Tilly’s Inc. plans to withstand challenges vexing the brick-and-mortars nationwide with a 2017 playbook that includes renewed focus on e-commerce as well as a red-carpet rollout for shoppers that do venture into its 225 stores.
“It’s difficult enough in this environment to attract customers, so we are doing a lot of things to really enhance [their] experience,” Chief Executive Ed Thomas said to potential investors at last week’s ICR Conference, an annual gathering of industry operators and investors in Orlando, Fla.
Tilly’s is on pace to reach about $550 million in revenue this year, and posted a 7.3% uptick to $152.1 million for the October quarter, when it reported $6.4 million in earnings.
Its performance has run counter to larger trends in retail—teen apparel chain Aéropostale Inc., which filed for Chapter 11 bankruptcy in May, closed 154 stores out of about 500 it operates in North America. Macy’s, which has 730 stores, said in August it plans to shutter 100 locations, and picked 68 shortly after it toted up a same-store sales dip of 2.1% for November and December. Sears Holdings Corp. followed suit in December with plans to shutter 108 “non-profitable” Kmart locations and 42 Sears department stores, bringing its total to about 1,500 stores. Its same-store sales for the first two months of the fourth quarter have “declined in the range of 12-13%,” according to the company.
“We are lucky because we don’t have what I call the ‘800-store problem,’” said Thomas, a former chief executive of Irvine-based Wet Seal LLC who joined Tilly’s a little more than a year ago. “We have very few stores that we’d want to close, but it’s more adjusting the economics to this environment with lower traffic.”
Tilly’s, which added five locations last year, also “decided to temporarily put brakes on new store growth, and focus on making the existing store base more productive and more profitable,” Thomas said.
The effort includes tighter inventory control and “spending a lot of time” on merchandise allocation—the retailer has profiled every store in the chain to determine local markets’ preferences.
“Not all of our brands work exactly the same in each store, and we are adjusting that accordingly,” Thomas said. “Surf and skate may not be important in a market, but stores (there) may have a demand for fashion.”
Tilly’s also is focusing on “seasonal merchandise opportunities,” Thomas said, adding that the company’s roots are in Southern California’s “warm climate,” and “as we expanded across the country we didn’t have much experience dealing with climactic differences. We paid attention to that this past year, and we’ve adjusted accordingly.”
Chief Financial Officer Michael Henry told IRC attendees that Tilly’s started as an “off-mall concept,” and about half of its stores have street-front locations or are in lifestyle and outlet centers.
The stores that are in malls tend to be in better locations, including the Irvine Spectrum.
“We are not exposed to C- and D-level malls and some of the other things you may be seeing from others about closures,” Henry said, adding that the Macy’s store closure list “was a concern for us and one of the reasons why we stalled our store growth for the near term … We actually overlap with only three of the stores that they are targeting to close. That was good news for us.”
Tight controls on overhead will continue at Tilly’s—“selling, general and administrative expenses” in the latest quarter were down 5% to $37.3 million and include a $1.1 million decrease “due to more efficient marketing spend.”
The chain also plans to negotiate for rent reductions at about 60 stores whose leases are coming up for renewal, a strategic move that could prove fruitful as mall owners grapple with the pending departures of anchor retailers and chain shops.
Tilly’s also will look to “clauses in the leases” to use “to our advantage to negotiate lower rent,” Thomas said.
The retailer is also focusing on social media marketing that has proven to be “very effective.” It plans to continue to sponsor events and hosting its own, often done in collaboration with brands it carries.
“Adidas [has] been really successful for us in driving traffic, particularly in new markets where we may not be known as well as we are in our home,” Thomas said.
Tillys’ digital team, led by Wet Seal and Boot Barn Inc.-transplant Chief Digital Officer Jon Kubo, is “enhancing the direct to consumer” program. “Reserve online, pick up at the store.”
The pilot platform is “tested as we speak, and I would expect that during the first half of this year we’ll roll it out to all stores,” Thomas said, adding that the service is “not only intended to provide customers with convenience, but I know from prior experience that it drives traffic to the stores.”
The digital strategy is built upon a recent deal Tilly’s struck with Atlanta-based Aptos Inc., whose Singular Commerce software will enable retailers to track and have “one complete view” of customers, inventory and orders. Aptos’ suite of technology offerings will also enable the retail staff to assist customers and process sales via some 1,200 mobile devices at its stores, as well as manage orders throughout their lifecycle, “integrating Tillys physical and online retail channels.”
Aptos’ CRM platform will meanwhile “help Tilly’s cultivate long-term relationships with customers and remain relevant by quickly identifying and responding to their changing needs and desires.” The retailer published a catalog but “didn’t have any CRM, so we look at that as a big opportunity to better serve our customer,” Thomas said.
Hezy Shaked and his then-wife, Tilly Levine, co-founded Tilly’s in 1982. The company went public in 2012, and according to Henry, has “a very healthy balance sheet.”
“We’ll end the year with over $100 million of cash and no debt, which leaves a lot of flexibility for continued investment in [e-commerce] or other strategic initiatives,” Henry said, adding that “there isn’t anything to announce today but leaves us with plenty of flexibility to do that.”
