ESCADA AG

Margaretha-Ley-Ring 1
Aschheim
D-85609
Germany
Telephone: +49 89 99 44 0
Fax: +49 89 99 44 11 11
Web site: http://www.escada.com

Public Company
Incorporated: 1979
Employees: 2,886
Sales: EUR 625.5 million ($800 million) (2004)
Stock Exchanges: Frankfurt
Ticker Symbol: ESC
NAIC: 315234 Women's and Girls' Cut and Sew Suit, Coat, Tailored Jacket, and Skirt Manufacturing; 315191 Outerwear Knitting Mills; 315232 Women's and Girls' Cut and Sew Blouse and Shirt Manufacturing; 315233 Women's and Girls' Cut and Sew Dress Manufacturing; 315999 Other Apparel Accessories and Other Apparel Manufacturing; 316992 Women's Handbag and Purse Manufacturing; 316999 All Other Leather Good Manufacturing

ESCADA AG (Escada) is Germany's leading luxury fashion brand and a leading player in the global luxury clothing market. Based in Aschheim, Germany, Escada has scaled down its range of brands into the mid-2000s to focus especially on its core, high-end Escada Collection, including the Escada haute couture line. The Escada brand also includes a line of sportswear under the Escada Sport label, and a range of Escada Accessories, manufactured by the company itself. In addition, Escada licenses its brand for a number of items, including eyewear, perfumes, ties and scarves, as well as a beauty care collection produced by Wella, and a line of jewelry. As part of its repositioning, Escada has sold or spun off most of its former brands, including BiBa, cavita, and its mid-range Laurel brand, which were placed under a new vehicle, Primera Group. In addition to designing and producing clothing, Escada operates a 400-store international retail network, with stores in most of the world's main fashion markets. The Escada line remains the group's strongest, at 66 percent of sales. Most of Escada's fashions, especially its high-end and haute couture designs, are produced in its factories in Germany. The company also sources some 25 percent of its production from Italy, and from a company-owned facility in Portugal. Germany accounts for 27 percent of the company's sales, which topped EUR 625 million in the company's 2003–04 fiscal year. The rest of Europe accounts for more than 28 percent of sales, while the North American markets add about 21 percent to sales. Escada has been targeting growth in the Asian markets, which accounted for just 14.5 percent of sales in 2004. Company founder Wolfgang Ley remains its CEO. Escada has been listed on the Frankfurt Stock Exchange since 1986.

Launching German Fashion Success in the 1970s

Escada was founded in the early 1970s by husband-and-wife team Wolfgang and Margaretha Ley as a knitwear company in Munich, Germany. Sweden's Margaretha Ley had already established a successful career, first as a model for Vienna's Fred Adlimueller, then as a runway model for Parisian designer Jacques Fath in the 1960s. Prior to her modeling career, however, Ley had worked for Sweden's royal tailor Leja, where she gained experience in designing and producing clothing. In the late 1960s and early 1970s, Ley also worked as a designer for German clothing firm Mondi.

Ley, 37 years old, brought this experience to her marriage with 36-year-old entrepreneur Wolfgang Ley. The couple married in 1974 and launched a contract knitwear business in 1976. The couple found it easy to balance their marriage and working relationships, with Wolfgang Ley taking charge of the financial, administrative, and manufacturing end of the business, and Margaretha Ley establishing the company's reputation for design. As Margaretha Ley explained in an interview in the late 1980s, the company was divided into "two businesses. In Munich we have two buildings—one for design and one for administration. I don't see Wolfgang for weeks unless he's at home."

Margaretha Ley quickly established a reputation for her strong sense of bright colors; Ley was said to have explained that her choice of vivid colors came in reaction to her childhood in Sweden, where the northern light tended to mute colors. Ley's designs, and the company's commitment to the high-quality, luxury goods segment, helped the company grow quickly.

The late 1970s saw the rise of a new breed of clothing company—the designer label. In 1979, the Leys decided to join the designer trend and establish their own brand name. For this the company chose the name Escada, after a thoroughbred race horse in Ireland.

