Escada America’s Journey to Bankruptcy Court – WWD

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It was rent payments, retail in the age of COVID-19 and a thwarted turnaround that put Escada’s U.S. division out of business this week, the company said in court filings.

Escada America LLC filed for Chapter 11 protection from its creditors in federal bankruptcy court in Los Angeles on Tuesday night, saying its debts and assets ranged from $1 million to $10 million.

The company has more than 58 full-time employees and manages Escada’s 10-door retail network in the United States with offices in New York.

The division is part of the larger Escada business, which Beverly Hills-based private equity firm Regent purchased from the Mittal family in late 2019. Although the filing only covers the Escada America unit, the brand has struggled financially, which also saw its German division file for insolvency in 2020.

According to bankruptcy papers, Regent bought the business in a bid to turn around its operations, but ran headlong into the pandemic. In its documents, Escada America paints a picture of a company that was struggling before the pandemic and a turnaround that didn’t have a chance to take off.

Bankruptcy papers also look at problems for the past two years and the state of the business at the time of the transaction.

“Historically, Escada (under its prior ownership and management) had run its business unprofitably: (1) expanding too aggressively into new, untested and/or unprofitable markets and store locations; (2) overpriced commercial leases; (3) costly management overhead and poor leadership; and (4) failure to update the brand to keep it relevant with changing tastes and generational changes….[Escada America] believed that the business could be run to profit if fundamental changes to the business model were implemented, such as the redesign of the [company’s] technological suite and reducing speed to market by moving supply chains from Asia to Europe,” the filing states.

However, a source close to the company before the brand was sold to Regent replied: “It’s surprising to hear that because it’s just not true. In fact, it’s total nonsense. The whole company remained very well capitalized and the US company was historically the largest and strongest in the Escada group. From the time of the sale over two years ago, obviously COVID-19 has impacted the global economy and it’s had a big impact on retail, but it’s not fair to relate the impact of this to the previous property.

Escada America, which does not own the brand’s intellectual property and technically uses the Escada name under license, started the pandemic with 15 stores but had to try to adapt quickly to the fashion landscape that forced consumers to stay closer to home, buying more athleisure than evening wear and spending online.

The company said in court documents that it cut overhead costs by $13.4 million over the past 21 months and negotiated rent relief with its landlords, the company said in court documents.

“However, there remain several landlords who have remained stubborn, and the end of the government’s anti-eviction and anti-foreclosure protections against COVID-19 is for many landlords a herald’s call to sue and evict,” he said. said the company. “It is because of the consequences of the COVID-19 pandemic that [Escada America] was forced to file for bankruptcy to restructure its business.

Escada America said it was able to reach deals with owners of three of the initial 15 stores it owned, but was unable to secure concessions for nine locations.

The company said it “cannot survive ongoing litigation with these landlords and the resulting legal costs and potential liability for breaches of these leases. Accordingly, the Debtor has determined in its reasonable business judgment that it is in the best interests of its estate to file this current bankruptcy case in order to preserve the operating value of its business and save the jobs of its employees. »

Escada America identified five of the least profitable stores and told the court they should be closed “without delay,” including Honolulu, Las Vegas, Cabazon, California; Sunrise, Florida, and Central Valley, NY

It’s not uncommon for retailers to file for bankruptcy — or put a division out of business — to get out of leases, and the pandemic has taken down a long list of businesses that couldn’t scale fast enough with the times, either financially or operationally.

From now on, the brand seeks to continue its evolution.

A company spokesperson told WWD: “As we continue to invest significantly in global operations and improve the design, production and marketing of our collections, we are also restructuring our retail business. in the United States to overcome pandemic-related real estate challenges… Escada’s leadership remains unwavering in its commitment to the success of the company and its retail stores.

“Following the restructuring, Escada will maintain a strong store presence in the United States. We are, however, closing outlet stores in the United States as part of our overall brand strategy. This change will allow the company to focus its efforts on producing the highest quality products and optimizing inventory management at flagship outlets.

“As other fashion companies license their brands, sell their intellectual property or close their operations, Escada will continue to operate as a full-service luxury brand and design house. Our owner remains passionate about our iconic brand and is fully committed to the long-term success of Escada in the United States and around the world.

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