We’re getting back to what we do best, and that is chasing into best-selling items. That’s true not just in women’s but also in men’s. Some of the categories in men’s are tougher to chase into, categories like suits, which are longer lead time. But in men’s, we’re also chasing into categories–knits, right now we’re chasing into, even for the fourth quarter. We are back in the chase business and it’s a great place to be. It puts us back on the offensive.
Eric Beder: Great. Good luck for the holiday season.
Tim Baxter: Thanks Eric.
Operator: Your next question comes from the line of Marni Shapiro of Retail Tracker. Your line is open.
Marni Shapiro: Hey guys. Great improvement in the stores, they look beautiful. Those Natalia jeans? You nailed it.
Tim Baxter: They’re good!
Marni Shapiro: They’re really good.
Tim Baxter: They’re very good.
Marni Shapiro: Can we dig into just a couple of things here? On the gross margin, the reduced spending, is a lot of that coming just from not having to lap the higher freight costs and things like that from the last couple of years, or are there other things that you’re also looking to do within your production and your manufacturing, and things like that?
Tim Baxter: It’s actually predominantly a reduction in the cost of goods, not freight. We’ve taken–again, we were out of balance from a price point perspective, so we’ve actually taken cost out of the product not just because we reintroduced opening price points, but also because we’ve re-engineered some things to get the cost lower. In women’s in total, we’re seeing a reduction on our first cost, like 10% to 15%, which is great. Some of that is freight – Jason can speak to that, but it’s predominantly coming out of production and sourcing.
Jason Judd: Yes, and what I would add to that is, as you remember, within our gross margin is buying and occupancy expenses, and we do have some of our org cost savings hitting within the buying line that are further supporting the leverage that we would get, offsetting the promotional environment that Tim addressed.
Marni Shapiro: Great. Then can we also talk a little bit just about the stores and Express specifically? It sounds like Express is going to like this lean, mean cash machine, so when I think of it that way, what does that say for the store fleet and also what about marketing, then, because you’ve stepped back a little bit from marketing? It’s hard to be a cash machine if people can’t find you, don’t know you, so where do you find the balance on the marketing side and on the stores?
Tim Baxter: Yes, I like thinking of us as a lean, mean cash machine, first of all, Marni. I guess I should have used that language. But that does not mean that we’re not going to still be relentlessly focused on product, relentlessly focused on our brand, and relentlessly focused on customer. I mentioned it but I can expand a little bit further, from a marketing perspective, the reduction has come out of top of funnel, which as you know is a customer acquisition tool. Top of funnel is a customer acquisition tool. Our focus right now is actually on lower funnel tactics that are driving much higher ROAS – much higher ROAS, so we’re spending significantly less marketing dollars but we’re driving significantly more demand with those dollars.
That’s driving–you know, our existing customer, who loves us, is spending more and visiting more often, so those are two very powerful things that we feel really good about. The other thing that I mentioned briefly is that as we move into the back half of this year, we also expect to be able to reactivate lapsed customers at a much higher level because of the changes in our assortment and the response that we’re seeing from our assortment. In the short term, this reinvestment of our marketing dollars, the reduction in spend and the reinvestment of those dollars into higher ROAS tactics is really paying us back. It’s really paying us back very well. In the longer term, we are going to have to figure out how to manage other parts of the business more efficiently so that we can invest in top of funnel tactics in marketing.