Escada proved a success from the start. At the end of its first year, the company had posted revenues of DEM 22 million. The success of the high-end Escada line encouraged the company to add a second, "bridge" label, called Laurel, featuring designs targeting the mid-price sector. The Laurel label became as successful as its parent, even, by the end of the decade, out-selling the Escada brand by number of pieces.

Yet Escada remained the group's flagship. The high-priced line was, as Margaretha Ley herself once described it, "for the working woman with a certain amount of money." Ley's collection was also extensive, designed to clothe a woman from head to toe. By the early 1990s, the Escada line featured more than 1,200 pieces, and included jewelry, handbags, accessories, gloves, scarves, and footwear.

Wolfgang Ley quickly steered the group on to an international course. In this, the group was aided by the surge in interest in German fashions during the 1980s, which saw the rise of international labels such as Hugo Boss, Jil Sander, and Joop!, as well as Mondi. Escada itself claimed the position as leader of the country's high-end and couture segments.

Escada expanded rapidly during the 1980s, an expansion aided by the launch of its own chain of retail stores. The company began establishing stores in most of Europe's major cities, as well as in New York, Japan, and elsewhere. The company's entry into the United States came as early as 1981; after several years of losses, the U.S. subsidiary succeeded in generating profits by mid-decade. By 1986, the company's sales had topped $100 million. The United States alone accounted for some 21 percent of the group's sales.

By then, the Leys had begun to eye a still more ambitious expansion strategy, based on building a multi-brand, diversified operation. In order to fuel its expansion, the company turned to the public market. In 1986, Escada went public, listing its stock on the Frankfurt Stock Exchange. The Leys nonetheless retained 76 percent of the group's common stock (later reduced to 51 percent).

Tragedy and Crisis in the 1990s

The public offering enabled the company to go on a buying spree in the late 1980s. The company scored first with the 1987 purchase of Munster, Germany's Schneeberger. That company boosted the group's production capacity, and also gave it an entry into the private-label sector, particularly Schneeberger's focus on plus-sized women's dresses. Next up, Escada purchased Kemper, also based in Germany, which specialized in the production of women's clothing. The addition of Kemper also brought the company its first licensed brand, Cerruti 1881, produced under license from Cerruti starting in 1988.

Escada also began developing other labels to be produced in-house to complement its growing Escada and Laurel lines. During the 1980s and into the early 1990s, the company launched or acquired a number of labels, including its own Crisca label, and the Apriori and Natalie Acatrini labels. The company's knitwear segment grew significantly in 1989 when the company reached an agreement to acquire 80 percent of California-based St. John Knits. Like Escada, St. John was a family-controlled company targeting the high-end and luxury segments. The acquisition not only gave Escada a manufacturing presence in the United States, it also boosted its presence in major department stores such as Nieman Marcus, Nordstrom, and Saks Fifth Avenue.

The St. John purchase was also part of a larger company strategy to establish itself as a force on the U.S. fashion scene. The company began adding new stores, doubling its U.S. presence to nine stores in the early 1990s, including a flagship store in Manhattan. The company also acquired New York's Badgley Mischka in 1992.

The extension of the Escada range into the accessories and related categories led the company to boost its production capacity, and to expand its range of production expertise. The company continued to seek new markets in which to extend its brand, and in 1990 launched its own collection of perfumes and fragrances. This in turn led to the creation of Escada Beaute and the development of an in-house line of beauty care products. By the end of 1991, Escada's sales had climbed past DEM 1.4 billion ($897 million).

Tragedy struck the company in 1992, however, when Margaretha Ley died at the age of 56. To make matters worse, the company's sales snapped on the global recession of the early 1990s. Escada's rapid expansion finally caught up with the company, leaving it heavily in debt, even as a number of its operations sank into the red. By the end of 1992 the company's losses, including extraordinary items, neared DEM 120 million (approximately $60 million). Escada's losses continued into 1993, topping DEM 37 million ($17 million). In order to pay down its debt, the company sold off its 80 percent stake in St. John Knits that year. The company also moved its accessories production to France in 1994, forming the new subsidiary Escada Development in Paris.

Company Perspectives:

The core business of the ESCADA Group covers the following business areas: ESCADA Collection (including Couture), ESCADA Sport, ESCADA Accessories, and Licenses (glasses, perfume, ties and scarves and a jewellery collection). The strategic decision to concentrate on the core brand ESCADA and its effective exploitation will ensure profitable growth in the future.

