Heinz Krogner, Esprit Holdings

Esprit is out to prove that you can go home again. Founded in San Francisco 35 years ago by then husband-and-wife Doug and Susie Tompkins, the brand sold its trademark rights in the U.S. and the Caribbean to Esprit Holdings Ltd., a Hong Kong-based,...

Esprit is out to prove that you can go home again. Founded in San Francisco 35 years ago by then husband-and-wife Doug and Susie Tompkins, the brand sold its trademark rights in the U.S. and the Caribbean to Esprit Holdings Ltd., a Hong Kong-based, publicly traded firm, in early 2002. Esprit Holdings already owned the rights to the brand in Europe and the Far East.

This story first appeared in the November 17, 2003 issue of WWD. Subscribe Today.

Although Esprit currently has about $1.6 billion in revenues worldwide, it’s a brand that has “faded away” in the U.S., Heinz Krogner, group chief executive officer and deputy chairman of Esprit Holdings, said in his keynote address, titled: “Back to the Future: Finding Our Way Home.” “But we’re here now to bring it back. We believe very much in the U.S. as one of our growth markets.”

In fact, the company is scouring metropolitan New York for sites to relaunch a retail chain in the U.S. beginning next year, he said. As reported, the first store should open in spring or summer, six or seven locations are under discussion and one lease is ready to be signed soon.

Esprit, under its previous owner, used to operate stores in the U.S. but closed the last seven or eight units about a year ago.

The decision to open its own retail sites in the States again is part of a “homecoming strategy” for the once-California-based company, which still has a brand recognition of 61 percent on the East Coast and 68 percent on the West Coast. The initial thinking was to come to market here with “a concentrated effort,” Krogner said. Although Esprit operates 13 divisions, the company decided to focus on edc, its juniors line, as well as a casualwear and collection line for women only. Finding licensees here was also in the cards.

After successful partnerships with department stores in Europe, the firm centered its distribution on better department stores in the States as well, pushing any thought of its own retail stores to the back burner. But Krogner said he was “astonished” at the initial results. “The department stores [here] have shown us a very mixed picture,” he explained. “Some of them share our values, but a lot don’t.”

He said some department stores in the States look at vendors as a “mortal enemy” — a relationship that can be substantially improved. “I believe both parties have to focus on their strengths,” he said. “The department stores have the best locations, they’re still an institution in the U.S., they know how to manage a big store, they know about space allocation, they know how to market their stores. Some of them are still able to create a strong shopping atmosphere and some of them know the private label business.”

That said, “We have to decide who is in charge of the business,” he continued. “If the department stores want to do the selection, the pricing, the visuals, the markdowns and promotions, then why do they come at the end and ask me for markdown money? I’m not responsible for it because I have nothing to say. I’d rather run my business in the department store myself, then I can bring my look and image. I believe by doing that we can add a lot of value to make department stores more exciting.”

He added: “Everything here looks very much the same and department stores have to rethink their business model.”

His experience with the department stores prompted a series of “corrections” in the U.S. market, Krogner said. “As a brand, we have to protect our identity, and we learned we have to be much more selective in choosing our partners here. And now we will not wait three or four years [to open our] own retail. We realize that through the department stores we cannot build our brand again. That was a real misjudgment of our team so we are going to start our own retail as soon as possible.”

In fact, Krogner expects the business in the U.S. in five years to be split 50-50 between retail and wholesale. The Esprit-owned stores are also expected to carry men’s product, although the firm does not intend to wholesale the men’s line for at least two years. “We have to prove that it sells and we don’t want others to get into problems if we have to adjust the line,” he said.

But despite the seemingly intense focus on retailing, Krogner said he views Esprit essentially as a brand. “Esprit is neither a retailer nor a wholesaler,” he said, noting that in Europe, some 70 percent of the company’s sales come from wholesale.

Overall, he said: “Sixty percent of our turnover comes from wholesale, but mainly from controlled space. We insist that people open shop-in-stores or freestanding franchise stores — all with the image and look of Esprit.” In China, there are 600 points of sale, he said, through a joint venture with China Resources, which owns 51 percent of the business. Esprit corporate retains the remaining interest.

The firm’s retail operation worldwide breaks down to 215 stores in Asia, 142 in Europe, 154 in Australia — making it that country’s number-two brand — and 45 in North America. “And our retail is almost as profitable as our wholesale.”

Regardless of where it is sold around the world, Krogner said Esprit is an “international young fashion lifestyle brand” for men and women. We cater to people who are young in mind. Esprit is not about an age but about an attitude, and anybody who shares our lifestyle is welcome to be our customer.”

The brand is broken down into “five worlds,” or categories, for both genders: better casual sportswear; a collection line, which is more business-oriented; juniors and young men’s, through edc; kids, and sports. The sports line was successfully launched with women’s wear two years ago at both department stores and the company’s own retail stores. As a result, men’s wear has recently been added.

Krogner said that since Esprit Holdings acquired the trademark for $150 million, it has now “unified” all operations under one roof, allowing for synergies and marketing on a worldwide basis to “restart the company.” The company’s structure reflects its “internationality,” he said, with three headquarters: a financial base in Hong Kong, a business base in Düsseldorf and an image operation in New York. The latter was recently relocated from London. This structure “gives a global direction to Asia, Australia, the U.S. and Europe. We operate today in 44 countries.”

Including licensed products, the brand’s total sales are $3.5 billion. “Despite the difficult environment in Asia,” he said, “we were able to outperform our competitors quite substantially,” Krogner said. “We reported 10 consecutive years of growth in top and bottom line. Our market cap went up 19 times, our shareholder equity 26 times.” This exceeds the results of competitors H&M and Inditex, which operates Zara, as well as Gap.

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