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The brand Esprit was founded in 1968 by Susie and Doug Tompkins on the West Coast of California. The brand emphasized a laid-back West Coast American way of life, creativity, and a strong sense of social and ecological responsibility. The company started out with an unusual strategy – selling handmade clothes from the back seat of their car. In just a few years, Esprit had already achieved commercial success and had grown internationally.

Existing Situation & Overview of Critical Strategic Issues

With reference to the 2024 Interim Report, the operations demonstrated no positive indications. Compared to 2023, the gross profit margin decreased 2.8%. The channels of operation are e-commerce (38%), wholesale (35%), owned retail stores (24%), and licensing (3%). For Q1 and Q2 2024, 8 indirectly wholly owned subsidiaries of Esprit Holdings filed for insolvency. In terms of the financial performance. The company attributes the decline to following reasons: (1)elevated inflation; (2) increased interest rates, and (3) declined consuming power in Europe and North America due to rise of energy costs.

In the past, Esprit was one of the most sought-after brands among teenagers; however, since the 2008 financial crisis, turnover started to decline. Until 2013, Esprit was excluded from the list of blue-chip stocks, and the company is still losing ground. During the Covid-19 pandemic, the parent company announced the closure of all 56 retail locations in Asia, and 6 of its German subsidiaries filed for bankruptcy. Due to these external influences, including the conflict in Ukraine, high oil prices, and global inflation, Esprit's gross profit has continued shrinking. Ultimately, because of its insolvency and excessive debt, Esprit is declared bankrupt in Europe in 2024.

PESTEL Analysis

Political Factors

Labor regulations and trade policies are the main factors influencing the fashion sector globally. Since Esprit sources its materials from all around the world, trade disputes like the one between the United States and China or strict tariffs would increase costs. Additionally, because labor laws differ among different countries, Esprit established factories in different manufacturing nations, which would impact the production costs.

Economic Factors

The primary cause of the decline in revenues is the high level of inflation globally, which raises interest rates. Consequently, Esprit’s gross profit in the 2022 fiscal year was HK$4.042 billion, but in the 2023 fiscal year, it fell to HK$2.878 billion, a fall of around 30%.

In the 1980s and 1990s, Esprit was hugely popular, but as the fashion industry became more competitive and fashion trends changed in the 21st century, it fell behind. Since their designs are old styles and only focus on casual as a selling point. Unlike other fashion brands like Zara and H&M, they have diversified their product lines and are more up-to-date with current trends. Because Esprit’s items are inconsistent with the fashion trends and social norms of the younger generation, buyers are less likely to buy them.

Sociocultural Factors

Technological Factors

Since the Covid-19 outbreak, online shopping has become the new norm. Even though Esprit has made investments in its e-commerce platform, it still faced fierce competition from both traditional retailers and online-only brands, like Shein, which has a significant edge in Asian online sales.

Ecological Factors

Even while Esprit continues to strive to promote sustainability, the fashion industry as a whole faces many obstacles in the areas of supply chain transparency, ethical labor standards, and environmental impact. In order to stay profitable, Esprit has had to deal with these problems.

As the workers are protected by minimum wages legislation, production costs will rise if wages in manufacturing centers rise.

Legal Factors

Porter 5 Forces Analysis

Low Threat of Entry

The industry’s established brands enjoy a competitive edge due to their well-known brand recognition and customer loyalty. Yet, new brands can now more easily enter the market since they can avoid the expenses of opening physical stores due to the growth of e-commerce.

Moderate Power of Suppliers

The fashion retailer can bargain for lower prices because they usually have a wide range of suppliers from which to choose. However, they are under pressure from the fast fashion trend to make goods quickly and at a lower cost.

Customers have a wide range of alternatives both online and offline. The customer can quickly compare prices, which may push Esprit to compete on discount, resulting in low profitability.

High Power of Buyers

Threat of Substitutes

Esprit faces a moderate threat of substitutes since its competitors (i.e. ultra-fast fashion) can offer more appealing and less expensive products. For instance, a women’s blouse from Esprit costs €37.86, while one from Zara only costs €16.49, indicating Zara is about 50% cheaper than Esprit. Therefore, the customer may decide to switch to other firms that offer lower prices.

