German fashion names don’t slide off the tongue with the ease of European rivals Armani, Versace and Zara. And because they have also failed to keep pace with their rivals’ use of just-in-time supply chains, online sales and slick marketing, a number of once fabled German fashion houses have been forced into restructuring or bankruptcy.
The sick list of medium-sized German fashion companies seems to be growing ever longer: Gardeur, Basler, St. Emile, René Lezard, Pohland Zero and Laurèl. Some of these firms failed to seize the chance to move online, while others simply could not compete with the market power of huge retailers like Sweden’s H&M Hennes Mauritz, which has 4,500 stores worldwide, or Spain’s Initex, parent company of brands Zara and Massimo Dutti, which operates 7,200 stores globally.
But there are some bright spots in the German fashion world, too. Notably, a Berlin startup called Zalando, a platform which is modeled on the online US shoe store Zappos, has taken its online sales of shoes and clothes across Europe and is giving internet giant Amazon a run for its money in the clothing business.
“The management and owners have changed course too many times over the years”
Zalando, an online shopping mall, offers customers a unique proposition to overcome consumers fears of shopping for clothes online because of the chance that sizes won’t fit or colors will look different in person. So Zalando sends shoes and clothes to customers on consignment and they don’t have to pay until after the goods are received. They also have a lengthy period to try on the clothes or they can get free returns and a refund, a risky proposition financially for Zalando, but it has paid off.
Too few German firms have followed Zalando’s example of adopting new business models to disrupt fashion’s tradition-bound world of runway shows and glitzy retail stores. Spain’s Initex, for example, which aims at the mass market, combines in-house designers and ultra-modern supply chains, complete with manufacturing facilities in Spain, to cut the turnaround time for new designs to a matter of days rather than the weeks or months that most companies need to source clothing from factories in Asia.
One firm that tried to emulate the Initex model was Gardeur, a maker of women’s pants based in Mönchengladbach, halfway between Düsseldorf and Holland. Gardeur’s boss, Gerhard Kranzle, shortened the time from design to production from 25 weeks to just four. But the trousers stayed unsold because the firm had not done adequate consumer testing of tastes.
Michael Hauf, CEO of Hachmeister + Partner, a business consultancy that focuses on the textile sector, says too many German fashion companies blame the internet for their poor results, when the problem really is bad management. For example, he cites the case of women’s upmarket brand Basler, which is based in Goldbach in Bavaria. The company, which was founded in 1936 in Berlin and has stores in the US and Britain as well as Germany, filed for bankruptcy last May.
While Basler prospered as a family-run company, ownership changed hands several times in recent years. An attempt to list on the stock market failed. The firm launched a second brand to boost sales, but that too didn’t succeed in turning around the company, which nearly went bust in 2013. “The company used to be a very solid, premium brand,” Mr. Hauf said. “But the management and owners have changed course too many times over the years, which has hurt the brand’s image and damaged their relationship with many retailers.”
Another example is Laurèl, a Munich fashion house that featured the elegant women’s wear of designer Elisabeth Schwaiger. Despite her well received designs, the company lacked the marketing heft necessary and it filed for bankruptcy last year. It was acquired by the investment firm Munich Brand Hub, which has made a profitable business of picking up distressed design firms and refurbishing the business, a business model that has vast potential in Germany at the moment.
German brands never made the investments in the US market that successful Italian firms like Giorgio Armani and Versace did. These included not only branded boutiques but cooperation with department stores, lines of perfumes that were heavily advertised in fashion magazines, and even discount shops where people of less means could pick up an Armani dress at reduced prices.
A number of German fashion brands have been rescued by foreigners. Perhaps the most well known is Escada, Germany’s best known women’s designer whose upscale customer base is primarily in the United States. Escada went bankrupt in 2008 and was saved from liquidation by being purchased by Megha Mittal, daughter-in-law of Indian steel magnate Lakshmi Mittal.
With CEO Bruno Sälzer, who once headed Hugo Boss (another German fashion brand of mixed success), Escada positioned itself alongside such international brands as Italy’s Max Mara and finally turned its fortunes around after five years, posting revenues of around €275 million. After Mr. Sälzer departed in 2012, Escada appointed a new CEO, Iris Epple-Righi, a former head of brand management for Calvin Klein in Europe.
Another well-known German fashion brand is Jil Sander, which lost €12 million in 2005 and was acquired by a private equity firm called Change Equity Partners. Nursed back to health as a maker of luxury ready-to-wear, it was sold to Japanese firm Onward Holdings of Tokyo for €167 million in 2008.
One question German firms have to be wondering: if foreign owners can successfully turn around iconic German names like Escada and Jil Sander, why can’t German management do it as well? Maybe Zalando has the answer.
Georg Weishaupt covers the construction-, solar- and wind energy industries. Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: firstname.lastname@example.org, and email@example.com