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MUNICH — After months of below-the-radar activity, Escada chief executive officer Frank Rheinboldt is taking visible steps to awaken and rejuvenate what he describes as a “sleeping beauty” of a brand.
“We have to kiss the brand alive again,” he told WWD as he outlined his vision for the new Escada at the German fashion house’s headquarters here.
And who’s the prince?
“I hope I’m the prince,” he said, without skipping a beat. “Plus, the retailers and, of course, the women who love Escada.”
The 39-year-old ceo of Escada subsidiary Primera took over the Escada Group helm from founder Wolfgang Ley on Feb. 1. With a stringent cost-cutting program behind it, Escada’s been back in the black for two years and is projecting mid-single-digit sales growth and a 10 percent increase in earnings before interest, taxes, depreciation and amortization, or EBITDA, for fiscal 2005-06, which ended Oct. 31.
Although the Escada Group met or exceeded sales and operating profits for the fiscal year, preliminary figures released Wednesday showed profits after taxes and minority interests plunging 51.5 percent to 6.9 million euros, or $8.5 million. All dollar figures are converted from the euro at the average exchange rate.
The company stressed the decrease was “solely the result of one-time valuation adjustments in the balance sheet that were made primarily for inventories and deferred taxes in the second quarter.”
EBITDA reached 74.1 million euros, or $92 million, a gain of 13.8 percent. This surpassed the projected 10 percent gain.
Group sales rose 7.2 percent to 695.2 million euros, or $859 million, against a forecast of growth in “the mid-single-digit range.” The Escada business unit increased sales 6.1 percent to 489.2 million euros, or $604 million, and improved EBITDA 17.8 percent to 74.1 million euros, or $92 million. Sales for the Primera unit, which includes Laurèl, Biba, Apriori and Cavita, were up 7.5 percent, with EBITDA rising 11.2 percent.
While profit figures for the fourth quarter were not released, the company called the quarter’s business performance satisfying, with sales rising 10.3 percent to 205.2 million euros, or $253 million.
The Escada board said it is optimistic about the fiscal year ahead. It is projecting a continued expansion of sales, with EBITDA again expected to grow stronger than sales.
Escada closed fiscal 2005 with net profits of 13.7 million euros, or $17 million, on group sales of 648.6 million euros, or $802 million. The Escada brand generated 436.5 million euros, or $539 million.
There is still much to be done to return Escada to market leadership, Rheinboldt said.
“I was more like a chief restructuring officer than a chief executive officer in the first six months,” he said.
“I’m not talking about restructuring — that is, firing people, selling unprofitable issues and closing unprofitable shops,” he said. “We already did that. But I’m talking about adapting the structure itself: customer service, EDP [electronic data processing], who’s using the information, how big is the collection, work-flow optimization. There are millions to gain, for example, if you can shrink down the time to market by four to six weeks. But it’s an ongoing process. Some things are settled, but others like EDP need two to three years.”
It’s in his character, Rheinboldt said, not to want to talk about things before they happen. But last fall brought a barrage of key developments. First and foremost was the appointment of Damiano Biella to the new position of creative director. The 35-year-old Italian, who had been design director at Valentino since 2003 after stints at Carolina Herrera, Celine and Gucci, is expected to bring “a new femininity, emotionalism and internationality” to Escada. The first full collection he will design will be cruise 2008.
Biella, on board since Oct. 1, replaced Escada design veteran Brian Rennie. Word of the company’s palace revolution quickly shot through industry circles. “It’s more an evolution,” Rheinboldt contended. “A palace revolution tends to throw everything out. We want to keep the good things. But it has to be a quick evolution.”
What to keep and what to change? “The base we have is really great,” Rheinboldt declared. “We are already in the market, and the most important thing is that the brand Escada is not damaged.”
The Escada brand icons, which he characterized as femininity, color, joie de vivre, the best quality and the best fit, are sacrosanct. “Even in the most difficult years, Wolfgang [Ley] managed not to question these icons, and maybe that is why the brand wasn’t damaged,” he said. “Of course, if you talk about modern fit, what kind of shoulder pads to use, what kind of linings, you have to talk about what is more appropriate, more contemporary. I like the word ‘contemporary,’ and that’s where I see Escada — as a contemporary luxury brand.”
However, modernizing a brand’s style profile is fraught with perils, as the backlash following competitor St. John’s break with its traditional style, fit and spokesmodel showed.
“That’s too dangerous for us, and I would never allow it,” Rheinboldt said. “We’re talking step-by-step changes, to keep the loyal customer but also give new customers the option to wear Escada and make them feel they are dressing in a more contemporary way.”
