Given the impact of the coronavirus, last year’s sales declines and all the fierce competition, turning around Chico’s FAS Inc. is a tough battle.
Yet, according to the specialty retailer’s president and chief executive officer Bonnie Brooks, who is orchestrating the efforts, the specialty retailer has seen a spike in online sales since all its stores temporarily closed March 18, the weekly cash burn is getting lower, and there’s a new business plan for 2020 and beyond “assessing and overhauling every function of our business.”
“As the magnitude of the impact of COVID-19 on the women’s apparel industry became clearer, we immediately pivoted to quickly adjusting operations aligned to digital marketing and distribution,” Brooks said Tuesday, in a progress report on the company’s performance. “During the past few weeks, we have significantly reduced our weekly cash burn. Our actions have been designed to reduce operating expenses by approximately 30 percent and we are committed to holding this cost structure for the long term. We have deferred the majority of payables, and are renegotiating all contracts, including real estate.”
The Fort Myers, Fla.-based specialty retailer, with more than 1,300 boutiques, operates the Chico’s, White House Black Market, Soma and TellTale brands. All the boutiques closed March 18.
“Over the past six weeks, we have seen strong customer demand in our digital channels, including increased traffic and sales on our web sites and increased engagement on our social media channels,” said Brooks, citing double-digit online growth, driven by intimates, sleep, cozy, active and loungewear, in the six weeks since the company became a digital-only business. The company operates five web sites for its’ brands, but no retailer can entirely make up the lost revenues from closed stores.
Digital gains are partly due to investments in technology. “In mid-March, we equipped our store management with handheld devices that were installed with Style Connect SM, our proprietary digital styling software that enables us to communicate directly with the majority of our customers to drive the frontline business to digital fulfillment,” said Brooks. “Style Connect was designed as a competitive advantage that has further opportunities for increasing sales as we move into our new ‘post-COVID-19 operating model’ as it allows for intimate but distanced connection in a meaningful manner that is resonating with our customers.”
She said the company has only $40 million in debt, and “sizable liquidity that puts us in a lot better position than a lot of our peers.…The hardest thing now is being forced to make decisions that impact people’s lives. For a lot of our team members, there are unfair consequences. There are also tough decisions affecting our vendor partners too, but we need them to stay in business.”
Brooks said the company started making changes due to COVID-19 early, back in January, when team travel to and within Asia was stopped, and reworked merchandise programs to change styles and timing so shipments would be more relevant later in the year. In some cases, payments to landlords, suppliers and vendors were extended or withheld. Some merchandise receipts were canceled to better align inventory with expected demand and SG&A expenses were reduced. In addition, the quarterly dividend was suspended and cap-ex is down to only what is absolutely necessary. Also, most company workers are furloughed and executives and board members have seen pay cuts, though distribution workers are receiving full wages.
Brooks said she anticipates by the week of May 17 some stores could reopen but before then, fulfillment of online orders with store inventories and buy online, pick up at stores will be initiated at about 500 stores, as well as shop-by-appointment services.
Brooks said Chico’s FAS stores are more easily reopened than department stores given their smaller size. Many stores are situated in shopping centers with parking right by the entrance.
“While today’s challenges are of a greater magnitude, our culture of agility and our ability to grow sales while reducing expenses, which started exactly 12 months ago, has already served us well during this period, and we are confident we have a path forward for the sustainable future of the company, post COVID-19,” said Brooks.