Competitive rivalry measures the level of competition among existing enterprises. Fierce competition can limit the profits. In the last few decades, many brands have entered the fashion sector. Despite Esprit struggling to maintain its market share in the highly competitive fashion industry, their market share continues to shrink, which has resulted in a significant decline in revenue during the past decade.

Rivalry Among Competitors

Identification of Strategic Choice of Selected Company

The identified strategic choice of Esprit is business strategy. They could mainly be separated into two strategies: differentiation and pipeline business. To adopt differentiation in the clothing industry, Esprit has created higher perceived value, positioning itself as a luxury brand and focusing on unique design. They also released special series such as “Eco Collection” to enhance the offering of diversity and sustainable products. For example, utilizing organic and recycled materials. Furthermore, it charges extremely high prices compared to its competitors. To create a sense of exclusivity and premium branding. Overall, this adopted strategy prioritizes how to differentiate Esprit from other ordinary clothing brands.

The second strategy is pipeline business. This strategy demonstrates a linear, sequential approach to the stage of initial research and analysis, moving on to designing clothes, continuing with manufacturing the products and materials, and lastly opening for selling in-store. The whole business process is straightforward and consistent. This strategy prioritizes the process from the beginning of development until the selling stage. Generally, benefit-demand driven clothing brands and stores desire to maintain an uncomplicated value and production chain.

In summary, the business strategy choice of Esprit is not appropriate. The risks of the differentiation strategy include overly high-cost production. As it desires to shift itself into a premium brand, the excessively high cost has deterred many potential customers. The over-differentiation led to a much smaller ratio of customers. With such a limited target customer, it will be difficult for Esprit to increase revenue. Moreover, the risk of the pipeline business makes Esprit inflexible to the clothing trend. Thus, customers may find out that the aesthetic and style do not match their preferences. Coupled with this, this strategy lacks customer interaction and engagement, causing missed opportunities and attractiveness to customers.

Evaluation of Critical Issues

Inconsistent Brand Identity

Esprit has an inconsistent brand identity. Their identity is based on affordable, fashionable casual wear. However, they have struggled to reconcile their mid-market roots with their ambitions to compete with fast fashion giants like H&M or high-end brands like Mango. Unlike Uniqlo, which consistently states its “LifeWear” philosophy, or Patagonia, which is committed to environmental protection, Esprit’s marketing lacks a coherent story. This weakens Esprit’s appeal. Additionally, as the brand image was popular among young people in the 1980s and 1990s, Esprit has failed to evolve to appeal to today’s Generation Z and Millennials. For those who value authenticity, sustainability and digital interaction, Esprit lacks a clear brand image is still the main concern. In Kapferer’s view of brand identity, Esprit’s product design and accessible personality are no longer in line with its stagnant culture.

Esprit lags behind the fast fashion model that dominates the industry. Competitors like Zara and Shein deliver fresh, trend-driven styles in weeks. All the competitors leverage real-time data to capitalize on social media-driven micro-trends. However, Esprit remains a slower, traditional retail cycle. Their design and production timelines lag far behind fast fashion leaders. This lack of agility results in outdated collections and excess inventory. As a result, it is tying up capital and forcing discounts that erode profitability. In contrast, Zara’s lean inventory model and Shein’s AI-driven small-batch production enable rapid responsiveness. It could reflect Esprit’s operational deficiencies. Porter’s Value Chain analysis reveals inefficiencies in Esprit’s sourcing, design, and production processes. In conclusion, it undermines its ability to deliver value swiftly and maintain market relevance.

Third, Esprit also grapples with intense competition and low cost-efficiency. Fast fashion leaders like Zara, online disruptors like ASOS, and value-driven retailers like Primark outperform Esprit by combining low prices with operational excellence. Esprit relies on physical stores in high-rent locations to inflate overheads. However, their competitors’ shift toward e-commerce and leaner retail models to reduce the rental cost. It reflects that Esprit’s supply chain lacks the flexibility of Zara’s vertical integration or H&M’s optimized outsourcing. Therefore, it is more difficult to maintain competitive pricing while preserving margins. Porter’s Five Forces framework underscores the threats of high industry rivalry and buyer power, which Esprit’s failure to address through cost leadership or differentiation exacerbates.

