Clean cut at Esprit – close to 500 points must be eliminated

reThe presentation on the future of Esprit has 117 pages. CEO Anders Kristiansen shows how he wants to get rid of the battered clothing brand from Ratingen near Düsseldorf. And although the vast expanse of the document can, in all confidence, serve to indicate the disastrous situation of the society. The content is all the more fierce: Kristiansen wants to close stores, streamline its internal structures and, to a large extent, reduce its workforce.

After all, 40% of the workforce in all areas outside the store network is expected to lose their job. This could harm the company's headquarters in the Rhineland, where around 1,200 people are currently working. After all, almost 500 jobs would be removed from the proposed quota.

Although discussions are still ongoing with the company committee. As a result, Kristiansen resisted specific statements regarding the location of Ratingen. The service union, Ver.di, feared the worst for some time now, especially as the CEO announced in an internal letter to German employees an "immediate and forward-looking reorientation" and referred to "a dramatic economic situation. "at Esprit's.

More basic products instead of sophisticated models

In fact, the brand is going through a seemingly endless crisis. For five years now, Esprit has been operating, despite all the previous restructuring efforts. Revenue for fiscal year 2017/2018, which expired at the end of June, also fell sharply: from 11% to only 1.7 billion euros. The net result was an operating loss of nearly 250 million euros.

And during the new fiscal year, the situation is further aggravated. From 17% down, first quarter revenues from July to September declined and the hot summer should have contributed. In any case, in Germany and Europe, the entire fashion sector is complaining about the high temperatures of the lack of frequency in the stores, but also the reluctance to trade online.

Now Kristiansen pulls the rope. "We need to rebuild our business model," said the Dane at the company's investor day in Hong Kong, where Esprit is publicly traded. According to his presentation, this includes, for example, a modification of the portfolio. "We want to be known in the future for our pants, our t-shirts and our sweaters," Kristiansen said. About half of the product line will be used to make such essential products in the future.

To this end, Kristiansen plans to attract far more commodities than whimsical designs and prints that are likely to be out of fashion. Until now, commodities account for about 12% of the product range and are expected to account for almost three times as much, at 30%.

Degenerate to the mbad mark

So-called wholesale activities are at the center of attention, that is, relationships with business partners who sell many fashion brands under one roof. "The profitable wholesale will play a key role in the reorientation," said Kristiansen, who worked for private equity firm Permira before joining Esprit.

According to the group's information, there are currently 5,400 points of sale, of which 3,350 in Germany represent the largest market for Esprit. Opposite, there are 140 own stores in this country – at least in all cases. Kristiansen wants to close down its loss-making activities in the coming years. There are already 28 concrete solutions.

While waiting to continue, however, difficult negotiations may still be necessary. Because Spirit would have, in many places, very long leases, as the industry calls it. The problem: Many of these stores are located in B sites or in the immediate vicinity of other branches, which goes back to the boom period before the financial crisis.

Esprit has become a mbad brand – and has not yet recovered, according to industry experts. "There is no desire," says a fashion manager. "Spirit was over-distributed, the brand has become arbitrary." Kristiansen also wants to work on that. Among the other influencers to help make Esprit even more coveted.

"That's what Spirit said five years ago"

At the same time, the manager announces a quality offensive, also for the catch. Because until now, there are no defined standards. A sweater size L can therefore vary from one collection to the other. Behind that, there are the many responsibilities of the headquarters. "Many projects fail because of double and triple responsibilities," industry experts say.

Although Kristiansen's predecessor, José Manuel Martinez, internally improves many processes and extends online activities to nearly 25% of sales. In the administration, he had not adapted hierarchies and staff to the contraction of activity over the years, said observers.

Kristiansen estimates that the costs of the upcoming restructuring will rise to around 170 million euros over the next two or three years. After this period, the breakeven point should be reached so that Esprit again earns money. And then, according to Kristiansen, a new phase of growth can begin, particularly in Asia and China, which the manager has chosen as a major target market. It will then open unlike new stores in Europe. Observers, however, remain skeptical. "That's what Spirit said five years ago: first a restructuring, then a new growth."

On the financial side, Martinez would also have been successful. After all, Esprit claims to have no liabilities and also has a free cash flow of three million dollars. But as sales of square meters in the remaining stores are falling, new stores are on the list of renovations and all over again. "It's a dangerous downward spiral, and that makes recovery so difficult," the experts doubt.