New Economic Realities   //   April 12, 2024

How Express went from being a top apparel retailer to on the brink of bankruptcy

Fashion retailer Express Inc. is reportedly considering various options, including Chapter 11 bankruptcy, as it faces increased competition in the fast-fashion space. But its struggles have been a long time in the making, retail analysts say.

Express, which Bloomberg reported last week was in talks with lenders to help finance a possible bankruptcy process, has grappled with lower demand for multiple quarters as consumers cut back on discretionary spending or funnel dollars to e-commerce giants like Amazon or Shein. Express’s CEO Tim Baxter resigned in September a day after Express reported net sales for the second quarter of fiscal year 2023 fell 6% year-over-year to $435.3 million. The company’s new CEO, Stewart Glendinning, told investors and analysts in November that his focus was “on the pathway to recovering the company’s full profit potential.”

The last few months in particular have been difficult for the company. Express’s stock price is down nearly 90% year-to-date. On March 6, the New York Stock Exchange delisted Express after its share price failed to rise above $1 over six months. What’s more, Creditsafe data supplied to Modern Retail shows that Express paid about 30% to 39% of its bills on time in January and February of this year. Express’s number of late payments (one to 30 days late) jumped from 42.05% in February to 90.33% in March.

It’s all a stark change from 2010, when Express went public as the sixth-largest specialty retail apparel brand in the U.S., or even 2015, when quarterly net sales hit $765.6 million. The picture is also different from 1980, when Express came on the market to sell trendy clothes for the office or a night out. Today, Express Inc. has three brands: Express, Bonobos and UpWest.

In the last couple of years especially, Express has made several moves to try and come back from the brink. In May 2023, Express, along with WHP Global, acquired the men’s fashion brand Bonobos from Walmart for $75 million. In a statement at the time, Baxter said Bonobos had “double-digit sales growth” and called the company “a compelling addition to our brand portfolio.” The year before, Express doubled its number of Express Edit stores, which are smaller in square footage than its typical stores, to appeal to new customers.

Speaking to Modern Retail in 2022, Express also said it was focusing on building a stronger social presence, upping its omnichannel capabilities and not relying too much on promotions. “We’re constantly measuring and optimizing as we go,” Express CMO Sara Tervo told Modern Retail in August 2022. “And I would say that we try to keep a healthy balance of top-of-funnel brand-building investments.”

What’s ultimately to blame for Express’s financial woes, analysts say, is multi-faceted. Inflation is a concern for many shoppers, with prices in March up 3.5% from a year ago, per new government data. In this environment, some consumers have pulled back on spending on items like clothes and shoes to redirect money to essentials like food and gas. At the same time, analysts say, some of Express’s issues boil down to its core business, including its assortment and its ability to compete against other players in the mix.

A tough macro landscape

Express and other U.S. retailers operating in today’s economy are dealing with several headwinds. For one, demand overall is shaky and retail sales have fluctuated over the past year. What’s more, interest rates are continuing to climb. The Fed has hiked its rate 11 times since March 2022, according to CBS.

“Because the interest rates are so high right now, it’s really hard for companies that are already in distress to be able to get their finances in order and be able to get a reorganization of debt,” Brad Jashinsky, director analyst at Gartner, told Modern Retail. Express reported total debt of $274.7 million at the end of the third quarter, up from $235.4 million a year before.

In addition, Jashinsky pointed out, companies like Express are dealing with mounting pressure from e-commerce giants, many of whom are international companies but are stepping up marketing in the U.S. Some, like Temu and Shein, tend to offer clothes at cheaper price points than some competitors, Express included. A pair of women’s jeans from Express can run $80, compared to under $20 on Shein.

Put everything together, and getting out of the hole becomes even harder for already-troubled retailers, Jashinsky said. “It’s the combination of a lot of those factors that are making this environment incredibly tough for retailers that have been struggling for a while,” he said. “They’re starting to get to this edge of the cliff of bankruptcy.” If it declares bankruptcy, Express will join several other companies who have done so this year, including Joann and 99 Cents Only.

A question of relevancy

Express, while operating in this environment, has also taken responsibility for its decisions. In November, Express’s new CEO Glendinning acknowledged that the retailer had dealt with challenges beginning a year prior, or 2022. Express’s operating loss for fiscal 2022 totaled $67.5 million, compared to operating income of $0.8 million in fiscal 2021.

Speaking on an earnings call, Glendinning cited “declines in our customer file conversion and store traffic” and “missteps in our merchandise strategy, most notably in women’s, where we were out of balance across categories, price points and wearing occasions.”

“This misalignment between our assortment architectures and customer demand significantly impacted our historic sales and margins,” he added.

Express’s latest earnings were mixed. Its consolidated net sales for its third quarter of fiscal 2023, which ended in November, increased 5% to $454.1 million. Its operating loss totaled $28.7 million, down from the year prior, but up from pre-pandemic times.

However, its Express and UpWest brands saw net sales drop 7% year-over-year. Express’s net loss for the quarter was $36.8 million, compared to $34.4 million in the third quarter of fiscal 2022.

To that end, “the biggest problem at Express can be found on the sales line,” Neil Saunders, managing director for GlobalData Retail, told Modern Retail. “Sales have been cratering for a long period of time and there are few signs that revenue has reached rock bottom,” he said. “This has put the company under a lot of financial strain and has resulted in some significant losses. None of this is sustainable, which is why bankruptcy has become an option.”

Not all of Express’s problems are company-dependent, Saunders said. For example, Express typically carries formal or smart-casual clothing, and consumers have started dressing more casually since the pandemic’s onset, he explained. At the same time, Saunders believes Express has failed to adapt to the times. “The offer and assortment remain poor in that [they are] overpriced, lack differentiation and come across as very bland,” he said. “As a result, the Express brand itself has become less relevant to shoppers.”

To stem further losses, Express has enacted rounds of cost-cutting — $80 million in 2023 and $120 million in 2024 — with plans for further reductions of $150 million in 2025.

Cost-cutting, however, only goes so far. “That’s all well and good and it buys time, but cost-cutting does not solve the problem of a lack of relevancy to consumers, so it does not help grow sales,” Saunders said.