Chico’s Flourishing Family Style

FORT MYERS, Fla. -- Chico's family values have paid off handsomely for the moderate-price casual sportswear chain, based here.<BR><BR>The publicly traded sportswear retailer, with more than 90 stores in the U.S., generated $47 million in volume in...

FORT MYERS, Fla. — Chico’s family values have paid off handsomely for the moderate-price casual sportswear chain, based here.

The publicly traded sportswear retailer, with more than 90 stores in the U.S., generated $47 million in volume in 1993, and is predicting $64 million for 1994. A company that four years ago averaged $200 in sales per square foot is now doing in excess of $500 per square foot as a result of what key executives call the “family approach.”

The company, in fact, began as a family operation, founded in 1983 on Sanibel Island by husband and wife Marvin and Helene Gralnick. But it wasn’t until January 1990 when Jeffrey Zwick, then president and now chief executive officer, really began to shake things up. The Gralnicks are no longer active in the company, however they sit on the board of shareholders, according to a Chico’s associate.

Today Chico’s has grown from a few boutiques in select Florida tourist markets to upscale locations in 28 states, the District of Columbia and the U.S. Virgin Islands. Some of the newer venues are in such hot spots as Aspen, Beverly Hills and Santa Fe. The company owns 91 stores and franchises 17 units.

In March 1993, the company went public and began trading on NASDAQ under the title CHCS. Earlier this year, Chico’s placed 13th on the Business Week list of the 100 Best Small Corporations.

Analysts, such as Peter Schaeffer of Dillon Read, who have been following the company view it as occupying an unusual niche among American retailers: a vertical operation that designs, sources and sells its merchandise. Schaeffer says the operation has been successful enough to see its gross margins and net profits listed among the highest in the industry.

According to figures compiled by Morgen Walke Inc., for the five weeks ending Aug. 31, sales increased 21 percent to 4.6 million from 3.8 million for the same period last year. On a pro forma basis for the second quarter, net income increased to $1.6 million, or 20 cents a share.

Eileen Murphy of Equitable Securities Research in Nashville notes that comparative-store sales have been off nearly 1 percent for the year to date. On Sept. 1, the stock was selling for $8.50, nearly 11.3 times the 1994 estimated earnings per share of 75 cents.

Clearly, Jeffrey Zwick has an eye for business.

He also has a talent for internal organization. At the start of his tenure he hired top designers and management personnel who have been responsible for Chico’s steady climb in the marketplace. Once his team was in place, he made sure everyone felt at home.

Zwick rarely refers to his personnel by their titles. Instead he calls them — and everyone else involved in the company — “family members.” He encourages everyone in his “family” to narrow their focus to the target customer: women between 30 and 55.

He makes sure he has a sufficiently enthusiastic staff in each store to heighten the excitement about the merchandise and middle-of-the-road prices ($20 to $80). And, like the world around him, he keeps everything in motion by adding new elements to the mix every week of the year.

But he doesn’t tinker with the mix itself. Everything that is added blends with merchandise bought two weeks or two years back.

Commenting on his approach, Zwick says, “In a 1,300-square-foot selling space, you have to be focused.

“Part of the success is that our designs are exclusive to the company,” says Zwick. The line is, as the executive describes, “comfortable, casual, oversize, prewashed, preshrunk solids and prints that coordinate.”

The silhouettes lean on the body-friendly side; the designs all favor the bold motifs made popular in the American Southwest, Latin America and the Mideast. Each year a new theme is chosen — this year it’s earth tones — and Zwick is quick to point out that “we do not chase trends.”

Heidi Thorner, vice president of design, who oversees a team of eight in Fort Myers that is responsible for producing over 60 new patterns a year, says, “We generally run three to six months in advance. We start with the solids we plan to work with, then do the prints.

“We always try to do something that you can’t find anywhere else,” she adds. “And we’re always looking for new fabrications.”

Prior to entering markets outside the Sunbelt, the line was 100 percent cotton. While cotton still figures heavily into the mix, linen and rayons have been added, as have wools and silks for colder climes.

Thorner says, however, that the mix is basically the same regardless of the location, pointing out, “People in the Northeast will take the pieces and layer them more in fall and winter.”

She also explains that her staff is continually doing regional analysis and if they find items are performing better in other markets they’ll take appropriate action. “We’re very quick to respond to what’s going on.”

Accessories are another important factor.

“Working with the colors,” Thorner continues, “we’ll then develop necklaces, earrings and belts; belts are very important to our customer.”

Everything is displayed in a space accentuated with hardwood floors and native-inspired wood furniture handmade in Mexico.

Manufacturing is done primarily in Turkey, Guatemala and the Dominican Republic, with smaller operations in China, India, Morocco and Peru.

“Everything is manufactured where it is sourced,” says Thorner who, along with Zwick, travels frequently to these and other countries. “We deal directly with the vendors.”

“Since we’re primarily dealing with Third World countries, the type of people and their conditions are very important to us,” adds Zwick.

Thorner testifies that they actually go and live in each area for a while to make certain conditions are up to standard. “We see that the factories are well-lit and ventilated, that the salaries are good and that the people are living good lives,” she says.

She also says that each year they’re dedicated to finding a new area.

Because of the way Zwick has streamlined the company — and the moderate price points — markdowns are all but non-existent in front line stores; excess is sent to one of the company’s eight outlet centers across the country where merchandise is offered at one-third to 50 percent off retail prices. Zwick says 80 percent of the merchandise is sold as priced.

Advertising is limited and confined to print — “we’re a visual company,” says Thorner. Otherwise, marketing strategy is built around Chico’s “Passport Club.” Frequent buyers are offered special discounts and invitations to private sales.

Outreach programs involving fashion shows combined with charity tie-ins are also used.

This month, Zwick plans to move his staff from a 45,000-square-foot space to a capacious new 115,000-square-foot-headquarters with an on-site distribution center.

Plans call for an additional 140,000 square feet to be added within two to three years. The new facility will enable merchandise to be turned within 24 hours.

The expansion doesn’t stop there. Already, 13 stores have been added this year (most in the mid-Atlantic states and points farther north) and 14 more are expected.

Such largess in such a short period of time has caused much speculation. The company will state that it plans to add an additional 28 to 34 stores in 1995. Analyst Peter Schaeffer sees far greater possibilities.

“They have the potential to have over 500 stores in the U.S. by 2000,” he says, while also mentioning the international opportunities. “There’s also the possibility of taking the concept and expanding it into large size or children’s wear.”