Jose Manuel Martinez: "Esprit is not yet a global brand"

By

Bruno Joly

Published
Oct 14, 2013

Over the past several years, Esprit has been undergoing an almost constant internal reorganization. Since his arrival one year ago, former Inditex manager Jose Manuel Martinez has worked on putting in place internal practices that aim to bring the bring the company back into the black. In its most recent annual report, for the period ended 30 June, the retailer reported its first ever loss since it opened on the Hong Kong stock exchange in 1993, with revenue dropping 11.5% to 25 billion HK dollars (at constant exchange rates). During a visit to Paris, Esprit CEO Jose Manuel Martinez spoke to FashionMag.com about his view on the brand and on the market. He also confirmed the launch of a new line.

FashionMag.com: You have been at Esprit for one year. What is your view on the company? Where do you position it in the market?
Jose Manuel Martinez: First of all, it is important to distinguish our core markets from the global market. We are internationally very present, but there are some countries where, despite a lot of potential, Esprit is unheard of. In our core markets (editor’s note: Germany, Austria, Switzerland, Benelux and France), we definitely have notoriety. Asia is an important market for us - which is a bit surprising - but they really appreciated Esprit quality and design.

FM: So Esprit is not yet a global brand?

JMM: In the United Kingdom, we are present yet we aren’t hugely known. Conversely, Esprit is well-known in the United States despite that fact that we have retreated from that market. After 10 years of strong growth, we have found that we have concentrated pockets of the market and certain countries where the brand is very, very well-known. We have a huge amount of market penetration in a limited number of markets. There are brands much smaller than Esprit which are considered ‘global’.

FM: And as for Esprit’s positioning?
JMM: In terms of positioning, the brand’s heritage is very casual, very relaxed with a strong focus on denim but it also has a little twist. One of our employees in Ratingen (editor’s note: the company’s headquarters) put it very well: Esprit was one of the first brands to bring together fashion and the casual look. I could be wrong, but I think that the worlds of casual and fashion will continue to move closer to one another in the future.

FM: During your time at Inditex, how did you view Esprit?
JMM: At the start, Esprit was a point of reference and one of our biggest competitors. We always kept an eye on it. Little by little, we stopped following as much because of the arrival of new brands on the market. And then I started working on the supply chain at Inditex, which became my main focus.

FM: Since Esprit was founded in 1968, many things have changed in the industry. In France alone, we have brands like Sandro, Maje, Zadig and Voltaire, The Kooples…
JMM: Actually, this highly competitive environment is only really exists in France. Here, competition is aggressive. Customers demand a high quality for the price which makes it harder than before. For me, it is important to focus on what we have to offer. Esprit is a fantastic brand with over 3.5 million loyal customers. Not only do we have a pool of clients that look for our casual heritage style, but we also have the savoir-faire in terms product development to meet their needs.

FM: But it seems like for the past half a decade or so, Esprit has not been in the best shape?
JMM: Since 2007/2008, the face of our competition has really changed. That, added to the financial crisis and the appearance of new brands on the market, means the environment has become challenging to say the least. The market is becoming polarized between premium brands and mid-market so having a solid product offering is key. And in that respect, we are quick and efficient. It is important to deliver products at the right time and at the right price and that takes hard work.

FM: Why have you decided to reduce the number of divisions at the company?
JMM: When the market changed, it took Esprit a while to catch up. The slowdown in activity was not only a down to the brand but also to some internal processes, so we decided to reduce the number of divisions and refocus. To go back to my previous answer, the market is split between premium brands, where the name is prime, and the rest, where the product is the determining factor. And with the sector being a large as it is, value for money is really what it comes down to.

FM: How long does it take Esprit to get a product in stores?
JMM: For our main collection, we need 9 months. Some lines will make it to market faster though. We need to cut this time down to 6 months and to 6-8 weeks for some products. It is really important to strike a balance between quality and speed.

FM: Is speed the priority for Esprit then?
JMM: Strategically speaking, speed is our priority.

FM: You often say that a vertical system is not the same as retail. Can you elaborate?
JMM: Because we have several branches, we are not a vertical system. For me, a vertical system means that the entire supply chain is integrated. It’s about the value chain. Our retail currently works on a wholesale basis: buyers will place orders and then we will get to work on the production and deliver them. Each step is very distinct and separate. In reality, each task should become part of the same chain and we should have a manager for the entire process. This is something easy to put into action in our branches. For wholesale, it is a project for the next two years.

FM: In terms of distribution, you have grouped retail and wholesale under the same manager for each geographic zone…
JMM: Yes – that happened only recently, in July. In terms of coordination, it allows our local teams to react quickly and effectively. For example, it is much easier to work and comply with the opening hours of the stores if you are in the same time zone.

FM: As an outsider, it seems as though you prefer to work with large retailers that have large chains of stores over smaller retailers.
JMM: When you look at the profiles of our clients, you can see that we work with lots of smaller retailers. Retail is all about economy of scales. It takes the same number of designers to create products for 1000 or 2000 stores. Given the delicate financial environment, it’s the market that dictates who buys our goods and at the moment, the presence of the multi-brand retailer is dwindling. It is not part of our strategy to favour relations with bigger retailers.

FM: When do you expect Esprit to get back to growth?
JMM: I’m not sure… growth is not our priority. First we need to work on internal structure. We are big enough to be able to not focus solely on finances.

FM: How is the launch of the Edc brand for next autumn coming along?
JMM: It is an entirely new concept for us. There are two ways to approach it. You can be very corporate or you can treat it as a start-up. The first – think H&M for example – would mean that you recruit a team and open 100 stores in a year. We are taking the start-up approach by testing in several countries at the same time to get a feel for the market, an option which requires fewer resources. As for the brand, it will be a younger, unisex brand with a large focus on denim.

FM: And it’ll be named Edc?
JMM: Esprit’s clientele is more mature so there is room for us to target a younger audience. The EDC line plays a significant role in our stores so it is important to separate the new brand from EDC. But the name will feature the initials. The launch of the line will take place before the end of this financial year (editor’s note: which closes June 30, 2014).

FM: What stage is Esprit's store renovation project at?
JMM: We have launched our new architectural concept in Cologne, Düsseldorf and Anvers. We are working on transforming ‘The Light House’ concept so it is suitable for our retail segment. So far, we have rolled the concept out in 100 branches and 200 franchises and we will continue with this initiative. We expect that in 2-3 years, the entire network will carry the new look. We have seen sales increase in 20-30 of the renovated stores which was the aim.

FM: What are your forecasts like?
JMM: The objective is to stabilize sales per square metre because we will actually have a reduced surface area by the end of the project. The investment that we are making for the renovations needs to also be met with an internal cut in costs.