MAKING THE BIG TIME: ONCE-FRUMPY CHICO’S ON RETAIL’S FAST TRACK
Byline: Georgia Lee
FORT MYERS, Fla. — Chico’s goes up on the Big Board today.
Chico’s, retailer to the 35-and-older set, which also happens to be one of the hottest chains in the industry. In fact, while most of the hard-pressed competition braces for recession, Chico’s has managed quietly to post consistent and dramatic growth, with its formula of private label casual dressing for a more mature customer.
The company will be listed today on the New York Stock Exchange, after trading on the Nasdaq National Market System since its initial public offiering in March 1993. The new ticker will be “CHS.”
The Chico’s formula works for customers like Elaine Burge, retired and a grandmother, who recently bought her first capri pants, some coordinating shirts and jackets, a belt and a rhinestone watch, at Chico’s in Phipps Plaza, Atlanta. Total price tag: $600.
Anywhere else, she probably wouldn’t have spent near that much in a single visit, or even looked twice at a capri.
“I’m always looking for something youthful, that won’t make me look my age, or older,” she said. “I want something fun and easy, something that fits.” Too often, she said, she’s been disappointed, particularly by department stores, but she’s become a Chico’s convert. “I’ll be back next week for more,” she promised.
Like many other shoppers, women are rediscovering Chico’s. Once regarded as a resort-oriented store with a lot of island batik separates, it has found a sweet spot providing mature women with updated, youthful, more sophisticated looks. There’s also a generous loyalty program to encourage repeat visits and service readily available.
To celebrate today’s move to the Big Board, Marvin and Helene Gralnick, the founders, chief executive officer and senior vice president of design and concept, respectively, are scheduled to ring the closing bell. The listing, said Gralnick, “should increase our visibility with the financial community, expanding the scope of institutional investors willing to invest in Chico’s.” He’s also hoping for “increased liquidity and reduced volatility for our shareholders, helping us to achieve our long-term goal of increased shareholder value.”
Chico’s isn’t the only store to try to cater to mature women with youthful fashion. “Some stores are trying, but it’s not working,” Gralnick told WWD. “It just can’t be oversized or dumb-looking,” he said. “These women want sexy, feminine clothes that are current, attractive and forgiving, rather than oversized, and they like the attention we give them in the store.”
“This customer is savvy. She knows what’s hot and in, but we still stay in her comfort zone, within certain boundaries,” added Pat Murphy, general merchandise manager. “We’re not going to do braless looks or a spaghetti strap Lycra tank seen on Heather Locklear, but we can interpret looks.”
Chico’s targets an affluent customer, with an average household income over $100,000. She wants fashion, but does not have the perfect figure for it. In a world obsessed with youth and fitness, she feels like an afterthought, according to Chico’s officials. She wants to dress young, but often feels foolish trying on what most stores offer.
After having overhauled the product mix in 1997, store growth has become a priority with 55 units being added this year. The company currently operates 250 stores in 38 states. Chico’s recently doubled the space at its Fort Myers headquarters and distribution center to accommodate the growth.
With double-digit sales gains each month since June 1997, Chico’s has grown over 12 percent for 15 consecutive quarters. Net sales grew 67.4 percent for fiscal year ended Feb. 3, 2001 and profits rose 83 percent to $28.4 million, with same-store sales up 34 percent. The pace of same-store gains has continued this year. Having reached $259.4 million, sales are expected to grow around $100 million this year.
With a management team of several new players, Chico’s launched catalog and Internet sales last year, and relaunched a frequent customer program and sales training-incentive program in the past three years. New television ads made their debut in February, on top of a national print campaign that expanded magazine exposure.
“We know we haven’t reached enough people, and we weren’t in love with our old image,” said Jim Frain, vice president of marketing, who joined Chico’s in 1999 with a mandate to develop Chico’s new image. Since then, the marketing budget has quadrupled to $10 million.
Analysts say Chico’s is ripe for expansion, despite the threat of recession.
“Chico’s has always been in a class by themselves, but their time has come,” said Candace Corlett, partner, WSL Strategy, a New York-based marketing and consulting firm. “They’ve always been casual. Now the world has caught up to that. They’re targeting baby boomers, with clothing in tune with her attitude, at great price points.”
