Chico’s, the little engine that could, keeps on chugging out strong numbers — through recession, terrorist attacks and dwindling consumer confidence. What makes Chico’s, a virtual unknown five years ago, one of today’s hottest specialty chains?

It didn’t happen by accident. While there’s no one magic answer, there is a formula — a carefully honed, meticulously tracked growth strategy. After stumbling in the early Nineties, Chico’s underwent a complete overhaul that affected all areas of business. Product was redesigned and redefined for a target customer, merchandising was revamped, and sales training was intensified, under a new sales and merchandising management. In 1999, catalog and Internet sales began in earnest, and the highly successful Passport program, a customer incentive initiative, was relaunched. National ad campaigns introduced in television and print last spring, boosted name recognition and sales. Finally, last year, the company began trading on the NYSE, under Chico’s FAS.

More important than any one factor, is the way all these elements work in combination to grow sales and put Chico’s on the map. Chief executive officer Marvin Gralnick said the retail climate has also changed in favor of smaller specialty chains that can turn on a dime.

“It used to be important to be big, now it’s important to be fast,” said Gralnick, over lunch after Chico’s second annual analyst open house, held Feb. 5 at the company’s Fort Myers, Fla., headquarters. “The big guys can’t change, but we can reinvent and improve. We’ve seen no let up in growth and volume.” As reported, Chico’s January 2002 same-store sales increased 22.4 percent.

Chico’s has posted monthly comp-store gains every month for almost five years, with its last decline in February 1997. January’s figures brought overall sales up 26.8 percent, to $28.9 million, for the four-week period ended Feb. 2. For 2001, comp store gains averaged 17.1 percent. Gross sales were around $375 million.With 311 stores in 40 states now, Chico’s will bow 65 stores in 2002, after opening 61 last year. Gralnick projected half a billion dollars in gross sales for 2002, when the chain will celebrate 20 years in business. Although a few stores are in upscale malls, most are in freestanding or strip centers.

Gralnick stressed the importance of watching costs, staying lean and calm, but aggressive. “Keeping discipline when things are good makes all the difference,” he said. Chico’s growth has brought about more clout and buying power with manufacturers and contractors, for its private label apparel and accessories.

Chico’s prides itself on providing customers with newness in stores. New items are brought in weekly, sometimes daily, and the entire mix changes within four weeks. Until recently, design decisions were made by Marvin and wife Helene, the company’s senior vice president and general merchandise manager, and a few select others.

This year, Chico’s hired key management in product management, merchandising, planning and allocation. The new team is charged with pursuing new product in New York, reading and projecting trends, and developing key items. “We want to be seen as a true design company,” said Gralnick. Thirty-five percent of all sales come from novelty items. Key items, such as basic layering pieces, tanks or T-shirts, are also a growth area. Chico’s will fill in voids, such as sweaters and cold-weather wear for stores in northern states. Chico’s has 11 stores in Connecticut, 11 in Michigan, 12 in New Jersey, 10 in New York State, with stores scattered throughout other Northeast and Midwest states.

Chico’s looks target a baby-boomer customer, with generous silhouettes and fashion-forward styling that’s not too edgy. The Travelers Collection, made up of pants, skirts, tops and jackets in a variety of silhouettes, is a patented, wrinkle-free knit, and accounts for 12 to 14 percent of total sales. This year, Travelers will expand its color palette beyond black, brown, navy and red, and add prints, jacquards and novelty treatments.

Novelty jackets, Chico’s trademark, in silks, embroidery, velvets and patchworks, continue to be bestsellers, especially during holiday. For spring, linen is strong. Chico’s seeks out mills that can produce heavier, quality linen, in cross-dyed or jacquard patterns.

“We can’t stray too far from the target audience,” said Pat Murphy, senior vice president and general merchandise manager. “We huddle every morning, talking about how the consumer psyche is changing, always asking ‘What will she want to wear?”‘

That customers showed no price resistance to more expensive pieces such as leather and suede jackets, retailing up to $400 this fall, has led to experimentation with more upper-end prices than Chico’s typical better-priced goods.

Advertising and marketing is all done in-house via Chico’s Media Inc., to both cut costs and ensure total creative control. This year’s total marketing budget, which includes advertising and direct mail, is up 35 percent over last year. Catalog mailings will increase 27 percent, with more mailings and more prospect lists of customers, according to vice president of marketing of Jim Frain.

Print advertising will increase 15 percent in circulation, with O, The Oprah Magazine and Martha Stewart Living magazines as the most effective publications. Television ads will also increase 40 percent, in “gross impressions,” which measures how many times the targeted audience sees an ad in a given time slot. Spots will also change more often.

All of Chico’s marketing efforts center on its Passport program. Customers become permanent members after spending $500 over any period of time. Members receive a permanent 5 percent discount, advance sales, and free shipping. Currently, Chico’s has 397,000 Passport members, a number projected to rise to 616,000 by yearend. Many more, 1.5 million, are preliminary members, who have yet to reach the $500 goal. The Passport database allows Chico’s to track sales patterns, trends and communicate with customers. Tellingly, over half of Chico’s sales associates were customers first. Sales people receive 98 hours of training, more for managers. Sales associates earn commission through building each transaction, and through store performance.

With no mirrors in dressing rooms, customers must stand in front of a big communal mirror, a setup that encourages interaction with — and feedback from — sales associates. Customers who start out trying on basic tanks and pants are encouraged to add layers, mix and match and accessorize with Chico’s jewelry, shoes hats and belts. The community mirror also encourages communication between customers, who offer their own comments and suggestions.

“Women, especially older women, love to feel pampered,” said Murphy. “Others may go after the younger, trendier customer, but we love this woman. It’s a growing market, with spending power, and we’ve only scratched the surface.”

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