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Talbots Inc., seeking to shed its dowdy image, increase relevancy in the misses’ market and restore profits, on Tuesday unveiled a three-year strategic program touching almost all areas of the company.

Much of the strategy entails efforts to refine and modernize the approach to the classics that the 61-year-old chain has clung to, even in recent times when contemporary offerings with a youthful verve have far outsold more mature, traditional offerings across the industry.

Streamlining of the Talbots Inc. head count, store count and inventories are in the works. But so are plans to carve out more space for stronger categories, i.e. plus sizes, accessories and Collection merchandise, which is considered “the design umbrella” for the Talbots brand. Within Talbots’ misses’ stores, 900-square-foot “boutiques” selling plus sizes, as opposed to the current 250 square feet allocated for the category, will be created.

Also on tap: opening 35 additional Talbots Woman stores over the next five years, and launching a “premium” outlet concept with potentially 40 units operating in three years. Top outlet centers across the country, such as Woodbury Common in New York, are being contacted.

Over the past nine months, Talbots has undergone an upheaval. New top management was installed, including a new chief executive and division heads, and other changes were made, such as shutting down the kids’, men’s and U.K. divisions, representing a total of 78 locations and 5 percent of the workforce. The downsizing should be completed by September.

In addition, the company intends to slash $100 million out of the cost structure over the next two years, and will examine the corporate offices in Hingham, Mass., and other parts of the company for further head count reductions. Officials said it was too soon to specify how the cuts will be accomplished.

In other significant shifts already triggered by the new regime, Talbots this year has gone from four big sales a year to monthly markdowns and instituted smaller monthly deliveries, rather than a handful of large seasonal deliveries.

Moving forward, the company intends to restore a “good, better, best” pricing structure at the Talbots brand to offset what’s described by executives as price deflation and an overreliance on opening price points. The company recently completed a strategic review that forms the basis for its recovery plan and determined the strengths and weaknesses of the business and what its shoppers wanted and weren’t getting.

This story first appeared in the April 2, 2008 issue of WWD. Subscribe Today.

“Our core customer was telling us the product was old,” Trudy Sullivan, Talbots Inc. chairman and ceo, said during an investor conference Tuesday. “We are not saying we’re going to contemporize. We are not a contemporary brand. We are solidly in the classic space. We are saying ‘modernize.'”

She characterized 2008 as “a pivotal year” for the specialty retailer, one with conservative financial objectives given the difficult economy and the company’s own issues. Talbots forecasts top-line growth of approximately 3 percent, with the Talbots brand’s comparable-store sales seen decreasing 1 percent and J. Jill’s increasing 1 percent. Consolidated direct marketing sales are planned up in the midsingle-digit range.

Fiscal 2008 earnings are expected to range from 47 cents to 52 cents a diluted share, while the company is planning for a loss from discontinued operations in the range of 59 to 64 cents a share, for a total loss per share of 7 to 17 cents, compared with the $3.56 loss per share reported last year.

Long term, Talbots is shooting for a 4 percent sales consolidated annual growth rate and an operating profit of 7 percent of sales by fiscal 2010.

After all the plans and projections were disclosed, Talbots Inc. stock rose $1.23, or 11.4 percent, to $12.01 on the New York Stock Exchange.

Talbots and J. Jill both target Baby Boomers, with Talbots’ sweet spot with women ages 53 to 54, though Sullivan wants to bring that down to 47 to 48. J. Jill’s sweet spot is ages 44 to 48. There is a slightly under 20 percent customer overlap with the divisions.

The pace of store openings has slowed, with 27 Talbots and 19 J. Jill stores expected to open this year, while 30 stores, mostly Talbots, will close. Last year, there were 75 openings and 18 closings.

At the 1,149-unit Talbots chain, modernizing the classics, to some degree, has meant taking a step back in time. “We put together a war room and looked at catalogues as old as 1957,” Sullivan said. They saw what she described as Talbots “iconics” such as tweeds, houndstooth, duffle coats, stadium coats, plaids and jackets, which are being played again in this fall’s assortments. Long sweater coats, novelty jackets, tailored trousers and a black, white and red color story, which Talbots is known for, are also important fall elements.

She boasted that Talbots, while coming off a tough year, nevertheless maintains a “very unique proposition….This customer gives us permission to outfit across her entire wardrobe,” including active and casual sportswear, refined jackets, tailored pants, accessories and jewelry.

With a mandate from customers to change the offerings, Sullivan said the company has become design-led, rather than process-driven, and is working hard to revamp Talbots and J. Jill merchandising and marketing strategies. She also said store presentations and visuals will be improved with a keener focus on wardrobing and outfits.

The company also will promote its Talbots Collection more vigorously by offering it more broadly and stepping up promotions; accessories will receive greater emphasis, while shoe assortments will be tightened.

With the upcoming premium outlet plan, Talbots will produce merchandise expressly for the new outlets, and believes its existing 25 outlets, which operate primarily as clearance centers, will be less significant as inventory management if the regular stores improves. Talbots feels it is missing a customer segment by not operating premium outlets.

In addition, the corporation this summer will institute Oracle’s ProfitLogic system for automating markdowns at Talbots and J. Jill. While there are no plans to expand J. Jill currently, the company does see the potential for 450 stores from the current 273, but won’t grow the base until the brand returns to profitability. New concepts, such as a large-size format, premium outlets and international stores, would be considered.

“Easy sophistication for every day is our brand proposition,” said Paula Bennett, who has been president of J. Jill since late January. However, she acknowledged, “We are not quite where we want to be with our merchandise.”

The division, which contributed about $500 million to the corporation’s total $2.2 billion in volume last year, is focused on product improvement, better fits and building brand awareness through targeted direct marketing to ramp up productivity. J. Jill is adopting “a very clean aesthetic,” with colors inspired by nature, and a less embellished look with more novelty attained through fabric textures. More expensive fabrics are being incorporated, while still keeping items under $200 except for leather jackets. “The collection is still easy and comfortable, but less boxy and more shaped,” Sullivan said.

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