Esprit Enters Second Bankruptcy Proceeding in Four Years

Esprit Enters Second Bankruptcy Proceeding in Four Years

Esprit has joined the Chapter 22 club.

The fashion brand has started insolvency proceedings for Esprit Europe Gmbh, its European holding arm, along with six German affiliates. The bankruptcy proceedings are before a German court in Düsseldorf. Esprit branches in Belgium and Switzerland filed their respective bankruptcies in March. The company has dual headquarters in Germany and Hong Kong.

Founded in 1968 by Susie and Doug Tompkins, who are also the co-founders of The North Face, the brand has been listed on the Hong Kong Stock Exchange since 1993. By the 2010s, supermodels Gisele Bündchen and Christy Turlington became the personalities representing Esprit worldwide. Bündchen portrayed the stylish, cosmopolitan side of the brand while Turlington evoked Esprit’s core aesthetic on the “natural way of life.” The brand also collaborated with Gostwyck Farm in Australia, where first-class wool and animal well-being go hand-in-hand, and the Royal Collage of Art in London, where the focus was on innovation and sustainable apparel, according to the company website.

The brand in 2016 also partnered with Opening Ceremony for the OCxEsprit Heritage Collection, a nod to Esprit’s California roots. In 2019, Esprit launched the Craig & Karl campaign to raise awareness on topics such as diversity and equal rights for the LGBTQ+ community.

The brand has been on somewhat shaky ground since the Great Recession of 2008, which eventually resulted in the closure of all North American stores in 2012 due to unprofitability. The company in 2015 issued a profit warning in a regulatory filing in Hong Kong, but also noted that current turnaround strategies, including the restructuring of operations in China, were on track.

Like most fashion firms, Esprit was hard hit by the Covid pandemic, which saw shelter-in-place lockdowns that resulted in store closures across Asia and Europe. The company, along with six German affiliates, filed its first bankruptcy in Düsseldorf in March 2020, and received court approval of its reorganization plan on Oct. 30, 2020. The company website said that the process allowed for a complete restart for the Group due to “substantial debt forgiveness for the six German subsidiaries.”

“The successful results show that we have taken the right step. My management team and I have faced the challenges imposed by the pandemic and subsequent economic slow down,” said Esprit Group CEO Anders Kristiansen at the time. “We quickly developed a strong restructuring plan and are now close to finalizing it. The first results delivered by our streamlined and fit organization are very promising: Esprit is now in a strong position and ready for the future.”

But Kristiansen’s tenure in the restructured Esprit was short-lived. He was succeeded by Mark Daley in January 2021, who resigned a few months later. The company then named William Pak as its chief operating officer in October, who a month later became interim CEO, Esprit’s third CEO in 2021. Also in November 2022, the brand re-entered the North American market with a pop-up storefront in Los Angeles. Pak was named permanent CEO in March 2022. There have been rumblings since early this year that the company was looking for a buyer or strategic partner.

For now, Esprit’s stores and online operations continue in operation, although as many as 1,500 employees would be impacted by the company’s second tour in insolvency proceedings. Esprit said a financial investor is interested in parts of the brand’s assets, and that negotiations connected to the acquisition of the brand rights for Europe are at an advanced stage.

BDO’s David Berliner, a company principal and national business restructuring and turnaround services leader, predicted earlier this year that retail bankruptcies in fashion would be more like 2023. That means there won’t be a slew of brands or retailers heading to courthouses seeking protection from creditors. But he did note that the ones that do will be those who have been under financial distress for some time.

Esprit fits that profile.

The company’s losses in 2023 widened substantially to 2.24 billion Hong Kong dollars ($286 million) from a loss of 642 million Hong Kong dollars ($82.2 million) in the prior year. Global inflationary pressures has put a damper on consumer spending on discretionary goods, such as apparel. International conflicts such as the Russia-Ukraine war also impacted the brand. And contributing to its financial distress has been higher energy costs and store rents, as well as rising supply chain expenses in logistics. Both categories have been issues for the company for several years.

Giselle Bündchen represented the stylish, cosmopolitan side of the brand in the 2010’s era.

Related Articles