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Esprit On Shaky Ground As Turnaround Plan Still Lacks Spirit

Things are looking grim for Esprit Holdings, which announced a steeper than expected loss for the first half of its fiscal year, losing $60 million through December 31st. Revenue fell 19%.

The firm embarked on a turnaround plan in September 2011 and has exited the North American market and shuttered stores in some European countries. It has also reworked sourcing relationships, ending the use of agents in a bid to cut annual costs and expanding its sourcing footprint away from China.

Esprit makes about 80% of its sales in Europe, but has had difficulty competing with similar European retailers. It has been trying to grab some special sauce from Inditex by appointing former executive Jose Manuel Martinez Gutierrez as its CEO, after a high profile desertion from CEO Ronald van der Vis and Chairman Hans-Joachim Korber.

The company also launched its first rights issue since 1997 in October, raising $677 million, which sources say will finance the continuation of its turnaround. Unfortunately, the new leadership has failed to articulate a clear vision, and the company still seems to be suffering from a lack of its namesake emotion.

Esprit suffers from a top-line that is shrinking by 20% and falling same-store sales growth. Cash bleed has been increasing rapidly. Management has tried to reduce costs more quickly by eliminating unprofitable operations, but has only had minimal success at staunching revenue losses.

More importantly, the company still lacks a clear image. Like an old grunge rocker, Esprit never really made it out of the 90s. Few consumers feel any identification with Esprit, which became known for its jumpsuits, sweaters, and other branded gear back when it was still an American brand.

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In order to move forward, the company will need more than a strong management plan. It needs to be able to compete with European brands such as Zara and Hennes and Mauritz. To do that, it will have to pick up some competitive designers and invest more in product development, rather than focus cash on salvaging its retail business. Unless the company can make something people want to buy, it’s doomed.

The question is, can Gutierrez pull it off? The company lost a lot of ground when it left North America. While Chinese consumers have more to spend than Americans and are more likely to spend on a French sounding former fashion icon, there are questions about whether Esprit has what it takes to make designs that will really set its new market afire, let alone claw back any market share in Europe.

Like CEO Ron Johnson of JC Penney, Gutierrez needs to figure out what his company does better than anyone else, and then get busy doing