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Express Uses Flexible Discounting, Fast Sourcing to Salvage Quarter

Express Incorporated cut expectations for the current quarter, noting that promotions have failed to increase traffic. The move foreshadows a weak holiday season for the retailer, and presumably its competitors.

The firm targets men and women in the 20 — 30 year old bracket, an important consumer segment that has been hard hit by the recession and subsequent slow recovery. Consumers have been cutting back on discretionary spending in recent months.

The retailer stumbled in releasing knit sweaters that tested well, but were rejected due to a higher than average price point. They revised the strategy by designing and releasing more affordable tops in the women’s category, mid-quarter, and reported increased sales following the move.

Express was also pursuing a discounting strategy of offering a lower price on a second item, after a first item had been purchased at full price. The strategy was largely unsuccessful, and will likely be replaced by simpler discounts and more aggressive promotions, as the firm seeks to recover from slow sales.

Other firms are also expected to promote aggressively in order to reduce inventory. Inventory levels were up at Express, rising to $210.4 million from $207.4 million last year.

Express relies on quick turn times to provide that mid-quarter flexibility without discounting. In-house designers and close partnerships with compliant factories mean the brand can respond quickly to sales and traffic information. That advantage should prevent a loss this quarter, with the brand expected to offer a return of 16 to 20 cents per share.