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Reengineering Express

On his second tour of duty, Michael Weiss builds the brand for profitability.

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Special Issue
WWD Milestones issue 09/16/2010

As Michael Weiss, president and chief executive officer of Express, sees it, there’s a definite “before and after” to the 30-year-old specialty chain.

No doubt, in the Eighties and early Nineties, Express was dominant in specialty retailing, driven by selling key items — sometimes a million or two in a season — seizing trends and a lot of popularity. And while that envious reputation has simmered down and volume has shrunk somewhat to $1.8 billion last year from a peak of $2.2 billion in 2000, there’s actually more to the business now — profits, for one thing, and a rounded, honed collection that squarely targets and fills the needs of the twentysomething set. It’s the sixth largest specialty retailer of women’s and men’s apparel in the U.S.

“I think we are getting a little of the buzz back,” said Weiss, who, at 69, still sports those thick, black-framed eyeglasses and slicked-back mane of hair, a hip look that’s become his signature. “I think the buzz in the Eighties and Nineties was predicated on the depth of which we could sell an item, and it was incredible. I could never deny that. But the item didn’t really generate the percent of profits that we should have generated. If you look back at our first- quarter call, you will see that we generated record profits without the buzz. The buzz is very abstract and I love the buzz, but don’t misunderstand me: I am here for the shareholders.”

Being perceived as a fashion authority again is a goal, but not in quite the same way.

“You want to be known as a hot thing for a lot of reasons. Number one, it’s for traffic, for people,” Weiss said during an interview in his office at 111 Fifth Avenue in New York, where the Columbus, Ohio-based Express has its design studio. “Investors want to think they are in an investment with a future.…When you look around, I am seeing a lot of buzz, but a different kind of buzz. It’s not about the item that we are able to sell. It’s about the brand. Our marketing has been much more intense for three years. When you look at the September magazines, we are in every one of them. When you look at billboards in Times Square, on 34th Street, we are on those billboards. We never were. We were not into the new ways of marketing and now we are into every one of them — Twitter, e-mails, e-commerce. Because that’s where the customer is.”

He feels Express has become more of “a fashion brand” and insists “the quality of the merchandise far surpasses what it was. I don’t know whether we do or don’t get credit for it, but this is a designed brand today. It’s not ‘shop and copy it.’ We got out of that. It wasn’t a business model that we could sustain.

“So where do we go from here? Just getting the reputation for quality that we absolutely have, both the quality of the merchandise and the quality of the fashion. [Being] a fashion authority to our customers is very important. They’ve got to believe in us. They have to put on our clothes and look great and not necessarily trendy.”

Express is “more total,” meaning “much more driven by assortment today,” Weiss said.

“In the past, we were driven by categories and items within the categories. Today we are driven by assortments and categories within the assortments. We have strategized the business to not be driven by quantity of items, because that sort of devalued the retail price point. We have strategized the business to be driven by the assortment and it’s been quite successful. It’s a major change of mind-set.”

He continued, “Clearly you believe in some categories more than others. You’ve got to leave money to move to the big story of the season, as defined by the customer, not the industry. There are a few big stories. Very skinny pants are a big story. Military is a very big story. Sheer fabrics are still a big story. But if you abdicate a category, what you pick up in another category is not enough. It becomes a zero-sum game. You have to be strong across the board.”

Asked if the business is any less promotional, Weiss replied: “Ultimately, yes, but not apparently,” he said, noting Express runs weekly planned promotions on an item or an area, like denim or accessories. “It’s been promotional for many years,” well before the country’s economic meltdown. “Christmas has never been a regular-price event for as long as I can remember. Unless you are building that into your pricing strategy, you are not doing the right thing.”

What’s stayed constant is the demographic that Express targets. “We have been after the twentysomething for a very long time,” Weiss said. “The twentysomething is a demographic we love. You know they make less money than the thirtysomething, but they spend more of it on themselves. They really have the same intention — to look good. It’s pretty simple. If you acknowledge the intention of the customer and you merchandise to that, you have a much better chance than blindly following trends the way you are with individual items.”

In describing the old Express, Weiss used the analogy of an auto-parts store that sells carburetors, spark plugs, wheels, etc. “We were in the business of selling spare parts. Historically, every season we sold two or three things in excess of a million pieces. Most seasons we sold one thing: close to two million pieces” of a T-shirt, for example. “In order to do that, if it was something that continued the next season, you kept bringing down the price because you had to sell more and more. Now, we sell fewer pieces at a price that is not devaluing. We try to sell the whole car. Most of our competition does not do that. They sell the parts. Our customers have different needs and we are trying to service all of them. We do very well with their going-out needs, both for men and women. We do well with their go-to-work needs. We do well with the jeans needs, and we are improving on the casual needs. For us, it’s the pieces of the car that are missing. The shoes are missing,” though they are being tested at Express. “We have the accessory pieces, in varying strengths, but we have to improve it all.”

