When Express debuted about 40 years ago, the retailer was focused on making business casual apparel trendy, appealing, mainstream and accessible in malls - the most important sales channel at the time.
Established in 1980, Express, is an offshoot of The Limited, which formerly had a brick-and-mortar presence but closed all its physical stores and now sells exclusively online, Express said it “has been a part of some of the most important and culture-defining fashion trends.”
But at the height of the pandemic, consumers apparently had much less of a need or interest in much of what Express offers. Business casual was out and comfier athleisure was in.
The apparel retailer reported earlier this month that its second-quarter net sales fell 6.4% from last year to $435.3 million. Express reported a $44.1 million loss in Q2 compared to $7 million in net income year over year.
Inventory was also up 20% year over year, while store comps fell 21%, e-commerce fell 1% and outlet store comps fell 17%. In response, Express said it’s accelerating cost-cutting initiatives in a bid to regain sales and profit momentum. Express also said it’s hired advisers to review its business model with the goal of achieving $200 million in annualized savings by 2025.
Additionally, in late August, the company also executed a reverse stock split and said it planned to cut 150 jobs by the end of Q3. The reverse stock split enabled the company to regain compliance with New York Stock Exchange listing standards; the company earlier this year had faced delisting when its stock price fell below $1 for an extended time.
Like many other retailers, the company said it faces macroeconomic challenges in that consumers are reluctant to spend on discretionary items. But with that kind of quarterly loss and a gross margin of 23%, “the so-called momentum of this retail brand has lost its steam,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University of New York told Retail Dive. “Consequently, Express is truly on a respirator and teetering on possible bankruptcy.”
One day after the earnings report, Express chose a new CEO to lead the company. Tim Baxter, who had led the retailer since 2019, resigned and left the board of directors, the company said in a statement. In Baxter’s place, Stewart Glendinning, a former group president at Tyson Foods, became CEO and joined the board Sept. 15.
Although Express has seen some bright spots, analysts and industry experts said the brand has become stale in recent years as it failed to cultivate and sustain the brand awareness it once held.
Brand had grown ‘incredibly basic’
The retailer’s current slate of challenges began about three years ago, according to Eric Beder, CEO and senior research analyst at Small Cap Consumer Research. At the height of the pandemic, seemingly overnight, consumers’ interest and need for business casual and more formal apparel crashed as many people shifted into work-from-home mode. Suddenly, comfort was key and people dumped their business casual for athleisure. At the same time, Express faced a challenge in reviving a brand that “had gotten incredibly basic,” Beder said “[If] you’re that basic, you lose the ability to have better pricing, right?”
“So management right now at Express is trying to find that right mix, that right balance between fashion and basics so that they can generate good returns, not having to worry about inventory problems … so that they can drive some higher level returns,” Beder said.
"Good management teams still make fashion mistakes."
CEO, senior research analyst, Small Cap Consumer Research
The risk and reward of operating in fashion retail, Beder said, is if you plan and present your assortment well, customers will pay full price and “you get a great margin. If you don’t, you’re stuck with a lot of stuff you’re probably going to have to discount significantly.” And striking that balance, Beder said, is tougher than it sounds. “Good management teams still make fashion mistakes,” Beder said. “That’s just the nature of the beast.”
‘You can’t win’ without brand awareness
Beder, who has covered Express off and on for over a decade, said the company occupies an interesting position in retail in that it offers both men’s and women’s apparel in a near 50-50 mix. Most other specialty apparel retailers don’t do that.
As of early September, Express said it had 530 retail and factory outlet stores, 60 Bonobos locations, and 11 UpWest stores. Each of those brands also has an online store. In 2020, Baxter said “the vast majority of the new customers come in through our stores.”
However, Carter said despite that relatively large store footprint, it’s clear that many potential customers, especially on the younger end of the spectrum, have little to no knowledge or familiarity with Express as a brand.
“Brand awareness is critical,” Carter said. In fashion, “you’ve got to have the right product, the right price, the right placement, and the right positioning and you've got to have it all working together consistently. And so, if your customer doesn't even care about your brand, that's a problem.”
Beder echoed that sentiment. “At the most simplistic, you’re competing against Walmart, Target, everyone else who sells camis, underwear, a pair of basic denim,” Beder said. “You can’t win with that.”
But Beder said Express has had some recent bright spots. Last year, for example, the brand’s men’s swimwear collection performed well. This year, the company expanded it to four collections and that category “was a complete and total win” for the company, said Beder.
At the same time, Beder acknowledged that times have changed from the retailer’s zenith years ago, when Express was the go-to store for on-trend apparel that was a level up from strictly casual.
The days of going to a high-end formalwear store – especially for men – to buy a tailored suit, shirt, and tie are probably gone for good unless you work in a handful of staid careers, like finance, law or politics. But expectations around appropriate attire are shifting even in those careers. As an example, Axios recently reported that Senate Majority Leader Chuck Schumer has relaxed the dress code for members of that legislative body.