That means no more copycat looks. “We have to create our own Escada identity and style,” he said.
“In the Eighties and Nineties, with Margaretha Ley, people copied us,” he continued. “Now it’s just mail-order houses from France. We have to show the fashion world that Escada also has a certain trend. But it’s very important to prepare the customer step by step. If there’s a velvet trend in the fashion world, of course Escada has to have it, but this season, not a season later. We have to improve here.”
The huge size of the collection has its pros and cons. While Rheinboldt is adamant about no longer wanting to “have everything for everybody, which is where we are at the moment, it’s also a reason why Escada didn’t suffer so much. Because we had everything.
“But we have to reduce our different visions to a few key visions so that everybody understands what we want to say. And that has to be done by someone external,” he noted, referring to Biella, “because if you work for a company for too long, you become blind.”
Nonetheless, don’t expect too much shrinkage in the Escada range. It may get 10 percent to 20 percent smaller, but the line will still be one of the biggest ready-to-wear collections in the luxury segment, he said. “We have to sell quantities. In Moscow, for example, we have nine shops, and we can’t put the same merchandise in all of them. And our wholesale clients are important, too. We have to give them a certain variety.”
There are more than 400 Escada shops worldwide: 200 company-owned and about 200 franchised. The company has set aside about 30 million to 37 million euros, or $37 million and $45 million, for a two-year renovation of the Escada doors. The first new-look stores bowed in Munster, Hamburg and Vienna in November.
“This is not an evolution. It’s a revolution,” Rheinboldt declared of Escada’s new retail look. “The ‘Dynasty’ days are over.” Gone are the gold and the glitz, the girly accents of pink and red, now replaced with a muted palette of silver-gray, plum and black. The shop façades feature wide expanses of glass and silver-chromed ceramic tiles with the Escada logo. Inside, silk fabrics cover the walls, and Twenties vintage style chandeliers are one of the new iconic design elements.
The floor space has been divided into special areas devoted to the main collection, accessories, evening-wear and couture, as well as intimate seating areas with Barcelona chairs and chrome Bishop side tables. “The new concept puts us in a certain luxury league,” the chief executive said.
Next in the lineup are stores in Hong Kong, Australia, Mumbai, Beijing, London and Shanghai, followed by Taiwan, Madrid, New York and Beverly Hills. But the “big bang opening” will be the remodeled Beverly Hills flagship on Feb. 1. “We’re really spending a lot of money to show all of the West Coast that Escada is back on track,” he said. “It’s definitely more than a million euros, but not 10 million.”
The New York store will get a face-lift to adapt it to the new look, and sales at both the Beverly Hills and Manhattan units are “developing in a terrific way.” Rheinboldt is largely satisfied with the business in the U.S., Escada’s largest market.
“And we have two great partners with Neiman Marcus and Saks Fifth Avenue,” he said. “We’re ready to go the next step, if we give them the right product. On the other hand, they have the feeling there could be more and so we’re still doing specials for them.”
The U.S. poses no special challenges. “Three years ago we had problems, but…we always had a strong retail organization and wholesale partners, so we didn’t suffer. And our image in the states is really stable. The typical Escada customer still exists,” he noted, which doesn’t mean Rheinboldt isn’t eager to attract new ones. Or bring back customers spending money on other labels.
Other fix-it points include beefing up entry-level price points. In Germany, for example, Rheinboldt said retailers are requesting jackets at 600 to 700 euros, or $770 to $900, and 300 euro, or $380, trousers, “and then they say it’s no problem to sell an embroidered jacket at 1,000 to 1,200 euros.”
U.S. stores, on the other hand, are looking for jackets in the $1,000 to $1,200 range and pants at $400, which Escada has offered for the last two seasons. “And then there are some segments where people say we’re too expensive, like knits. We’re working to give the customer the feeling that we’re worth it.”
Escada’s accessories business also needs a boost. Two new designers are on board: Bruno Tomasini and Giusseppe Giannotti (for shoes), and Biella will also get involved.
Rheinboldt’s goal is to grow accessories from 4 percent to 5 percent of the business to 15 percent to 20 percent. “It’s achievable,” he said.
Rheinboldt can envision an increasingly important role for Escada Sport, which reached sales of 92.6 million euros, or $115 million, in fiscal 2005. But Rheinboldt is critical of cannibalization between the main line and Sport and a blurred Sport identity. He said the company was identifying which segments Escada Sport should cover.
“I see the same potential worldwide for Escada Sport as with the main line,” he said.