MONTREAL — The 46-year-old chain of Le Chateau stores is starting to act its age by graduating from the teen market to the midrange women’s segment.
The move was designed to broaden its customer base, as well as compete with a recent influx of American and European heavyweights such as the Gap, Zara of Spain and Sweden’s H&M. Mango, another Spanish competitor, will soon join their ranks.
It’s a strategy that appears to be paying off, with back-to-back years of record profits and sales. For the year ended Jan. 29, Le Chateau’s 171 stores earned $12.7 million, or $2.27 a share, up 49 percent from $8.4 million, or $1.58. Sales were $192 million versus $181 million a year ago. In addition, its four New York stores reduced their losses to $436,000 from $1 million after adopting the same strategy as in Canada. All figures have been converted from Canadian dollars at the current exchange rate.
While it has not abandoned its traditional teen target market, Le Chateau saw an opportunity to offer fashionable clothing at higher prices to the 25-plus crowd, an age group it felt was being underserved.
“We’re no longer just a place where teenagers shop for cheap jeans and T-shirts,” said Franco Rocchi, vice-president of sales and operations. “We used to take runway fashions and package them for teenagers. But when you try to sell more clothing to clubby thin girls, there are limited growth opportunities. That’s why we changed our business model and use our own designers and shop the world for new fashions.”
To broaden the appeal of its products, the company had to get away from age definition because Baby Boomers are not ready to give up on fashion, Rocchi pointed out.
To attract the older and more affluent shopper, Le Chateau’s ads feature slightly older male and female models wearing more elegant fashion. The company is rebranding its stores so that design elements are not age-sensitive and are less likely to date quickly. The makeovers are about 60 percent complete.
“In our store windows, for example, we’ve shifted our style from edgy to more sophisticated, where women of all ages can identify with the fashion message we’re trying to get across,” said Rocchi. “Our sizing has also changed from junior up to 15 or 16. In the past, it would stop at 11.”
The changes seem to be working. According to research from Trendex North America in Toledo, Ohio, 50 percent of Le Chateau’s customers today are over the age of 25, twice as many as three years ago.
Prices have also moved up.
“We’ll sell a women’s blazer starting at 70 Canadian dollars [or $56 U.S.] today versus 50 Canadian [or $40 U.S.] three years ago. But it’s also better quality,” Rocchi pointed out.
Overall, prices have increased an estimated 15 percent from three years ago.
In addition, Le Chateau has reduced the time it takes to bring in new collections to an average of six weeks from seven weeks previously and in some cases as quickly as four weeks, with single new pieces arriving in stores daily, said Rocchi.
“Part of our strength is that 50 percent of our merchandise is manufactured domestically,” he said. “China is miles away and we have no control over deliveries. The ports were clogged during the Christmas selling season and manufacturing domestically is a way of leveraging that risk.”
To compete with foreign rivals, Le Chateau has gone from no in-house designers to 16 in the last four years.
“We used to have the same presentations as our competitors,” Rocchi said. “Now we’re exclusive. We do our own interpretations of fashion and try to be modern. We also used to play the pricing game, but we don’t anymore.”
Two growth areas are men’s clothing and accessories, according to Rocchi.
“Men buy 35 percent of all apparel and that’s our target objective,” he said. “We underserve that market, which accounts for just 18 percent of our sales.”
The retailer is also expanding its stores and setting up men’s boutiques in locations next to existing outlets.
In addition, higher-margin accessories now account for 12 percent of overall sales, up from 9 percent in 1999.
Le Chateau recently announced plans to open its fifth U.S. store this fall at the Newport Center in Jersey City, N.J. At one point in the Eighties, the retailer operated 27 stores in the U.S., but bad real estate deals forced the closure of all but four of them.