Despite the trend of employers and society shifting away from formal attire, Beder still expressed optimism about the future of Express. The retailer’s offering, Beder said, “has always had tremendous versatility and the value for the money,” and a lot of what they offer can function as more than just work apparel.
Still, Beder said Express “is doing the right things” to try and improve its business. As the company works to get the right mix, it’s taking time, and “it’s taking a lot more time than investors want.”
An evolution and new partnership
Despite financial setbacks, Express has continually sought to position itself to regain profitability and expand its brand. Express in January closed on a strategic partnership with WHP Global. The two entities formed an intellectual property joint venture. WHP contributed $235 million and took a 60% stake and Express for a 40% ownership stake in the joint venture.
The strategic partnership was valued at about $400 million in April. The deal probably did help financially sustain Express without the need to take on further debt, Beder said.
But under the deal with WHP, Beder also noted Express will essentially have to pay $60 million to WHP for using their own name in the form of guaranteed minimum royalties. That amount will increase by $1 million per year for the next five years, and grow to $65 million following the sixth contract year.
Under the terms of the deal, Express will pay royalties at 3.25% of net sales from retail sales of licensed goods in years one through five, and 3.5% thereafter. On top of that Express will pay 8% royalties of net sales from wholesale sales of certain licensed goods.
Carter called that royalty rate “excessive.” If Express has to pay up to 8% in royalties to WHP, “that’s also going to cripple their cash flow. If you’ve got to make royalty payments as part of the net revenue, that’s not helpful.”
If you’ve got to make royalty payments as part of the net revenue, that’s not helpful.
Shawn Grain Carter
retail industry consultant and professor
When asked about the financial longevity of the royalties deal, an Express spokesperson referred to the company's second quarter results. In it, Baxter said licensing agreements will generate "guaranteed minimum royalties" beginning in 2024 that are accretive. Additionally, Baxter said, the partnership with WHP has given the company the ability to pursue acquisitions.
On the other hand, Beder told Retail Dive the alliance with WHP gives Express “the ability to change the business at a very reasonable price.” The alliance also potentially enables WHP to expand the Express brand globally. Beder said he wouldn’t be surprised to see an announcement in the future that Express and WHP plan to open stores in new markets like the Middle East, Southeast Asia, or in Europe.
But Neil Saunders, managing director of GlobalData, was more skeptical about the long-term benefits of the WHP-Express alliance.
“The new structure with WHP has bought Express some time,” Saunders said in emailed comments this month. “The integration of Bonobos also gives it a brand that has more possibility of success. However, neither of these things automatically remedies the ongoing problems in the core business.”
“In our view, very little about the Express proposition stands out,” Saunders said. “The assortment is bland, styles are mediocre, and prices are somewhat too expensive for the type of products being offered. There isn’t anywhere near enough excitement and oomph to carry the retailer through a period of challenge in the consumer economy.”
Express has continued to evolve and expand, with the retailer and WHP Global announcing in April its intent to buy Bonobos from Walmart for $75 million. Six years earlier, Walmart had paid $310 million for the menswear apparel brand.
Carter also said Express has room for improvement in its e-commerce offering, which is especially important for younger customers, who often default to buying online instead of in brick-and-mortar stores.
Anyone who’s younger than an older Millennial – early 40s or so – “didn’t grow up like Gen X and baby boomers shopping in a mall. They grew up shopping on their phone and shopping on their tablets.” As a result, “they have no loyalty to shopping in a mall,” Carter said. “They think pop-up stores are just fascinating because they did not grow up with mall culture and they’re into experiences now.”
Last fall, Express opened a handful of Express Edit stores. Most recently, the number of these smaller format locations had grown to 11 in seven states. The company first introduced Express Edit as a concept in 2021. But as part of its turnaround strategy, Express should focus on its core brand because having multiple brands and store formats “is confusing to the customer,” Carter said.
Many of the Edit stores are off-mall. Despite the push into off-mall locations Express “is still primarily a mall-based concept,” Beder said. “Would they ever go from 300 full-price mall stores and move 100 off?” Beder said that’s unlikely. Yet, “I don’t expect Express to add mall stores anytime soon.” Instead “they will play around with some of these concepts out of mall and see if they work. And if they do, it might be an interesting growth period for them.”
Despite its recent financial performance, Baxter, the now-former CEO, expressed confidence about the future of Express. “It's been a challenging year at Express, and our results put us on the defensive, but we are at a turning point, and we are now confidently on the offensive,” Baxter said, according to a Q2 earnings call transcript. “The Express brand is positioned to generate cash to reinvest in our business while Bonobos and UpWest are positioned to be our growth engines.”
“It’s been a challenging year at Express, and our results put us on the defensive, but we are at a turning point, and we are now confidently on the offensive
former CEO of Express
But if that strategy doesn’t work out, as a result of the brand’s missteps and the current retail and economic climate, “I would not be surprised if they end up in Chapter 11 bankruptcy,” Carter said, “and I think it’s sad because they were once a destination for young people to purchase goods at a decent price that were on trend.”