Monday marked the launch of the fall 2014 denim collection for Express (EXPR +0.00%). The denim campaign features supermodel Kate Upton and is the fashion retailer's first time featuring a celebrity in an ad campaign in over a decade. The launch is happening in the midst of shareholder skepticism about the long-term profitability of Express. Will Kate Upton be an integral part of the company's turnaround strategy?
Not-so-super performance
The specialty apparel and accessories Express sells are aimed mainly at young men and women in their 20s and 30s. But since going public in May 2010, the fashion retailer has put in an underwhelming performance.
Express operates in a challenging retail environment. It shares its target demographic with competitors such as Gap (GPS 0.46%) and women's fashion retailer ANN (NYSE: ANN). While Gap and ANN's net profits have grown , Express hasn't proved that it's up to meet the challenge.
Decreased traffic and heightened promotional activity stunted first-quarter 2014 earnings growth for Express. In the first quarter of 2014, the company's e-commerce sales decreased 2% compared with the first quarter a year ago. Lower e-commerce sales resulted from decreased traffic to the express.com website.
Decreased online traffic was consistent with decreased traffic at Express retail locations, too. Comparable sales, excluding e-commerce sales, decreased 12% from one year ago, and both net income and earnings per share decreased 84% compared with the first quarter of 2013. For the fiscal quarter ended May 3, Express reported a profit of $5.1 million, compared with $32.4 million a year earlier.
To compete in the increasingly promotional retail environment, Express invested in its marketing strategies this past quarter. The company had a $10.2 million increase in sales, general, and administrative expenses in the first quarter of 2014, driven primarily by a $7.4 million increase in its marketing expense.
What has the fashion retailer spent this money on? Express recently purchased a new LED sign in Times Square and also increased its digital media spending. The more interesting marketing decision, however, was hiring Kate Upton as the new brand spokeswoman. This follows a trend companies often implement as a means of combating a financial slump.
Capitalizing on Kate
Express announced March 12 that Upton would be the new face of the fashion brand. The company says she was chosen for three reasons: She's fresh, she's sexy, and she's iconic. In the press release announcing the partnership between Express and the young supermodel, Chairman and CEO Michael Weiss said that the "new partnership highlights the mutual admiration between Express and Kate and is the culmination of two iconic American establishments coming together."
The fall 2014 denim collection is inspired by Upton's favorite jeans, and the ad campaign hinges on her claim that she grew up wearing Express jeans. Express is hoping to capitalize on what it considers to be Upton's "true American girl" identity, which is reflective of the target Express brand consumer.
Looks aren't everything
Express will have to do more than just hire Upton in order to sustain earnings growth in the future. Its biggest problem right now is the decrease in traffic to both its website and retail locations. A major initiative for the company this year is to expand the e-commerce platform and improve the customer's overall shopping experience in order to increase sales. Express intends to optimize the mobile web shopping experience by improving the shopping cart and checkout systems so that customers can more easily find and purchase the fashion items they desire.
Upon reviewing its store base, Express also plans to reduce costs by closing 50 stores over the next three years. By slashing under performing stores, ideally when their leases expire, Express hopes to add $5 million to $8 million to its operating income.
Foolish takeaway
Upton is a supermodel, but that doesn't mean she has super powers. Hiring Upton as the face of the company is a marketing strategy that might increase sales and help build the Express brand in the short term, but she doesn't promise long-term profitability for the company. The quality of the products offered in the new denim collection is what will entice consumers and keep them coming back to Express for more.
