Heinz Krogner, Chief Executive of clothing designer and retailer Esprit, is one of the world's great turnaround artists. A decade ago, Esprit was a declining casual-clothing business. But Krogner rebuilt Esprit into one of the fastest-growing apparel retailers. Sales in the past fiscal year, which ended in June, probably topped $3 billion, nearly triple its revenues in 2001. In those five years, Esprit's market value has increased eightfold, to more than $10 billion, roughly on a par with Limited Brands and almost twice the size of Abercrombie & Fitch.
The comeback story, however, has had an ironic wrinkle: the U.S., where Esprit first became famous, has been left out. Though now its main offices are in Hong Kong and Germany, Esprit was founded in San Francisco in 1968, and by the 1980s its brightly colored knits and shirts were must-haves for any American teen. But today sales in North America account for only about 3% of revenues. Even Krogner admits that the brand "has lost its relevance" to the American consumer.
Not for long, he says. Esprit is plotting to replant and revive itself on its former home turf with new stores and a long-term investment plan. To succeed, the company must battle for the fickle American shopper with such entrenched chains as H&M and Banana Republic in a very crowded, hypercompetitive casualwear market. "They're inhabiting the middle of the pack, and it's going to be tough for them to break out," says Steve Harty, chairman of the New York City office of ad agency BBH. Consider the Gap, which is struggling mightily to find its fashion mojo. But the U.S. is absolutely crucial to Esprit's future. "We want to be a global player," says Krogner, 65. "Global means you have to be in the U.S."
There's encouragement to be found in other comeback clothing brands. Lacoste, whose trademark alligator had once adorned countless polo shirts, used celebrity buzz to restore U.S. sales; Abercrombie & Fitch transformed itself from a chain for paisley-wearing grandfathers to a hip shop for preppy youngsters.
Krogner has given Esprit a major makeover--administered with a touch of ruthlessness. A former management consultant, he joined Esprit's European unit in 1995 and quickly replaced the management. He applied a similar take-no-prisoners approach to Esprit's business model, moving the company upscale in both quality and customer. Once primarily a shop for teens, Esprit focuses on people in their late 20s. The new format revived European sales, now 85% of the total.
The performance must have impressed Hong Kong businessman Michael Ying, who controlled Esprit's Asia business. The Asian branch acquired the European outfit in 1997, and Ying later made Krogner global CEO. Krogner then exported his plan to Asia. Esprit has a strong presence in China, with 69 stores operated through a joint venture. Last year Esprit opened its first store in India, through a local franchisee.
Esprit is tapping into a new trend in apparel retailing called fast fashion that has been exemplified by H&M. Shoppers buy clothing more frequently and wear each item less often, in part because the prices are low. Esprit now replaces its clothing lines almost entirely each month. Not only does that give shoppers more new items to purchase each year, but it also decreases Esprit's risk. If one trend flops, a new one hits the stores a month later.