A STUDY IN SUCCESS
WHY IT TAKES MORE THAN A SHAKY ECONOMY TO SLOW CHICO’S MOMENTUM.
Byline: Georgia Lee
Chico’s, the little engine that could, keeps on chugging out strong numbers, through recession, terrorism and bad times for big retail. 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 meticulously honed, calculated strategy that began about five years ago. Today, with each initiative tracking and reinforcing the others, Chico’s is “clicking on all cylinders,” as one analyst put it.
After stumbling in the early Nineties by experimenting with trendier apparel, Chico’s underwent a complete overhaul that affected all areas of business. Marvin Gralnick, who founded Chico’s in 1983 with wife Helene, returned to the company as chief executive officer in 1994, after retiring in 1993.
In 1997, product was redesigned for a more clearly defined target customer: a mid-to-upper-income baby boomer seeking fashionable, trend-conscious merchandise, but with a forgiving fit. As product evolved, sales training programs were also reinvented and intensified. New managers were hired in both merchandising and sales, and in other key positions since then.
Pat Murphy, senior vice president, general merchandise manager, joined Chico’s in 1997, and Mori MacKenzie, senior vice president, sales, came in 1995, both highly experienced with big-chain retail such as Wet Seal and The Limited.
In 1999, the Passport program, a customer incentive plan that also serves as a key customer database, was relaunched, after having been discontinued in the mid-Nineties. Internet and catalog sales, begun in 2000, also expanded the company’s customer base. National advertising campaigns, in both television and print, launched in spring 2001, boosting name recognition. Expansion through new store openings has been on an aggressive track. And it’s paid off: Comp-store sales increased 17.1 for the 12 months ended Feb. 2, 2002, and net income rose 48.7 percent to a record $42.2 million, or $1.01 per diluted share, compared with net income of $28.4 million, or $.69 per diluted share.
While all of the above elements combined to put Chico’s on the map, the retail climate has also changed to favor smaller specialty chains that can turn on a dime, said Gralnick.
“It used to be important to be big. Now it’s important to be fast,” he said in an interview at Chico’s second annual analyst open house, held last month at its Fort Myers headquarters. “The big guys can’t change, but we can reinvent and improve. We’ve seen no letup in growth and volume.” Chico’s has posted monthly comp-store gains every month for almost five years, with its last decline in February 1997.
With 311 stores in 40 states, Chico’s will open 65 stores in 2002, after opening 61 last year. Gralnick projected $500,000,000 in gross sales for 2002, when the chain will celebrate 20 years in business. With a few stores in upscale malls, most are freestanding or in strip centers, often in renovated historical spots.
Through the recent roll, Gralnick stressed watching costs and staying lean and calm, but aggressive. “[Being] disciplined when things are good makes all the difference,” he said, adding that Chico’s growth has resulted in the company having more clout and buying power with manufacturers and contractors for its private-label apparel and accessories.
Chico’s prides itself on providing constant 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 the Gralnicks, Murphy and a few select others.
In 2000-2001, 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. Sourcing efforts are concentrated on private-label manufacturers and contractors in China, India and the Middle East.
There’s a reason for the company’s focus on trendspotting: Thirty-five percent of sales come from novelty items. Items such as layering pieces, tanks or T-shirts, are also a growth area.
“We huddle every morning, talking about how the consumer psyche is changing, always asking, ‘What will she want to wear?”‘ said gmm Murphy.
This year, 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 and 10 in New York, with 90 stores scattered throughout other Northeast and Midwest states.
Chico’s baby-boomer customer, who wants both fashion and comfort, is often neglected by other brands, said Gralnick.
A key component of Chico’s mix is the Travelers Collection, designed with the well-traveled baby boomer in mind. The collection includes pants, skirts, tops and jackets in a variety of silhouettes, using 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 are another Chico’s trademark, with silks, embroidery, velvets and patchworks as 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.
Since Chico’s targets a demographic that’s not short on purchasing power, there was little price resistance to fall’s more expensive pieces, such as leather and suede jackets, retailing up to $400. Chico’s is experimenting with pushing price tags higher than its average range of $35 to $125.
Along with tweaking product and prices over the past few years, a big advertising launch last year got the word out. Advertising and marketing is handled in-house via Chico’s Media Inc., to cut costs and ensure creative control. This year’s total marketing budget, including advertising and direct mail, is up 35 percent over last year. Catalog mailings will increase 27 percent, with more mailings and prospect lists, according to Jim Frain, vice president of marketing.
Print advertising will grow 15 percent in circulation, in around a dozen magazines, with Oprah Winfrey’s O and Martha Stewart Living being the most effective targets so far. Television ads will also increase 40 percent in “gross impressions,” which measure how many times the targeted audience sees an ad in a given time slot. Spots will also change more often.
Catalogs, which are now mailed about once a month, will be more frequent, with at least two months scheduled for two issues. They may also expand to include editorial features.
All of Chico’s marketing and customer tracking efforts revolve around its Passport program. Customers become permanent members after spending $500 over any period of time. Members get a permanent 5 percent discount, advance sales notices and free shipping.
Currently, Chico’s has 397,000 permanent Passport members, projected to rise to 616,000 by yearend. Another 1.5 million customers are preliminary members who have yet to reach the $500 goal. The Passport database allows Chico’s to track sales patterns and trends and communicate with customers.
Chico’s sales philosophy, called MAPS (Most Amazingly Personal Service) is as important to its success as product, merchandising and marketing have been. Tellingly, over half of Chico’s sales associates were customers first. All salespeople receive 98 hours of training, more for managers. Sales associates earn commission through building each transaction, and through total store performance. Incentives and rewards, such as recognition dinners, parties, etc., are lavishly bestowed.
What sets the stage for the Chico’s brand of customer service are its stores’ setup. With no mirrors in dressing rooms, customers stand in front of a big communal mirror, which 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 stimulates communication between customers, who offer their own comments and suggestions.
“Women, especially older women, love to feel special and 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.”