Incompetence in Adapting to Fast Fashion

Intense Competition

Strategic Recommendation 1: Rebranding & Repositioning

Abercrombie & Fitch (A&F) showcases an excellent case of rebranding and repositioning that successfully revive the brand from the plight of decline. The case was claimed to be “The Biggest Comeback of the year” by Business Insider. Since the 2000’s, A&F experienced a drastic decline in appeal to consumers, the brand was accused of racism, discrimination, and illegal firing (Wilkinson, 2022), thus the financial performance failed to meet market expectation. In 2017, under the leadership of a new female CEO, A&F managed to revive the brand by (1) adapting to market trends and consumer preferences, (2) embracing inclusivity, (3) insisting on brand value. A&F rebranded from exclusivity (advertising with half-naked male models) to inclusivity (designing quiet luxury and comfort). The reform results in notable improvements in the company’s operational and market performance since.

To effectively transform the brand, Esprit should (1) identify a niche market position that is currently underserved, (2)refresh brand identity and reputation.

Esprit can rebrand to nostalgic fashion, precisely the Y2K Fashion with vibrant colours. With reference to Pūka (2025), Y2K Fashion is daring, futuristic, and sometimes quirky that define the early 2000’s. The fashion style is currently underserved within the market, yet appeals to a majority of consumers. Thus, vibrant colours were once the iconic identity of the brand, the nostalgic designs may recall a certain segment of consumers’ collective memories, further reconstruct the brand’s position in the competitive market.

Additionally, the company should focus more on inclusivity. Esprit, being one of the most conscious brands in the 1990’s - first brand to ever use real people in marketing (Colon, 2017). The emphasis of inclusivity and anti-discrimination speaks to the new generations, and most importantly conveys the message of “no hate” to all people.

Strategic Recommendation 2: Agile Supply Chain Management

Zara, the clothing retail giant, exemplifies the integration of a vertical business model to streamline the supply chain management. From manufacturing to logistics and retails, the entire production process is owned by Zara, thus achieving a rapid speed-to-market. The company only requires 4 weeks from designing to launching, with a strategy of bi-weekly drops of new items, ensuring a constant flow of current fashion trends. As a result, Zara is agile to stay aligned with trends and maintain flexible production. In addition, the inventory management system of Zara allows the company to adjust factory output to meet consumer demand. The approach minimises inventory costs, reduces stock, and offers price flexibility.

To summarize, the vertical integrated business model and excellent inventory management system of Zara enables the company to quickly adapt to market shifts and maintain competitive edge in the fast-paced industry.

To enhance the supply chain management of Esprit, the company should implement a vertically integrated business model. The model can allow Esprit to take greater control over its production process so as to shorten its lead time and could respond more quickly to the fashion trends.

Additionally, Esprit can adapt to AI-Driven Demand Forecasting. Traditional demand forecasting fails to estimate the demand accurately due to unreliability, the company would be unable to adapt to the fast changing fashion retail environment. With reference to Amosu et al, (2024), AI is capable of handling vast amounts of data, replacing the traditional manpower. AI-Driven Demand Forecasting can continuously update their prediction of market trend and demand more accurately. The approach allows a better inventory management system, by maintaining an optimal amount of inventory according to the data from the AI-Driven Demand Forecasting, therefore the cost of holding inventory could be reduced.

Strategic Recommendation 3: Multi-Dimensional Transformation

Levi’s, the infamous jeans brand worldwide, demonstrates an example of multi-dimensional transformation that revived the brand from a decline. The company faced a significant decline since the late 2000’s, with a one-third drop in revenue. To respond to the alarm, Levi’s initial attempts involved launching bold and creative campaigns, yet failed to effectively advertise and promote innovation, yielding minimal response from the market. Later in 2014, Levi’s embraced the customer-inspired idea, “You wear other jeans, but you live in Levi’s”, highlighting the brand’s enduring relevance and creating an endearing emotional space to build on. The campaign also drove product renovation and innovation. Levi’s started focusing on the actual needs for its consumers, i.e., designing (1) stretchy jeans for cycling, motorcycling, and skateboarding, and (2) Truckers Jacket with a contemporary technology twist to enabling mobile control with a button on the sleeve. Additionally, Levi’s also prioritised brand experience, introducing a range of high-touch brand experience, such as tailor-made jeans and Levi’s Second Hand Store, etc. The company shifted their focus on consumer centricity.

