Escada | In private equity's crosshairs?

Not long after Valentino Fashion Group was acquired by Permira in 2007, Escada AG is the latest major European fashion company to find itself in the crosshairs of a private equity firm. The German newspaper Handelsblatt is reporting that Apax Partners is considering taking a stake in the the German fashion company -- and possibly looking to execute an outright takeover.

Escada's stock lost more than one third of its value in 2007, and another third of value was obliterated in the first few months of 2008, making it a very ripe target for acquisition. But any Escada-turnaround effort backed by private equity will not be easy, even if the price is cheap. Last week, Escada reported that its sales continued to slide in the first quarter of fiscal 2008: revenues across its Escada and Primera divisions dropped by more than 10% when compared to the same quarter in 2007, and EBITDA, a measure of profitability and cash flow, fell by almost 70%.

To complicate matters, the core Escada brand has lost any fashion relevancy that it may have once had (did it ever? You tell us). Traditionally, Escada has gone after a mature fashion customer and counted Chanel and some of Giorgio Armani's more expensive and conservative brands amongst its direct competitors (Armani has created a highly structured brand portfolio divided into different style and price segments.) But of late, Escada has struggled to keep up with the heavily-image driven brands like Chanel and Armani and has also lost share to Akris, a high-quality womenswear brand from Switzerland, which some people are calling the new Armani. The company has also failed to tap into the accessories market, which has grown in importance over the years.

What's tougher for a private equity company: Breathing new life into a dying brand like Escada or sustaining the momentum of a legendary designer like Valentino without the designer himself?

In any interesting twist, Escada CEO Jean-Marc Loubier hired a former designer at Valentino, Damiano Biella, as its head designer, just before Mr. Valentino stepped down in January.

Comments

[Dahlia]

I was questioning about Escada the other day, I've hardly seen it make a dent in advertising and was only recently reminded of its existence in a recent newspaper article. I don't even think I've seen any mentions in fashion magazines either except for rare editorial spread.

It looks like there's a trend in breathing life in a lot of dying brands lately: Ungaro, Vionnet and Halston. I wonder what's so particular about these dying brands that investors feel they can revive them? Why not invest into a promising new talent instead?

[The Business of Fashion]

@Dahlia: They are counting on the fact that a magical brand with history can play a part in creating an image that is aspirational. For new brands, it can take a long time to achieve this, but paired with the right designer, brands like this can achieve the same more quickly. But, using the examples you have cited, we can also see that this can fail too - maybe even more often than it succeeds.

That said, while Escada may be a dying brand, it is more like Ungaro than Vionnet or Halston, which were completely dormant prior to the attempts to resuscitate them. But I agree, the Escada brands seems to have gone way below the radar - much moreso than you'd expect for a company of its size and reach.

[Caricouture]

I think Escada can be turned around without too much ado: the brand has strong name recognition, an identifiable style and is known for its suits and its quality. They just need to stick to what they do best - dressing their core demographic of conservative working women over 40, much like St. John does. Many fashion brands neglect this high spending segment and Escada also seems to have abandoned it in the process of trying to reinvent itself as a more fashion forward label.