Esprit Redux

If you want insight into the business strategy of the reinvented Esprit brand, just pick up a copy of "Trading Up," a popular business book last year about the buying patterns of affluent American consumers. "I spent the time to read all 560 pages in English, and I tell you I was sweating like this," says Heinz Krogner, the clothing company's German CEO, mopping his brow. The book (336 pages, actually) describes companies like Coach and Williams-Sonoma that have raked in profits by targeting not only middle-income consumers willing to pay a premium for quality, but luxury shoppers who don't mind trading down for a good value. Sort of like Krogner. He doesn't wear Esprit head to toe because, as he says, "I have too much money for that." Instead, he pairs his handmade $1,400 Brioni blazer with a pair of $75 Esprit denim pants.

Krogner's concept of the sophisticated shopper is at the core of his plan to reintroduce Esprit to the United States after a long absence. Back in the 1980s the retailer, then based in San Francisco, was a phenomenon. It hooked teenagers across the country on oversize neon shirts and giant logos. "It was one of the first brands that juniors could relate to and grow with," says Marshal Cohen, chief industry analyst with market-research firm NPD Group. But by the mid-1990s, Esprit's U.S. business had fallen into financial ruin, undercut by competition from brands like Gap and Abercrombie & Fitch. Creditors took it over in 1996.

That same year, Esprit's European and Asian divisions formed their own holding company, which in February 2002 bought back the U.S. rights. Now based in Dusseldorf, Germany, with financial headquarters in Hong Kong and a new "image headquarters" in New York, Esprit is hoping to pick up where it left off--only with an edgy, new European look. In August the company will open the first of some 100 retail stores planned for the United States, in hopes of connecting with women in their 20s and 30s who still remember the brand. (Men's lines are sold only abroad, for now.)

While Esprit's U.S. future is still up in the air, patrons in Europe and Asia can't seem to get enough of the label. "It's in an excellent position to become the first brand equally strong on three continents: America, Europe and Asia," says Martin Ott, editor of Fashion Business magazine in Frankfurt. Esprit is one of Europe's most profitable retailers, with a double-digit growth rate and sales exceeding $1.5 billion.

Krogner hopes to replicate his success in the United States. "We're still in a learning phase," he says. "You can lose your pants in America without even realizing it if you're not careful." A year ago the brand began selling wholesale to department stores like Marshall Field's and Macy's--only to see its adult clothes placed on the juniors floor, where they languished. Krogner, who could pass for a less sinister version of Anthony Hopkins, says the new shops will help the company keep better track of its inventory and learn more about its customers.

Esprit doesn't tailor its look to any one market. Instead, it rolls out more than 1,300 styles each month so shops can pick and choose. "I've learned that young ladies worldwide use the same sources to learn about fashion," he says. "There's no difference anymore." The question is whether those in America have learned to evolve from California lifestyle to European chic.