Diesel USA Files Chapter 11 Amid Heavy Losses

The seller of Italian jeans said a misconceived turnaround strategy caused it to enter into expensive, long-term leases for retail locations.
Matthew HellerMarch 6, 2019
Diesel USA Files Chapter 11 Amid Heavy Losses

The U.S. arm of Italian jeans maker Diesel SpA has filed bankruptcy, blaming “ill-timed, excessive, and unfruitful” investments in brick-and-mortar stores it made as part of a post-recession turnaround strategy.

Diesel USA, the sole distributor of Diesel products in the U.S. since its 1995 launch, has lost money for six straight years, with net sales declining from $215 million in 2013 to $104 million last year. It operates 28 retail stores in 11 states.

In a bankruptcy court declaration, the company’s restructuring officer said it was affected not only by the general downturn in the retail industry but also by “certain strategic decisions made by prior management in an effort to effect a post-recession turnaround.”

“While such efforts produced limited short-term results, the long-term effects have been harmful,” Mark G. Samson of the consulting firm Getzler Henrich & Associates said.

According to Daily Front Row, Diesel jeans were “once the height of denim cool,” with The Wall Street Journal heralding it as “the label of the moment” in 1998. “Diesel’s sleek design aesthetic went hand in hand with its savvy advertising and marketing, much of it controversial for controversy’s sake,” Forbes reported in 2013.

After sales began declining in 2013, management launched a turnaround strategy aimed at repositioning Diesel as a premium brand by opening new stores and moving others to premium locations.

“The result was … management’s negotiation and entry into several expensive, long-term leases for certain of the debtor’s retail locations,” Samson said, adding that “Of course, it was then (and remains today) an inopportune time to make long-term commitments to costly retail leases and the significantly increased lease expenses have not been offset by increased sales.”

Last year, Diesel USA lost $24 million and, according to Samson, it “cannot continue to sustain the kinds of losses it has suffered in recent years.”

Samson said the company’s new management has a three-year plan to restore the Diesel brand and return to profitability, in part by closing certain underperforming and costly stores with significant terms remaining on their leases.