristiansen wants to close stores, streamline the administration and simplify the product ranges.
He told a meeting with investors in Hong Kong, where Esprit is listed, that Esprit must rebuild its business model. It wasn’t aiming to be a fast fashion brand or a discount retailer, he said. “We want to be known for making excellent products at good prices.”
Too little, too late
The restructuring will take two to three years and cost some 1.5 to 1.7 billion Hongkong dollars, or €168 million to €190 million.
“I’m convinced that the planned restructuring costs won’t be enough when you factor in further store closures,” said Beate Hölters, a partner at management consultancy Tailorit in Düsseldorf. She said the revamp was five years too late.
Fashion consultant Franz Maximilian Schmid-Preissler said Esprit was likely to struggle to hold its ground in the shrinking middle ground of the fashion market. “The brand is on life support,” he warned.
Kristiansen hasn’t given details on how he plans to finance the restructuring. But he has stressed Esprit has enough money and is debt-free.
Sweatpants mean you’ve given up
He plans to boost sales of basic garments like sweatshirts, jeans and T-shirts to make Esprit less dependent on fashion trends. In addition, he has said the product range will be reduced by 20 to 30 percent by next June to cut design and production costs.
Esprit, like its peers Gerry Weber, Tom Tailor and Hugo Boss, has been expanding its retail network in recent years. Kristiansen wants to shut unprofitable stores but that can’t be done overnight because the company is locked into rental contracts.
“We have concrete solutions for 28 stores,” he said. Esprit has 580 stores worldwide, of which 140 are in Germany.
Kristiansen’s predecessor, José Manuel Martinez, who came from Spain’s Inditex clothing group known for its Zara brand, tried to return Esprit to profit but analysts said his measures weren’t radical enough. He quit in March.
Georg Weishaupt covers the retail sector for Handelsblatt. To contact the author: weishaupt@handelsblatt.com
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