Dive Brief:
- Women’s fashion retailer Escada America filed for Chapter 11 bankruptcy citing lingering ramifications of the pandemic and failed lease negotiations with some landlords.
- The retailer, which operates 10 stores in the U.S., is looking to close five locations through the bankruptcy process.
- In court papers, the company said it aims to reorganize in bankruptcy and repay creditors while avoiding “a senseless and unnecessary liquidation.”
Dive Insight:
Escada’s troubles began before the pandemic. In court papers, Kevin Walsh, director of finance, said the retailer devised a plan in December 2019 to turn itself around that included a tech overhaul and shifting its supply chains. The plan hinged on physical sales, with e-commerce being negligible at the time.
Months later, the world was plunged into crisis, and Escada temporarily closed all of its stores — which at the time numbered 15 — due to COVID-19.
Escada America was formed in 2009, after a previous bankruptcy by Escada USA. The retailer is the U.S. face of the global, decades-old Escada brand, known for upscale women’s apparel with an emphasis on evening wear, with subsidiaries throughout Europe.
Walsh said that under past ownership, the global Escada organization had “run its affairs in an unprofitable manner,” over-expanding into new markets and stores, taking on overpriced leases, spending too much on management overhead and getting poor leadership out of the deal, and failing to keep the brand up to date with changing tastes and generational preferences.
By 2019, all of Escada and its subsidiaries were in financial distress, according to Walsh. In November of that year, Escada’s owner, the Mittal family, sold the company, including Escada America, to the private equity firm Regent. But the company just ran into more trouble and distress from there.
As with most retail bankruptcies of the past two years, Walsh cited the travails brought by COVID-19 and store closures. During the pandemic era, the company has cut out more than $13 million in expenses and struck deals with landlords to reduce rent expenses.
“Some commercial landlords have been reasonable, and the Debtor has negotiated many workouts with its various landlords during 2020 and 2021,” Walsh said. “However, there remain multiple landlords that have remained obstinate, and the end of the government’s Covid-19 anti-eviction and anti-foreclosure protections are for many landlords a herald’s call to commence lawsuits and eviction.”
Walsh went on to say that the company “cannot survive ongoing litigation with these landlords and the attendant litigation costs and potential liability for breach of those leases.”
Escada’s filing is another sign that large-scale restructuring and renegotiation of the relationship between retail tenants and their shopping center landlords that began with the pandemic is not over. With mall traffic ticking up from the early months of the pandemic, retail bankruptcies slowing to a near halt (Escada’s filing notwithstanding) and retail sales rebounding broadly, landlords potentially have more leverage and more options than they did earlier in the pandemic.
