Why DXL is Telling Customers to ‘Wear What You Want’
Destination XL Group has been on a turnaround tear since the start of the Covid-19 pandemic. The men’s apparel retailer, which topped bankruptcy watch lists in 2020, responded to naysayers by delivering eight straight quarters of profit and revenue growth.
The reinvigoration has been driven by its aim to fill a white space for the hard-to-fit “big and tall” consumer—a notoriously underserved market—as well as the ability to buck margin-thinning trends from overstock to aggressive markdowns.
More from Sourcing Journal
What's Going on With Warehouse Space and Prices? Here's What the Data Says
Analyst: Off Price Gets Last Laugh in Bed Bath, Tuesday Morning Meltdown
Columbia Sportswear CEO Says Hike and Trail's Glory Days Are Over
Jim Reath, chief marketing officer of Destination XL Group, believes the company’s emotional connection with this consumer has helped the retailer not only differentiate itself, but empower shoppers as well.
“This customer has not only been underserved, but he shops with significant baggage. His clothes ultimately chose him, because it was a fact of whatever was left on those racks were what he had to choose from,” Reath told Sourcing Journal about the “Wear What You Want” brand awareness campaign that debuted in March. “That emotional connection was around letting him simply shop the way all of us take for granted every day. For him, his clothes really weren’t either a reflection of who he wanted to be seen as, or a reflection of his brand because he couldn’t choose them that way.”
According to Harvey Kanter, CEO and president of Destination XL Group, the retailer has a notable advantage in the category since most competitors selling “big and tall” products are general merchants. These retailers often extend their normal sizes by proportioning up a small part of their product mix, according to Kanter.
“They typically have a fixture or several fixtures of product, but in reality, it’s never an offer that is specifically driven around him in a way that’s really important. That’s really what we’re trying to do,” Kanter said.
Destination XL Group, which operated 243 DXL stores and outlets and 68 Casual Male XL stores and outlets as of March 16, has a certified fit team trained on measurements to ask questions like, “Where do you wear your pants?”
“Most men like to wear their belt and their waist below their belly. But in reality, that’s not every man,” said Kanter. “Not every man desires that, even if he carries his weight there.”
The retailer also addresses a common problem among the “big and tall” demographic, in that many consumers think of “fit” as simply covering their body instead of wearing a great-fitting outfit.
“He will overshoot on the size to be bigger because the emotional toll of ‘too small’ is perceived as making it worse,” said Reath. “The truth of it is ‘too big’ can look just as bad as ‘too small.’ Helping understand what is a great fit is part of what we’re trying to do.”
One of DXL’s major strengths in recent years is the company’s ability to manage inventory efficiently in a time where excess has plagued the apparel sector.
Total inventory increased 13.7 percent year over year to $93 million as of Jan. 28, but the retailer says it is in a better position than it was at the end of 2021.
Kanter said previous outbreaks seen with the SARS and H1N1 viruses brought challenging times to the sourcing aspect of the industry, giving DXL a blueprint of how to approach the early days of the Covid-19 pandemic. By March 2020, when non-essential businesses in the U.S. shut down, DXL cancelled $60 million worth of orders. That number shot up to $148 million by April.
Then came lower demand for new men’s clothing as consumers worked from home and refrained from attending social gatherings. As compared to fiscal 2019, or pre-pandemic levels, inventory levels are still down 9.2 percent.
“We didn’t really get back to where we wanted to be until maybe the past six-to-eight months,” said Kanter. “We have this philosophical point of view that we’d be rather chasing goods than chasing cancellations.”
But more importantly, product is selling. To close 2022, inventory turnover was up more than 30 percent on a three-year basis, and has been up as much as 40 percent in the past 12-to-18 months, according to Kanter.
The pandemic era also enabled DXL to scale back its discounting, particularly because it could fill the void other general retailers couldn’t.
“Why do we need to promote jeans when the jeans we carry are not available anywhere else?” Kanter said.
In January 2021, the company stopped discounting Ralph Lauren products, before dropping seven brands the next month. By March, DXL was “basically a regular-price company,” according to the CEO, indicating that the retailer didn’t offer generally available discounts.
“In November 2021 and again in November 2022, we went through Thanksgiving and Black Friday with virtually no public promotion,” he said.
Clearance was 7.9 percent of total inventory at the end of the fourth quarter, ticking up from the 6 percent of merchandise sold at a markdown as of Jan. 29, 2022. But that total is still below the company’s historical benchmark of approximately 10 percent.
The retailer had a successful fourth quarter, with $143.9 million in net sales, up 7.8 percent from $133.5 million for fiscal 2021. Comparable sales for the fourth quarter increased 10.8 percent as compared to the fourth quarter of fiscal 2021. Net income totaled $8.3 million, or 13 cents per diluted share.
For the 2023 fiscal year, Destination XL Group anticipates sales of $550 million to $570 million, which would be in the range of flat to 5 percent growth. Net income is forecasted to range between $41 million and $47 million, while adjusted EBITDA margin is projected to be between 12.5 percent and 13.5 percent.
Kanter said DXL expects that virtually no first-half revenue growth will give way to 5 percent from July onward. But he believes the company is in a much better position than other apparel brands, many of which he said haven’t issued full-year guidance.
“It’s obviously less growth than we’ve had the last few years, which were in the double-digits,” said Kanter. “But there are macros and volatility that are not necessarily friendly to the customer. Whether it’s gas prices or mortgage rates or the war in Ukraine, I mean there’s just so many variables that are affecting the consumer psyche that they are probably a little closer to the vest in terms of their spend.”
Destination XL Group will announce its first-quarter results on May 25.