Escada is facing more business fallout around the events of the last year.
The fashion brand has filed for insolvency in its original home base of Germany, sources told WWD, with plans to limit corporate operations in the country and further limit its retail presence. In a memo to staff, Escada stressed that the insolvency proceeding, akin to a bankruptcy filing, “relates solely to Escada SE in Germany and not to the other companies in our group.” The company filed bankruptcy in Germany once before, in 2009.
The filing is expected to impact the roughly 150 corporate employees left in Germany, where Escada was founded in 1978 by Margaretha and Wolfgang Ley. As WWD reported earlier this summer, Escada in December already went through one round of corporate layoffs affecting just over 60 people, shortly after it was acquired by Regent LP. Regent is a private equity firm based in Los Angeles, owned and operated by Michael Reinstein. Most of the assets held under the German company are said to have been transferred to a holding company in the U.S. and other European operations are now based in England.
Although sources are expecting Escada’s German operations to be severely impacted by the insolvency, a spokesman for the company said, “We have no intent to move key operations such as wholesale, production and retail operations out of Munich.”
While sources have said that Escada’s financial difficulties were apparent long before the coronavirus pandemic, as basic bills for things like utilities and seamstresses simply stopped being paid in the months immediately following Regent’s fall acquisition, Escada put the blame for the insolvency move squarely on the pandemic in its memo to employees.
“We have made great strides to improve our operations and had been on track to exceed our results from the last fiscal year until COVID-19 swept across the globe,” the memo reads. “Unfortunately, the human tragedy and economic plague caused by the pandemic has acutely affected the luxury fashion and retail sectors.”
Still, Escada tried to strike a positive tone where its future is concerned, writing that it will “continue to operate as a full-service luxury brand and design house” and that it’s recently made “significant investments…to ensure a successful future.” The company said it has signed a two-year lease for a new store in Beverly Hills, is remodeling its shop-in-shop at Harrods in London and has hired a vice president and a director of retail operations.
A company spokesman added that there have also been recent investments in a new e-commerce platform and a “seven figure” investment in a new point of sale and inventory system.
But earlier this year, Escada was locked out in several of its North American retail locations, including Beverly Hills, Dallas and Vancouver, for failing to come to an agreement with landlords. It also paused production and abandoned the traditional “collection” model, planning instead to produce smaller “capsules” multiple times a year. Although the company did show to editors in late June a full resort 2021 collection, despite such changes.
But while that was the case a couple of months ago, it seems plans on that front may have changed again. The spokesman for Escada disputed that anything with production has changed, despite sources with direct knowledge of the situation saying so previously. He did say the capsule model “is very much under consideration pending further feedback from our wholesale customers.”
As sources have said, the company is still figuring out its go-forward production plan. It’s been heavily reliant for decades on wholesale at department stores, all of which have been severely impacted by the pandemic.
Overall, sources say Escada as a whole is facing more than $100 million in losses at this point, as WWD reported, although it’s thought that the brand has not been profitable since it filed for bankruptcy the last time. The spokesman only allowed that the loss figure is “grossly overstated.”
And the company appears to still be without a chief executive officer or a chief financial officer, after people in those positions left shortly after Regent came in. Reinstein, a lawyer by training, is said by sources to be the de facto leader of Escada at the moment. But the Escada spokesman disputed this, saying the company is being run by a “core team” of executives, namely four vice presidents covering retail, product, wholesale and human resources. He said the duties of cfo are being handled by a “head of shared services” based in the U.K.
“To restore Escada to profitability, the bureaucratic management structure that was in place under the previous owners was eliminated in favor of a more team-oriented approach,” the spokesman said.
Regent has focused on acquiring distressed assets since launching in 2013. Reinstein’s other acquisitions include mass lingerie brand La Senza from L Brands; Sunset magazine from Time Inc., and Regis Corp., which operated Vidal Sassoon and hundreds of mall-based hair salons.
The Sunset and Regis businesses are said to have been dealt a very similar experience under Regent to that of Escada. Namely, little to no financial investment and “restructuring efforts” that turned out to be mainly drastic cuts to size and costs turning the companies into essentially bare-bones operations.