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rue21 is a fast fashion, teen retailer that targets young men, juniors and junior plus customers. The company experienced rapid growth from 2004 through 2016 when it operated 1200 stores in 48 states and a small ecommerce business. The company targeted low income consumers who were interested in on trend fashion at value prices, and had locations in smaller towns and cities across the United States in malls, strip centers and outlet centers. The company had been taken private in 2013 by its private equity sponsor, and $800 million of debt was added to the balance sheet. Sales peaked at over $1.1 billion in 2016. This had been achieved through a growth strategy of continuing to open stores, which the company continued to do despite the rapid growth of ecommerce, which was taking market share from the bricks and mortar channel, and during a period where most specialty retailers were downsizing their store fleets. In 2016 the CEO and GMM were replaced by the private equity sponsor. The company was restructured in May 2017 in a Chapter 11 proceeding where the bondholders ended up owning the equity and long term debt was dramatically reduced to a $50 million term loan. The store fleet was reduced to 750 stores and corporate expenses and headcount were significantly lowered.
During the spring of 2017 Mr. Appel was retained by Stonehill Capital to assess the company’s business model and prospects for future growth. He believed that the company’s model was sound and that there was opportunity to create shareholder value by focusing on this underserved consumer, by improving execution, and creating a collaborative culture that would drive the turnaround. During the restructuring and Chapter 11, he advised the lender group on merchandising strategy until the company emerged from bankruptcy in Sept 2017. He was asked by the new equity to become Chairman of the Board upon emergence. The new Board retained a search firm for the CEO position, and shortly thereafter, the interim CEO left the company and Mr. Appel assumed the interim CEO position while the search was progressing.
As Interim CEO, and later as permanent CEO, Mr. Appel moved quickly to address the challenged business, and implemented a 5 point strategy to gain traction and drive results that focused on these key initiatives:
1. Understand the customer – the company had no research on its customer so a research firm was engaged to do a foundational customer segmentation study to gain a deep understanding of the rue customer segments. The research identified 5 distinct customers based on their behavioral traits, and chose 2 segments around which the company’s merchandise and marketing strategy was focused
2. Build a best in class management team – After a rapid evaluation of the existing management team was conducted in the fall of 2017 and Mr. Appel replaced many key players while retaining strong functional heads. Over a 2 year period he was able to build a superior management team to drive the turnaround strategy and instilled a collaborative culture throughout the company
3. Fix the product – with new chief merchant in place, the merchandise assortments were reworked to improve quality and fit while still maintaining the right combination of on trend product and value pricing that was key to its prior success. By July 2018, revenues and margins began to recover. This momentum continued into 2019
4. Embed Technology throughout all functional areas of the business to drive results –
Under prior management the company did not value technology. As part of rebuilding the executive team, Mr. Appel rehired an executive to head Data Analytics, who conducted a technology and IT assessment and put in place a technology roadmap that was embraced by the Board and was integral to the company’s turnaround. Highlights included digital testing of product, offering a new payment solution to consumers, launching Buy Online Pick up in Store, and a comprehensive Loyalty Program. Apparel Magazine recognized rue21 in 2019 as one of the year’s most innovative apparel retailers.
5. Maximize liquidity – Mr. Appel moved quickly to shore up liquidity. The ABL facility was enlarged and under the direction of a new CFO, the company was able to stretch payables significantly through an innovative supply chain finance agreement with its ABL lender. The CFO was able to reduce expenses and improve efficiencies through outsourcing the real estate and loss prevention departments and improving contracts with a wide spectrum of service providers. The company was able to manage cash so effectively that from emergence through 2019, every vendor was paid on time.
The strategy gained traction for back to school 2018 and the momentum continued through fiscal 2019, with strong comparable store gains in both the bricks and mortar and ecommerce channels, double digit increases in ebitda and a significant reduction in debt. The rue21 turnaround was achieved in an environment where many competitors filed for bankruptcy or liquidated, which validated the 5 point strategy that Mr. Appel put into place in the fall of 2017.