Weiss said the business is moving ahead on other fronts as well, including a prototype store design. “This is not at all to imply we are after redoing every store, but we do redo a certain amount of stores every year. Leases come due. There are requirements for renovations. About 10 years is as long as a store lasts” without being renovated.

Asked for details of the new format, he said: “I’d rather not, but the one thing I could tell you is I looked at the model last week in Tokyo,” where it’s being developed. “It implies a different, fresh view of what a retail store should be. You might see a new look in spring of next year” in two stores. “It’s an evolution in the store look. It’s not revolutionary.”

Weiss added that the fleet isn’t tired or old, and that not too long ago, capital improvements were made when the stores converted to dual-gender merchandising and downsized to 8,500 square feet, versus having two locations, one for men, the other for women, with well over 10,000 square feet combined. “It’s not an old fleet. That’s not the problem. The problem is what it’s going to look like eight or 10 years from today.”

Express is primarily situated in malls, though there is a vision toward a greater street presence.

“In Manhattan, we have six stores,” Weiss said. “There is opportunity here. We need to have a better presence. Manhattan is where it’s at. For me, it was always the acid test because you have the competition. We are actively looking.”

Nationally, he said Express has identified about 150 opportunities in the U.S. and about 100 in Canada. Realistically, the company actively will pursue about 100 sites in the U.S., and 50 in Canada, which it hopes to enter next year with the first Express stores. Overall, the goal is to open 30 stores a year for the next five years in North America, Weiss said. There are also five Express stores in Dubai, Kuwait and Saudi Arabia, all owned by a franchisee, Alshaya, and selling merchandise identical to the U.S. stores. The Canada stores will be owned. Though the company is open to additional franchising, the growth is focused on Canada, the Middle East and the U.S.

In the second quarter, results at Express came in better than expected, which was attributed in part to extensive product testing and “rigorous” weekly assessments of merchandise performance. Total sales rose 6 percent on a comparable-store basis to $407.3 million and were driven by increased marketing and a 190 basis-point increase in merchandise margin. Net profits were $22.1 million versus a $6.8 million loss in the year-ago period.

In the first quarter of this year, the net rose to $30.7 million from almost $8 million in the year-ago quarter. Comp-store sales rose 12 percent. Express expects comps to be in the midsingle digits this year overall and to end 2010 with 589 stores, up from the current 577 units.

The Internet is seen as a big opportunity for growth, partly because Express’ online business is only two years old. Express online generated $92 million in volume last year, representing just 6.7 percent of the chain’s total sales, but the company this year is citing 50 to 60 percent gains.

“The best of our competition does 10 to 15 percent of their total volume [online],” Weiss observed. “We think we can get to that. We opened an iPhone app in the last few days. We were astonished at the number of people that downloaded it.”

Weiss, who was long regarded as Limited’s star merchant, started with Express in 1980 as a merchandise manager when it was just a six-store, $4 million experimental division of Limited. He rose to president in 1982 and added the ceo title in 1997. He left the company in 2004, after some up-and-down performances by the chain, but returned after Limited sold the brand to Golden Gate Capital in 2007.

Limited chairman and ceo Leslie H. Wexner, who also founded Express, was glad to get rid of it, after years of grappling with whether to hang on to it and try to make it work again. He was even gleeful publicly about getting out of the business to focus on the Victoria’s Secret and Bath & Body Works divisions. Some think he may be second-guessing the decision now, with Weiss determined to restore the chain’s reputation and increase its profitability. It seems to be on the right path at least, after the successful initial public offering last May. Weiss has an evergreen contract that comes up for renewal annually, and describes Express as “nicely profitable” after cost-saving initiatives and product improvements.

Did Weiss return to the business because he had something to prove?

“No, I had done Express for 20-something years. That was not the primary thing,” he replied. “It was to make the last chapter a much better chapter. It’s been exciting, even though we went through some very difficult financial times. I think we have made really great progress with the brand, the business and the profitability.…I am enjoying it more now. I’m having a very good time. I was retired, but I was not good at it. I discovered I had absolutely no old-age skills. Not one. I don’t whittle. I don’t play golf and I don’t fish. So what’s left? What’s left is very isolating. I missed the juice and I love the juice.

“The reason I came back is that I had the opportunity to run Express as an independent entity and that was an offer I could not refuse.”

Being more in control than during his first tour of duty also has been part of the appeal. “Totally, I do feel that way,” Weiss said. “It’s a good thing. That’s why I am still sitting here.”

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