All three are specialty retailers selling better apparel, accessories and footwear to 20-and 30-something women. All launched around 40 years ago during the heyday of regional shopping malls. All have CEOs with decades of experience.
And all are fighting to stay relevant in this overcrowded, increasingly brand-agnostic, price-obsessed marketplace.
Since the beginning of this year, the stock market has increased by almost 3 percent to record highs, but all three of these retailers have seen their stock prices plunge by double-digits. Cache’s has dropped the most, from $5.49 per share to $1.33, a 76 percent dive. Bebe has suffered a 45 percent drop from $5.32 to under $3.00. Express has fallen 12 percent, to a shade under $16.50 per share.
With mall traffic steadily declining, and fast fashion players like H&M and Forever 21 taking a larger share of young women’s clothing budgets, these older, established brands, which started out catering to Baby Boomers, are having a harder time getting on the younger consumer’s radar now that their Boomer customers have moved on to brands that fit their bodies better.
Add to that the rapid replication of design that has led to a near commoditization of fashion brands–not to mention the relentless sales, coupons and other promotions that shoppers have become addicted to–and we’re talking about an environment in which it’s getting harder than ever to meet sales and profit goals.
The problem, says market analyst and apparel industry consultant Marie Driscoll, is the brutal competition from the cheap and chic. “These brands are feeling the competitive heat of fast fashion,” she said. “To varying degrees the merchandise assortments at Cache, Bebe and Express are for dressy occasions or date nights. Quite frankly, there are less expensive alternatives out there that are more fun.”
Cache, launched in 1976 as a Florida boutique selling European designer clothes to fashion-conscious women, has established itself primarily as a purveyor of sexy, sophisticated special occasion apparel. It is in the middle of an attempted turnaround led by chairman and CEO Jay Margolis (formerly of Express), whose new management team has been hard at work revamping marketing and product assortment, including efforts to offer more daytime sportswear product.
The turnaround has been tougher than expected, however. After sliding 4 percent for the fiscal year ended December 28, total sales dropped by 11 percent in the first quarter, with comps off by almost 9 percent, resulting in an operating loss of $10.8 million, $3 million worse than last year’s first-quarter loss. Although dresses represented 55 percent of its $47.5 million in sales in the period, compared to only 44 percent in the prior year period, gross margin skidded 440 basis points, to 27.2%, compared to 49.5% for fiscal 2013. In its first quarter earnings conference call, Cache management said results were very disappointing, but that the firm’s turnaround plan remains intact. Traffic at its 242 stores was down by 15 percent in the first quarter and continued to fall in April, but then recovered slightly as prom season hit. The company just completed a stock offering of 9.2 million shares at $1.75 per share, and has expressed confidence that things will be improving in the second quarter, results of which will be announced next month.
Bebe Stores, started in San Francisco by Manny Mashouf (also, coincidentally, in 1976) to provide fashion clothing to a captive Baby Boomer clientele, has evolved its product line over the years to appeal to a younger aesthetic, and is now also known for dressy club attire and sexy sportswear. In its third fiscal quarter, which ended in March, sales fell 17 percent to $93.5 million, with comps down 5.7%. Gross margin fell 260 basis points to 27.1%, resulting in a loss of $24.3 million. Year-to-date, sales have fallen by 7.6% to $366 million. Mashouf handed the CEO job over to Steve Birkhold last January, but remains as chairman. Last month, Birkhold resigned, and was replaced by strategic consultant Jim Wiggett. Three board members were also replaced, and the closing of the 16-store lower priced 2be division announced, so it seems a bit of a shakeout might be underway.
Express, divested by Victoria’s Secret parent L Brands and then taken public in 2010, has former Limited executive Michael Weiss at the helm. Things were going pretty well at the retailer of fashionable career clothing and dressy sportswear, but then suddenly took a turn for the worse: first quarter sales fell by 10 percent, with comps down 11 percent and e-commerce sales off by 2 percent. Gross margin fell by 370 basis points, to 29.7%. Net income plunged from $32.4 million last year to $5.1 million. After a comprehensive review, the company has announced it would be closing 50 of its 600 stores and plans to repurchase $100 million of its shares.
Driscoll says, “Express has done a good job of staying relevant to a young 25-year- old, but this demographic doesn’t have money. She’s been harder hit by the difficult job market. As a result, the company is growing its outlet concept and its men’s offering, which are both promising growth opportunities.”
This seems to have caught the attention of private equity firm Sycamore Partners. In late May, Express announced it had received a letter from the firm (which currently holds almost 10 percent of Express stock) noting that it would like to acquire the company in an all-cash deal. The stock rallied on the Sycamore overtures, jumping 21 percent from its May 30 price of $12.61, a 52-week low.
Cache, Bebe and Express have no doubt realized that gone are the days when the right store in the right part of the mall makes everything fall into place. Innovative strategies including social media, loyalty programs, associate training and more are required these days to help cement the connection with consumers. To that end, Express is investing heavily in mobile commerce, and has hired supermodel Kate Upton as brand ambassador to help cement its brand awareness with its target demographic. Cache has reportedly been successful with in-store events, and is discussing a marketing relationship with the Miss Universe pageant. All three have started the process of converting to omnichannel retailing.
But will those efforts be enough? Elizabeth Pierce, senior retail analyst at Ascendiant Capital Markets, feels there is a mismatch between these merchants and the target consumer. “What this group really lacks,” said Pierce, “is the ability to get inside her brain. Members of top management, many of whom started in this business 20 or 30 years ago, really need to figure out how to monetize the social media for their brand, and to create an emotional connection with the target consumer.”
Pierce pointed out that, whereas a generation ago, young women were spending their free time at the mall, today they are spending it online, constantly scouring social media. They no longer need to go into a store to learn the latest fashion trends. Today’s fashion authorities are blogging and posting on Pinterest, Facebook, Instagram, Twitter and other platforms 24/7.
If social media penetration is any indication, then these brands have their work cut out for them. Cache has just 364,000 “likes” on Facebook, compared to 3.7 million for Bebe and 4.6 million for Express. All three, however, pale in comparison to H&M, with a total of almost 20 million.