How German Fashion House Escada Clawed Its Way Back From Bankruptcy
A sports collection, new fabrics, fewer gold buttons and an influx of Indian money have Escada back on track. The German clothing company still isn't back to break-even, but sales – up 7% last year – look set to keep rising.
BERLIN -- With Berlin Fashion Week -- the first big fashion event of 2012 -- just a week away, excitement is mounting in the world of clothing design. The energy is particularly high at Escada, as the Munich-based brand's new sports line will open the catwalk show in the German capital.
Just over two years ago, this honor would have been unthinkable. Escada, long associated with luxury and glamour, had just filed for bankruptcy. "Obviously, Escada's image suffered from the bankruptcy," says CEO Bruno Sälzer.
But after being written off as dead, the global brand is decidedly back in business. According to Sälzer, turnover for the 2011 business year was some 300 million euros -- up 7% over 2010. In the upscale Berlin department store KaDeWe, Escada now boasts the largest shop-in-shop surface area. "Both the industry and consumers have regained trust in the brand," says Sälzer.
Mid-term, the Escada CEO sees an increase in turnover of up to 500 million euros. That's still far less than the company earned during its boom years. It's also short of what Escada needs to actually turn a profit, which is something the company hasn't managed to do for quite a while.
Years of mismanagement, frequent changes at the helm, and some fashion faux pas had brought Escada to the edge of ruin. Sälzer, 54, who was brought in during in 2009 to clean up the mess after a successful run as the top executive at Hugo Boss AG, got the collections back on track, but couldn't manage to straighten out the finances in time. After attempts at re-scheduling debt failed, he was forced to declare bankruptcy.
A fresh debt-free start
Today, Sälzer calls the measure liberating because it enabled Escada to start anew. Just five days into bankruptcy proceedings, trustee Christian Gerloff sold the operational business to an investment company owned by the family of Indian steel magnate Lakshmi Mittal.
Since then, Megha Mittal, the 34-year-old daughter-in-law of the patriarch and a former Goldman Sachs investment banker, has been chairwoman of Escada. "For me it was a dream come true," says Mittal, who bought several hundred thousand euros worth of Escada clothing right after the deal went through.
The Mittal family is said to have paid 70 million euros for the company itself, and a further 30 million for development. Bruno Sälzer stayed on, and has continued to nurture the company back to health by automating production, reducing the size of collections, and giving the lines a new, modern look with different fabrics, more color, and fewer gold buttons.
Sälzer also repositioned the brand within the luxury market by reducing prices at an average rate of about 20%. Two-thirds of sales derive from the company's main line. The Escada Sport collection, which is aimed at younger customers, accounts for the other third. Just as he introduced women's fashion at Hugo Boss, Sälzer may be looking to introduce men's fashion at Escada. But any such strategy will have to wait for fashion weeks of the future.
Read the original article in German
Photo - Colros