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Shopping Centers Today -> June 2003
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MORE CHIC, LESS CHICO’S
Like its shoppers, Pazo keeps distance from its parent
BY DEBRA HAZEL
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The store’s interior is pale, calm, neutral. Plasma screens show supermodels Heidi Klum and Bridget Hall looking like they’ve just stepped off the European runway. The clothing on the racks is trendy, contemporary, the edgy side of casual.
This is not your mother’s Chico’s. In fact, it isn’t Chico’s at all. It is Pazo, Chico’s first spin-off chain, created to provide hipper apparel to a younger, more cost-conscious customer, who until now has been shopping at Zara or Bebe. It’s also the Fort Myers, Fla.-based company’s initial move to broaden its appeal beyond an affluent baby boomer core.
“This is a young concept,” says Barry Shapiro, senior vice president of Pazo. “It’s very different, very much a boutique, very contemporary.”
The chain was launched in March with 10 units in Arizona, California, Florida, Georgia, Tennessee and Texas. While the signature Chico’s stores offer more-classic fashion cuts geared toward women 35 to 55, Pazo’s styles are trendier, much closer to the pages of Vogue and Elle.
Like Chico’s, Pazo aims to completely outfit its customer. Sales associates are trained to put together entire assemblies, from outerwear to shoes, from accessories to lingerie. But Pazo’s looks are offered at a more affordable price, with product ranging from $14 to $118. The average Pazo price is $40, versus $50 for Chico’s.
“The Pazo customer is 25 and over, with a $40,000 average household income,” Shapiro said. “She’s a contemporary, stylish consumer, aware of what’s going on in fashion.”
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To serve her, Chico’s management conceived Pazo in early 2002 and made it a separate group in August because executives were determined to give Pazo its own identity. Pazo has its own staff and product sources, and it works out of its own office building.
Styles seen on the European catwalks are quickly interpreted and are on Pazo’s racks a month later. Pazo uses a different set of factories from the parent chain for further differentiation. Even the sizing is different, with Chico’s 0 to 3 giving way to Pazo’s more traditional — and more precise — 4 to 14. This younger shopper is looking for a tight fit.
Still, Pazo hasn’t ignored its parent entirely. The Chico’s name certainly helped establish relationships with garment makers, which is particularly critical for a company that is still small. The parent also helped in the leasing process; most of the Pazo units share centers with a Chico’s.
“I signed the lease before I saw the product,” said Jeffrey Bayer, president of Bayer Properties, the Birmingham, Ala.-based developer of the Summit lifestyle centers. Pazo opened one of its first units at Bayer’s The Summit at Birmingham (Ala.), where an existing Chico’s relocated to a larger space. “Chico’s is very thoughtful, and they’re one of the most successful retailers today.”
The exclusivity, too, was appealing.
“We have around 40 retailers in our center that aren’t anywhere else in the city, and to get the opportunity to add to that was terrific,” Bayer said.
In another similarity to Chico’s, the chain has Club Pazo, a loyalty program.
Wall Street seems happy so far.
“They’re trying to have something close to runway fashion at a good price, and the prices were impressive,” said Ozarslan Tangun, retail analyst at Dallas-based securities and banking firm Southwest Securities.
Speaking just weeks after the chain’s launch, Shapiro noted that Pazo is still very much in the experimental stage. Casual wear is being beefed up to meet customer demand. And to meet the needs of the young, often quite slim customer, the store is introducing some size 2s, and size 0 is not out of the question.
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Site selection is also being tested, with the chain’s first units divided between malls and lifestyle centers. Stores average 3,000 square feet, and pro forma sales are projected at $1.6 million per store, or $500 per square foot. Chico’s stores, which range from 1,000 square feet to 3,500 square feet, average $850 per square foot. In time, product will also be sold over the Internet, as it is with Chico’s.
The chain might open between four and six more units in the fall.
“Everything is predicated on getting a read on these 10 stores,” Shapiro said. “We are reassessing this for locating in malls and lifestyle centers as well, so rather than bet all our chips on [either format], we opened six in malls and four in lifestyle centers. And we certainly want to see how street locations work.”
Thus far, Pazo seems to be onto something, and store executives are pleased with its performance, Bayer said.
The analyst seems convinced as well.
“When I visited the store, I took three target customers with me, and they all bought something,” Tangun said.
Though it’s too early to assess Pazo’s effect on the parent company, Tangun has retained his “strong buy” recommendation for Chico’s stock. As of May 2, the stock closed at 23.90 per share, up 26.4 percent year-to-date.
“You’re talking about a nice growth opportunity a few years down the road,” he said.
And Chico’s has substantial growth plans. As of April the chain had 371 traditional stores and 19 outlets. Expansion could eventually take them up to 650 units, Chico’s told analysts in February. Sales for the fiscal year ended Feb. 1, 2003, totaled $531 million, up 40.5 percent from the previous year. Comp-store sales rose 13.5 percent from 2001.
Chico’s also plans to test an intimate apparel/active wear store sometime next year. But Pazo has the buzz for now.
“We have created a national brand from day one,” Chico’s Chairman and CEO Marvin J. Gralnick told analysts. “It is a new focus team that has brought European and New York designer fashion boutiques to the U.S. … We expect an explosive growth vehicle in Pazo.”
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