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Rue 21 to Open New Digs After Emerging from Bankruptcy

After a five-month stint in bankruptcy court two years ago, Rue21 will open its first new store Thursday since it completed its restructuring back in September 2017.

The new 4,800-square-foot store is located on the lower level at The Mall at Robinson, Rue21’s headquarter market in Pittsburgh. The site features the retailer’s new Style Seeker concept store, which it hopes to expand from its current 109 locations to 132 by the end of 2019. The Mall at Robinson is the first new store opening featuring the concept model, as the other stores are sites that have been refurbished with the newer model in mind.

“Our new Style Seeker stores showcase Rue21’s great fashion with many more mannequins in the windows and 30 to 40 interior mannequins throughout the selling floor,” Rue21 chief executive officer Michael C. Appel, said of the new store concept. “The new format was designed to inspire Rue21’s customers to create their own outfits by showing them how to wear Rue21’s fashions.”

Most of the chain’s stores average between 5,500 and 6,000 square feet. Because the Robinson store is slightly smaller, it will house all categories except plus sizes.

The teen fast-fashion chain is finding its fortunes improving as some competitors, such as the financially strapped Forever 21 are looking to close doors.

Rue began its retail life as Pennsylvania Fashion Inc., and ended up in bankruptcy court in February 2002, exiting a year later as Rue21 Inc. By November 2013, the teen chain operated 1,000 stores. A completed leveraged buyout a month earlier–a $1.1 billion deal from Apax to take the retailer private–saddled it with $800 million in debt, according to Appel. The brief tour of bankruptcy court proceedings led to the shuttering of 450 stores, although more stores have since been closed through normal lease expirations.

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“With the opening at Robinson’s, we’ll have 697 stores, which is what it was before the LBO,” Appel said. The CEO said the bankruptcy allowed the retailer to right-size the fleet, explaining that even though 697 doors is still a big retail footprint, the size at least “gives us the scale we need to purchase sufficiently. Scale is important in the value-priced market.”

The bankruptcy also allowed Rue21 to reduce its debt. The $800 million in bond debt became a $50 million term facility, in addition to its asset-based loan. “Debt is much less and we’re not levered anymore,” Appel said.

The teen retailer has survived because there’s still a need for chains like Rue21, which caters to the underserved, low-income customer.

“They want great on-trend fashion at value pricing,” the CEO said. “We want them to have access to everything a higher-income customers has access to, such as a great store experience, great fashion and great value.”

And in fixing the business, Appel said Rue21 worked with First Insight, which allowed the retailer to digitally test product.

“The old way we would buy it in test quantities to see how it does. First Insight helps us to test with a group of Rue customers who have a history of picking the best sellers. They can see product on a flat surface, on a mannequin or on models. They score the product, which in turn allows us to decide if we want to go ahead with the item or not,” Appel said, noting that the system allows for improvement in the supply chain, although “the key is that you have to qualify the panel who buy from us.”

Rue21 is targeting two key customer segments. One is interested in fashion and does research online before heading to the store to work with a sales associate. The other is a frugal fashionista who knows how to put outfits together. Using a basic white-wall box for store displays, the store shows different style options, which Appel said “suggests outfitting and helps position the brand as a fashion authority.”

“We initially tested the idea in 10 existing stores,” he said. “We painted the store white and put in 30 to 40 mannequins and then we saw an immediate uplift in sales. It is a very inexpensive way to refresh the stores.”

The chain also offers a Buy Online, Pick Up In Store option, which it began in April, allowing for same-day service.

Given the tariff backdrop, and retailers either taking the position of raising prices or promising not to, Rue21 is weighing its options, too.

Roughly 8 percent of the company’s goods are imported from China, and should get lower as vendors move out of China to Vietnam and Bangladesh. “It will take a long time to get a factory outside of China, and then they have to get up to speed with the same level of workmanship for the same price,” he said.

Rue21 did incrementally raise prices, though.

“Many months ago when President Trump announced the tariff increases, we took a look at the assortment and believed that there was room to selectively raise prices on fashion goods. We’ve done that, but haven’t seen any negatives,” the CEO said. “By improving styling and quality of product, we were able to take the price up a dollar or two. On key programs, such as denim, the price points are especially important to girls, so on those categories we worked with vendors to hold the line.”