Refocusing on the Core in the New Century

Escada called in American designer Todd Oldham to help it relaunch its collection, now known as Escada Margaretha Ley. The company also continued restructuring, shutting down its unprofitable divisions, including closing most of its money-losing stores, especially under the Laurel brand. Into the mid-1990s, the company also restructured its operations into clearer divisions, including Escada Sports, to encompass its sportswear lines, and Escada Development for its accessories. The company continued to boost its Escada Beaute division, including through the acquisition of Parfum Gres Producions, based in Paris, in 1998.

Yet a new international economic downturn at the dawn of the 21st century forced Escada to rethink its strategy once again. In 2002, for example, Escada decided to exit the beauty care business, selling off Escada Beaute—including the license to its brand name—to Wella Group AG. The company also began plans to restructure its operations again, this time refocusing its operations around its core Escada label.

In 2002, the company spun off its Laurel division as a separate company, Laurel GmbH. The company then announced its interest in selling Laurel, as well as its other noncore holdings, including Kemper and Primera. The latter division housed a number of Escada brands, including BiBa and cavita. Instead of carrying out the sale of Laurel, however, Escada regrouped Laurel under the Primera Group.

Escada's restructuring continued into 2003, with the announcement that it was dropping its lingerie collection, which had been produced in partnership with Huber Holding of Austria. Escada's restructuring efforts appeared to pay off, as the company, which had posted losses in the early years of the 2000s, moved into profits by the end of 2004. In that year, as well, the company boosted the Escada brand family with the launch of a new children's clothing collection, Escada Kids. Escada now turned its attention to boosting its position in the fast-growing luxury goods markets in the Far East, especially in the booming Chinese market. After nearly 30 years, Escada remained a force in the international designer clothing market.

Principal Subsidiaries

apriori Textilvertriebs GmbH; BiBa Mode GmbH; cavita fashion GmbH; ESCADA (Asia) Ltd. (Hong Kong); ESCADA (U.K.) Limited; ESCADA (USA) Inc.; ESCADA CANADA Inc; ESCADA DEVELOPMENT S.A.R.L. (France); ESCADA France S.A.R.L.; ESCADA Holding B.V. (Netherlands); ESCADA Italia S.r.l; ESCADA Japan Co., Ltd.; ESCADA Korea Limited; ESCADA Maglia Italia S.r.l.; ESCADA Sweden Retail AB; Grupo ESCADA España S.A; Laurèl GmbH; PRIMERA (Asia) Ltd.; PRIMERA AG; PRIMERA Holding GmbH.

Principal Competitors

Christian Dior S.A.; LVMH Moët Hennessy Louis Vuitton S.A.; Esprit AG; Hugo Boss AG; Inditex Industria de Diseno Textil S.A.; Marzotto S.p.A.; Cortefiel S.A.; Donna Karan International Inc.

Key Dates:

1974:: Wolfgang and Margaretha Ley marry and begin to design and produce knitwear for the contract market.
1976:: A knitwear manufacturing company is established.
1979:: A clothing collection is launched under the Escada label.
1980:: A secondary, mid-priced line, called Laurel, is launched.
1981:: The company enters the U.S. market.
1986:: Escada goes public on the Frankfurt Stock Exchange in order to fund an ambitious expansion.
1987:: Women's large-size dressmaker Schneeberger is acquired.
1988:: Kemper is acquired.
1989:: St. John Knits of California is acquired.
1990:: The Escada Beaute division is launched.
1992:: Margaretha Ley dies; the company begins restructuring to stop losses.
1993:: The company sells St. John Knits to pay down debt.
1994:: The company launches the accessories subsidiary Escada Development in Paris.
1998:: The company acquires Parfum Gres in Paris for Escada Beaute.
2002:: As part of a new restructuring, the company sells Escada Beaute to Wella Group.
2003:: Escada spins off Laurel as a separate company, which is then placed into Primera Group.
2004:: Escada refocuses operations around the core Escada label and launches the Escada Kids line.

Escada AG

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