To effectively reform the brand of Esprit, the company should understand the brand’s market positioning and prioritize consumer needs and preferences.

Esprit should avoid competing in the low-price market, even though consumer purchasing power is declining, as the market has already been occupied by a few brands, such as Uniqlo and GU. Therefore, Esprit should focus on appealing products with quality to differentiate the brand, rather than involving in the price competition.

Esprit should be brave and bold to transform, drawing from the case study of Levi’s. Levi’s did not transform successfully at the very first try but after a few failures and trial and error, the brand finally found their niche in the market. Therefore, Esprit should be courageous to transform by implementing consumer-oriented transformation, from building a stronger brand recognition, re-implementing new technology to new marketing strategies to get to approach a larger customer base, understanding customers’ needs and preferences are the most important criterias for a brand to be successful.

Frameworks

With the existing situation of Esprit, it is notable that the company lacks the resources to develop a large-scale and well-rounded improvement of the existing supply chain system, given (1) the financial constraints, (2) declining revenue streams, (3) unstable macroeconomic environment. Thus, applying the build-borrow-buy framework, Esprit is unlikely to be capable of “buy” and “build”, therefore, the company should implement “borrow” for now.

For short-term, Esprit should partner with external entities - Esprit should implement vertical integration by forming partnerships with suppliers and logistics providers to gain capabilities without actually owning. Additionally, the company may consider partnering with tech companies, e.g., IBM, to develop an AI-Driven Forecasting system for Esprit.

“Borrow” is the most practical and efficient approach for Esprit’s current supply chain transformation. In the future, the company may choose to “build” or “buy”, when the above-mentioned difficulties are no longer constraining Esprit.

Build-Borrow-Buy Framework

BCG Growth-Share Matrix

The matrix above showcases the feasibility of Esprit’s existing operation channels and proposed recommendations within the report. Esprit currently fails to possess any operation channel that has high market share, i.e., “Star” and “Cash Cow” categories.

Esprit should consider:

(1) Invest in “Question Mark” - The operation channels in the “Question Mark” are with prospective growth yet currently take up little market share. Esprit should prioritize investing in the channels that may generate the most growth, i.e., Y2K Fashion, sustainability, and e-commerce.

(2) Minimize “Dog” - The existing operation channels, i.e., owned retail store, wholesale, and licensing, are facing limited growth, nonetheless, the channels are performing unsatisfactory, in terms of market share. Thus, it is notable that the channels should be diverted or less prioritized in future operation, to avoid wrong allocation of resources.

Strategic Action Plan

Esprit’s strategic action plan is to address the challenges with the AFI (Analysis, Formulate, Implement) framework. Detailed deliverables are presented within the above plan, referring to the 3 identified challenges.

For the first phase “Analysis”, the focus is on researching and clarifying the company’s existing position. The deliverables involve (1) brand perception assessment, (2) target demographic identification, (3) purchasing behaviour analysis, and (4) competitor analysis.

For the second phase “Formulate”, the scope prioritizes on formulating strategies based on previous results. The actions include (1) develop Y2K style brand identity, (2) consolidate brand core value, (3) streamline supply chain process, (4)outline plan to integrate e-commerce in other regions, and most importantly (5) define KPIs for objectives.

For the third phase “Implementation”, the company takes planned actions.

To conclude, the strategic action plan is expected to be completed within 12 months, due to the rapid change of the clothing retail industry. Related resources and supporting personnels are presented within the plan.

Conclusion

In conclusion, the decline of Esprit stems from an inconsistent brand identity, inability to adapt to trends, and intense competition, as revealed by PESTEL, Porter’s Five Forces, and SWOT analyses. The company’s outdated business strategies, i.e., inflexible pipeline model and over-differentiation, altered the brand’s market perception and position.

To address the identified challenges, the report conducts case studies of industry-leading brands, i.e., Zara, Levi’s, and Abercrombie & Fitch. Thus, Esprit is to undergo a bold transformation by (1) rebranding to nostalgic Y2K fashion to reconnect with its consumers, (2) implementing a vertical-integrated supply chain with AI-driven demand forecasting, and (3) adapting a multi-dimensional transformation focusing on consumer-centricity.

With the mentioned actions in the strategic action plan, Esprit can reposition the brand as a relevant and competitive entity in the everyday-evolving fashion industry, and revive the brand’s heyday in the past.