What led to Lesara’s bankruptcy?

Just a few months ago, it seemed quite possible that German online retailer Lesara could become the number 1 in the international fashion discount market as planned: Sales were good, the company expanded into more and more European markets, won awards and was able to secure funds in financing rounds. Then, suddenly, in November last year, Lesara had to file for bankruptcy; the industry was shocked. A few days ago, the Berlin-based company closed its online shop and seems to have reached the end. How could this happen? FashionUnited has retraced the events of the last few years.

Just three and a half years ago, Lesara went through a rapid growth period and secured funding of 15 million euro by Scandinavian investor Northzone, which made founder and CEO Roman Kirsch confident that the company would take on a pioneering role in the European online retail landscape. “At least since the involvement of international investor Northzone in Lesara, we have made great strides towards our goal of becoming a leading player in Europe and beyond,” said Kirsch in an interview with FashionUnited [in German] in October 2015.

Initial success with a solid business model

Lesara’s business model seemed solid as the company was able to pass on low purchase prices directly to end customers by saving on expensive offline shops, high marketing expenses and cutting out the middlemen. The direct contact to factories in China through a sourcing office in Guangzhou and a logistics centre in Shenzhen guaranteed optimal prices, high quality and the realisation of trends in only two to four weeks, much faster than the competition.

Success seemed guaranteed: Already in December 2015, Lesara expanded its market presence beyond Germany, Austria, Switzerland, Luxembourg, Italy and the Netherlands andlaunched in 16 new European countries, namely in Spain, Greece, Portugal, Bulgaria, Ireland, Romania, Hungary, Estonia, Latvia, Slovakia, Poland, Czech Republic, Sweden, Denmark, Finland, the UK and Northern Ireland.

Rapid growth in Europe

In its third year, the e-tailer recorded excellent growth, with annual sales jumping by 175 percent, reaching a double-digit million euro amount. The company had a customer base of 1.5 million active users across Europe and a range of over 70,000 products.

"Lesara is steadily developing into a leading global online shop for the best in affordable fashion and lifestyle. We are active in 23 markets and provide our customers worldwide access to the hottest trends. There is currently no company that can detect trends faster and offer relevant products at such low prices, keeping quality under control," said Kirsch in a press release in November 2016.

In September 2017, the start up secured 40 million US dollars in funding from new and existing US and UK investors, bringing total funds raised by the company to 60 million US dollars. These were meant to finance the strategic expansion into markets like Sweden, Denmark, Spain, Belgium and the UK. Thanks to an agile fast fashion model, by now, the e-tailer managed to bring trends into shops in just ten days.

With a product range of meanwhile 100,000 fashion and lifestyle articles, one thing was essential - excellent logistics. Though Lesara already operated three logistics centres - two in Germany and one in China - it decided that another one was needed. Already in October 2017, the company invested 45 million euros in a new logistics centre in Erfurt, Germany, with a maximum processing capacity of 85,000 shipments a day. In August 2018, operations started.

Lesara files for bankruptcy

So far, so good, one might think, but then the news broke that shocked the industry: In November of 2018, Lesara filed for insolvency. The company blamed "stagnating financing of its strong growth" for this development that even the latest round of financing and total investments of around 90 million euros were not able to absorb. Expensive online marketing and the new logistics centre in Erfurt prevented the online retailer from being in the black. In 2016 it recorded a loss that increased from 11 to 14 million euros.

"We are confident that we will soon achieve a sustainable solution for the company and its employees that will ensure continuity and further expansion," said a Lesara spokeswoman in November 2018. The jobs of its 350 employees at locations in Berlin, Erfurt and Guangzhou, China, were not in danger and would be secured through the Federal Employment Agency until the end of January 2019. Business operations would continue unchanged for the time being, said the company.

It would have taken a bridge loan of around 10 million euros that the investors - including 3L Capital, Northzone, Mangrove Capital Partners and Vorwerk Ventures - were not ready to approve. Cutting expenditures and restructuring the company within the framework of insolvency proceedings was planned instead. The company was also looking for an investor and did have some potential buyers in Germany and abroad.

Investor withdraws, Lesara gives up

On February 1st, 2019, however, more bad news followed: A strategic investor withdrew at the last moment after insolvency administrator Christian Graf Brockdorff had already negotiated the final details of the purchase agreement. This forced Lesara to give up. "After the surprising withdrawal of the investor, the takeover of the business operations of Lesara AG planned for the next few days cannot take place," said Brockdorff and added that there were no other interested parties. "We are now concentrating on the negotiations for a takeover of the logistics centre in Erfurt," he said.

In the meantime, a skeletal staff of 50 employees organised the sale of the remaining stock via the online shop, which finally closed a week ago. "We regret to inform you that the Lesara online store has closed. Rest assured, we will do our best to fulfill orders that have been placed" is currently the only message on the site; the customer service team will be available until the end of the month.

For Kirsch, shutting down Lesara certainly does not mean the end of his career as a founder; the entrepreneur had already founded the online shopping club Casacanda and sold it to Fab before starting Lesara. Now it's time to learn from Lesara's mistakes and do better. It will be interesting to see what Kirsch will conjure up next.

Photos: Lesara