For the 630-unit Express, it’s a pivotal year as a fleet of outlets unfolds fast; partnerships for international growth materialize, and skirts, leggings and wovens get played up to offset weakness in casual knits and denim.
“There’s always a lot going on at Express. As of the moment, becoming an omnichannel retailer is the key. We are doing this in a very competitive environment and really the priorities have got to be on product,” David Kornberg, president of Express Inc. and the specialty chain’s next chief executive officer, told WWD.
Kornberg, a 14-year veteran of the $2.2 billion Express, outlined the agenda in an interview Wednesday, after Express reported a 59 percent decline in net profits and a 5 percent drop in comparable-store sales in the second quarter ended Aug. 3.
Like most retailers, Express has been impacted by declining mall traffic; Internet sales; depressing world events dampening the desire to shop; a lack of fashion newness; a shift in consumer spending toward the home, autos and vacations, and industry-wide, industrial-strength price-promoting.
Despite the declines, Express stock on Wednesday rose 12.75 percent, or $1.86, to $16.45 because the results were not as weak as expected and officials are citing several growth strategies.
Amid all the issues, Express has a change in command in the works, with Michael Weiss retiring at the end of January, to be succeeded by Kornberg, who will continue as president as well. Weiss will stay on as non-executive chairman.
In addition, there is a looming takeover threat from, among other potential suitors, Sycamore Partners, which has a 10 percent stake in the company and has expressed interest in buying it. Express officials would not comment on Sycamore.
Among the strategies Kornberg focused on is the new outlet operation, Express Factory Outlets, which sells bestsellers from the regular Express chain that have been reengineered at lower prices. The first two dozen outlets have opened so far this year; 37 are seen by yearend, and 70 by the end of 2015. Ultimately, 150 outlets are envisioned.
“There is a lot of opportunity in outlets. We’ve had great initial results,” Kornberg said. “In addition, it’s a great way to introduce new customers to the brand.”
The mood seems different at Express stores. “We are seeing a decline in traffic,” Kornberg said. Over a three-year period starting in 2015, the company expects to close 50 Express stores. However, Express will still be “opportunistic opening new stores” and at the best malls around the country, Express stores continue to be bigger and bigger contributors to the business.
Kornberg told WWD that for the first three weeks of August, the retailer was less promotional than much of the competition, and up until this Labor Day weekend, avoided the storewide price-cutting type of event others have staged. “We’ve had promotions but haven’t needed to go all-store,” until the Labor Day period, Kornberg said. “Promotions during back-to-school remain intensely competitive.”
On the international front, Express has barely scratched the surface, with 17 company-owned units in Canada, and a total of 31 franchises combined in the Middle East and Latin America. However, Kornberg said the company is talking with potential partners in Europe and Asia, and will be opening its first shops-in-shop this fall in South Africa where Express has a franchise agreement with Edcon Group, a retail franchise operator. Edcon will operate Express shops-in-shop at select Edgars department stores by the end of 2014. In addition, stand-alone Express stores are seen opening in 2015 in South Africa.
Kornberg also discussed omni-initiatives. A dot-com redesign recently was unveiled; a redesign of the mobile experience is in progress, and pick-up-in-stores and ship-from-stores operations should go live by the end of next year or early 2016.
Kornberg said 16 percent of the volume at Express is generated through e-commerce, a figure significantly greater than most retailers, where the percentage is typically in the high-single-digits.
“We’ve got a strong e-commerce business. Our customer is totally connected,” Kornberg said. “The 20- to 30-year-old customer is living their life online.…I can see a future where 50 percent of our business is front-line retail, 25 percent outlet and 25 e-commerce,” Kornberg told WWD.
In a tough quarter, Express cleared a lot of slow-moving spring product with less impact to margins than expected, officials said. While women’s casual knit tops were weak and men’s performed better in the first quarter than the second, there were several pockets of improvement: dressy knit tops; mid- and high-rise denim; pencil, maxi and full skirts; jumpsuits; rompers, and women’s shoes and sneakers.
While traffic and transactions were down last quarter, officials said they are comfortable with inventory levels and there is greater open-to-buy available for the fourth quarter.
“The Labor Day weekend will be an indication of where we will come out for the quarter,” said Kornberg.
Express’ net income dropped to $6.9 million, or 8 cents a diluted share, in the second quarter ended Aug. 2. This compares to net income of $16.9 million, or 20 cents a diluted share, in the second quarter of 2013.
Net sales decreased 2 percent to $481.4 million from $490.1 million in the year-ago quarter. Gross margin as a percentage of net sales declined 280 basis points compared to last year’s second quarter and represented 28.3 percent of net sales.
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