- Women’s fashion retailer Escada America has filed for Chapter 11 bankruptcy, citing the ongoing ramifications of the pandemic and failed lease negotiations with some owners.
- The retailer, which operates 10 stores in the United States, plans to close five locations as part of the bankruptcy process.
- In court papers, the company said it aimed to reorganize in the event of bankruptcy and repay creditors while avoiding “senseless and unnecessary liquidation”.
Overview of the dive:
Escada’s problems started before the pandemic. In court papers, Kevin Walsh, chief financial officer, said the retailer laid out a plan in December 2019 to recover, which included a technology overhaul and a change to its supply chains. The plan relied on physical sales, with e-commerce then being negligible.
Months later, the world was plunged into crisis and Escada temporarily closed all of its stores – which then numbered 15 – due to COVID-19.
Escada America was created in 2009, after a previous bankruptcy by Escada USA. The retailer is the American face of the decades-old global brand Escada, known for its high-end womenswear with a focus on evening wear, with subsidiaries across Europe.
Walsh said that under former ownership, Escada’s global organization had “run its business unprofitably,” expanding into new markets and stores, accepting overpriced leases, spending too much on management and eliminating the lack of leadership from the agreement. , and not keeping the brand up to date with changing tastes and generational preferences.
In 2019, all of Escada and its subsidiaries were in financial trouble, according to Walsh. In November of the same year, the owner of Escada, the Mittal family, sold the business, including Escada America, to private equity firm Regent. But the company encountered more problems and distress from there.
As with most retail bankruptcies of the past two years, Walsh cited challenges brought by COVID-19 and store closures. During the pandemic era, the company cut expenses by more than $13 million and struck deals with landlords to reduce rent expenses.
“Certain commercial owners have been reasonable, and the debtor has negotiated many training sessions with its various owners in 2020 and 2021,” Walsh said. “However, there remain several landlords who have remained stubborn, and the end of the government’s anti-eviction and anti-foreclosure Covid-19 protections is for many landlords a herald’s call to sue and evict.”
Walsh went on to say that the company “cannot survive ongoing litigation with these landlords and the resulting legal costs and potential liability for breaches of these leases.”
Escada’s filing is another sign that the large-scale restructuring and renegotiation of the relationship between retail tenants and their mall owners that began with the pandemic is not over. With increased mall traffic since the early months of the pandemic, slowing retailer bankruptcies (despite Escada’s filing), and a general recovery in retail sales, landlords potentially have more influence and more options than at the start of the pandemic.