The picture has not always been rosy. In the mid-Nineties, Chico’s alienated customers with a younger, trendier direction. Marvin Gralnick, 66, and wife Helene, 53, returned to the business, after being retired for over a year, to get Chico’s back on track.
The Gralnicks opened the first Chico’s store in 1983, on Sanibel Island, Fla., selling mostly Mexican folk art. After a unisex sweater sold well, they added more apparel. By 1985, after realizing labels in the market offered little if any exclusivity, Chico’s began manufacturing through contractors. The all-cotton offerings reflected the company’s island roots, with exotic prints and resort-inspired silhouettes. Currently, all products are manufactured under the Chico’s label, with 40 percent contracted domestically and 60 percent produced offshore.
To broaden its customer base, Chico’s introduced rayon, linen, silk and blends to the assortment, as well as a microfiber fabric called Travelers. It became a Chico’s signature. Designed to be wadded up in suitcases with no wrinkles, basic Travelers silhouettes coordinate and can be dressed up or down with accessories. The Travelers group is 15 percent of apparel sales.
Core products increased to 75 percent of the mix; novelty items, 25 percent. Core introductions included the “urban pant” a stretch cotton slim pant, as well as T-shirts, tank tops and long “city shirts.” Accessories and shoes represent 15 percent of sales.
With a design team and production heads, product development decisions are made by Murphy and the Gralnicks. They shop European shows, such as Premier Vision, for ideas to interpret. “We’ve seen a lot of camouflage, which we like, because it takes up where animal prints left off,” said Helene Gralnick. “But we’ll do it our way, subtly, so our customers don’t feel like idiots, or G.I. Jane.”
Most items are between $28 and $100 retail, averaging around $50. Sizes run 0 through 4, with size 0 corresponding to 2-6, and size 4 as a 14. Silhouettes are unstructured and comfortable, and often have details, such as embroidery, for a snazzier look.
“For the price of a blazer at Talbots, you can get an outfit at Chico’s,” said Margaret Whitfield, analyst with New York-based Tucker Anthony/Sutro Capital Markets. “Chico’s product is current, and it doesn’t look like Liz Claiborne, or Jones New York. The customer knows her size, so she can be in and out. She feels like it’s her store.”
While relaunching product, Chico’s hired talent to inject a disciplined culture to one that was free-spirited, yet overly entrepreneurial.
“We knew we had to bring in structure and discipline, and more communication among departments,” said Scott Edmonds, chief operating officer since 1993. However, “our entrepreneurial origins have helped us think differently, because we have no set way of doing things,” he added.
Ted Marlow, a former Saks Fifth Avenue executive responsible for private label, was hired six months ago as executive vice president, to help take Chico’s to the next level. Many see him as the heir apparent to Marvin Gralnick, who recently signed a three-year contract as chief executive officer. Marlow has established weekly management meetings to integrate production, merchandising and marketing. In his new position, Marlow said he has built a “culture of selling,” to build relationships between customers and salespeople. New hires are nurtured through a training and incentive program called MAPS [Most Amazing Personal Service]. Rather than commission, a bonus system rewards employees, based on cumulative, store performance goals.
Another key to Chico’s growth has been the relaunch of the preferred customer “passport” program last year. Customers become members for life, after spending $500 over any length of time, and are entitled to 5 percent off each transaction, as well as discounts advertised in monthly catalogs. The program has grown from 50,000 to 1.1 million customers. Along with catalog and internet transactions, the program has helped track sales better, and created some buzz about the business. Passport customers generally shop the store at least six times a year.
Chico’s Phipps Plaza store in Atlanta is the company’s number-two performer, behind the store in Scottsdale, Ariz. With around 2,000 square feet of selling space, annual sales at the Atlanta unit are $3.1 million. New stores are 2,000 square feet or bigger.
At Phipps, on one rainy Wednesday afternoon, eight sales assistants were helping about a dozen customers, who were addressed by their first names. While customers changed in the dressing rooms — which don’t have mirrors — salespeople gathered shoes, accessories, other silhouettes and sizes to provide alternatives, and hopefully ring up multiple sales.
Outside the dressing rooms, there’s a floor-to-ceiling mirror, where salespeople adjust a customer’s belt, add a necklace or a scarf, and if none of that works, are prepared with further suggestions. Within a ten-minute period, three women purchased over $500 each.
“The Chico’s experience is almost like therapy,” said Marlow. “This customer just wants to feel that somebody does give a damn.”