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Destination XL Sees $10B Opportunity in ‘Underserved’ Big and Tall Market

On the heels of signing a new contract to remain CEO and president of Destination XL Group for three more years, Harvey Kanter has plenty of reasons to be excited about the prospects of the “big and tall” men’s apparel retailer in 2022.

“Big and tall” remains the operative phrase at Destination XL Group, and Kanter sees a white space in realigning its 289 stores with its customer base. The CEO has said that he believes the total addressable big and tall market is in excess of $10 billion, yet the retailer currently only holds five percent of that market.

“Our job is to serve the needs of that customer. That’s an underserved customer in the marketplace that our employee population is incredibly passionate about,” Kanter told Sourcing Journal. While other department stores and mass merchants offer men’s apparel suitable for overweight or tall shoppers, Destination XL Group remains the only “real player of scale” that exclusively gears its assortment to that demographic, he said.

To capitalize on the white space and discover optimal future store locations, the brand is partnering with a real estate advisory firm and incorporating data and analytics within the process. The men’s wear chain plans to open 50 net new stores over the next three-to-five years.

“What we can see is that we’re shipping to locations that are not necessarily centric to stores being located there, in addition to the fact that we are doing a lot of triangulation on where customers are shopping,” Kanter said. When comparing shoppers that live five to 10 miles from, 10 to 15, and over 20 miles, there is a meaningful fall off in customers going to stores. When a store is beyond 20 miles, we know that there is a great opportunity to open another store.”

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The retailer once seen as a high-default risk ended 2021 with a bang, with net sales soaring 33.3 percent to $133.5 million and producing $9.9 million in net income in the final quarter. The full year saw company-wide records, with annual revenue totaling $505 million and profits reaching $56.7 million. It marked the first full year since 2012 that Destination XL Group brought in a profit.

In the company’s fourth-quarter earnings call, Kanter alluded to the company’s plans to convert select Casual Male stores into DXL banners as it reevaluates the total store operation.

Destination XL Group’s executive vice president and chief financial officer Peter Stratton, Jr. told Sourcing Journal that it was likely that all the existing 54 Casual Male stores will either become a DXL store or be dissolved altogether.

“We’ve always had this vision of unifying the brand,” Stratton said.

Perhaps more importantly than the raw numbers or the store rebranding, the DXL parent also got out of the clutches of its debt, clearing out $55.4 million that was on the hook as of Jan. 30, 2021. Stratton said that in his 13 years at the organization, this is the first time the company has been debt free.

“It’s a completely different company today than where we were a year ago,” Stratton explained. Stratton touted flexibility as the main benefit from the debt payment, in that the company now has freedom to “pursue some of the strategic initiatives that, we think can bring more value to big and tall men. It completely changes how we can approach things.”

As the business continues to free up cash, digital will be larger part of the equation going forward, as e-commerce comprised 31 percent of total sales in 2021. The business is currently implementing a new customer data platform (CDP) that will better leverage machine learning and data modeling to build and act on customer profiles. Ultimately, the deployment is designed to better segment and target shoppers.

This year, Destination XL Group also is planning to launch an SMS text messaging platform to create an additional complementary touch point alongside its existing email, mobile app and direct mail channels that can serve to combat “email inbox fatigue,” Kanter said in the earnings call.

DXL’s digital strategy will concentrate more on its own channels, with the company revealing in the call that it would end its wholesale relationship with Amazon. Kanter told Sourcing Journal the move was “a joint decision” between both parties, highlighting the ongoing supply chain challenges, volatility of revenue and differing priorities for their businesses.

“Our belief is that the business we are running with them was meaningful enough to attempt to do it on our own, and concentrate on it on our own without the million things that Amazon might have on their plate,” Kanter said. “The only thing we do is big and tall, so it became more important for us to go after that business and the opportunities that are represented than potentially what it was for them. That’s how we got to the point where we decided it made more sense for us.”

In particular, DXL feels it has an opportunity to capitalize on the return to work and resurgence of social gatherings—namely weddings in particular. The CEO pointed out that while there were 2.1 million to 2.2 million weddings on average in the U.S. per year prior to the pandemic, that number is anticipated to reach 2.5 million in 2022.

“The way we’ve thought about that is in terms of the kind of clothes they would wear and when do you then extend that to family events or travel once again, there’s these opportunities to basically go out and procure goods that would be more specifically oriented around things that have not happened for really the last few years.”

Tailored clothing comprised 18 percent of third-quarter sales, and 15 percent of the holiday season sales. The high demand for formal clothing actually caught the team by surprise, as expectations were not initially “probably somewhere in double digits,” but not the 15 percent it ended up being during the holiday. For the remainder of 2022, Kanter projects that the men’s wear retailer’s tailored business will comprise between 10 and 15 percent of total sales.

Stratton emphasized how big of a differentiator this assortment has been for DXL as it continues its rebound.

“Having the ability to have both opening price points in our private label product to some of the finest designer collections that you’ll find in any men’s store is a real benefit for our customers,” said Stratton. “It’s something that we hear quite a bit from them about, because they have that selection. They have those choices, where at most other places, he’s not going to have the same kind of choices that we offer him. It’s our entire store, where in most other places that sell big and tall, it’s just a department or in some cases it’s just a rack.”