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CHICO’S SECRET

New lingerie concept for women over 35, Soma by Chico’s, debuts this month

BY JO ELLEN MEYERS SHARP

Comfortable, stylish, fashionable — for more than 20 years these have been the bywords of Chico’s FAS apparel. They are about to be extended to lingerie.

This month and next, Fort Myers, Fla.-based Chico’s plans to roll out 10 Soma by Chico’s stores. The new concept features a line of bras, panties, camisoles and sleepwear for the Chico’s woman — age 35-plus.

Thus far specialty lingerie stores have largely neglected this age group, observers say.

“To me and to a lot of industry people, Victoria’s Secret leans very, very young,” said Elizabeth Pierce, a retail analyst at Sanders Morris Harris, a Los Angeles investment banking firm.

Bras and underwear will make up between 35 and 40 percent of the line, Chico’s told the press in the spring. The company hired a team of designers to craft lingerie for the shapes and sizes of baby boomers, or as several analysts put it, Victoria’s Secret “graduates.”

Women of a certain age “have different needs, challenges and concerns, and comfort is paramount, but they still want to be stylish,” said Sara Rogers, a trends specialist at Mall of America, Bloomington, Minn.

Extending the Chico’s brand into lingerie is natural, Rogers says, because lingerie would support the look Chico’s has been building. Besides, she said, the chain “does a fabulous job of speaking to comfort and convenience.”

Underwear has become something of a fashion item, notes Kurt Barnard, president of Retail Forecasting, Upper Montclair, N.J. “People don’t want just a plain-Jane kind of garment,” Barnard said.

Further, the Chico’s target market is underserved because much of the retail industry continues to pursue youth, he said. “Somehow, the model for most retail continues to be in the early 20s,” Barnard said, noting that anyone older should consider herself over the hill. “That’s a real pity.”

Stores that target the baby boomer customer are likely to do well, Barnard says. He equates this focus on baby boomers with the steps retailers and designers took a few years ago to modify the silhouette of some petite sizes and move them out of the junior department.

Initially, Soma by Chico’s (soma means “body” in Greek) units will open in malls, lifestyle centers and downtown freestanding locations in the South and Southwest. The stores will feature bedroom-size dressing rooms, with a big emphasis on customer service. The company has trained the new sales force in the art of fitting women, Charlie Kleman, CFO of Chico’s FAS, told Investor’s Business Daily in April. (The company declined to talk to SCT.)

Chico’s research shows that more than 70 percent of women wear the wrong bra size and that they also have a lot of trouble getting fitted with body-shaping Lycra and other materials, the company disclosed to analysts.

Harry Ikenson, the managing director of First Albany Capital, a New York City-based institutional investment banking firm, loves the new concept.

“We’re very excited about it,” he said. “[The company] focuses on the baby boomer customer, and this is a natural extension in its operation, from clothing into intimate apparel.”

Kleman says Chico’s decided to roll out the new chain because its existing store format, which averages about 2,000 square feet, is too small to accommodate the addition of lingerie lines.

The new stores will allow Chico’s exclusive, private-label brand to claim an additional share of the customer wallet, says Pierce. Of the over-35 women that Chico’s caters to, those between 45 and 65 are the “real sweet spot,” she says.

There is no direct competitor among specialty stores for this customer’s underwear needs, but Soma will have to go up against department stores, because that’s where women that age tend to shop for lingerie, says Pierce.

“It’s a great demographic,” Pierce said, pointing to the shear numbers of people in the age range, many of whom are in their peak earning years or are empty nesters with considerably more discretionary income.

Chico’s demographic is not being well served elsewhere in the mall, says Neely Tamminga, a retail analyst at Minneapolis-based securities firm Piper Jaffray & Co.

Tamminga identifies women age 50 to 55 as Chico’s best customers, but she points out that there is an extremely high loyalty rate among all its shoppers. Soma customers will be able to participate in Chico’s frequent shopper program, called Passport. Passport, which has about 1 million permanent members, rewards participants with a 5 percent discount on purchases. About 3.4 million “preliminary members” are in the pipeline to permanent status, a spot they earn after they have spent $500. The company reports that 72 percent of all sales come from the permanent members, with 23 percent from preliminary members.

Chico’s operates stores in 46 states, the District of Columbia, the U.S. Virgin Islands and Puerto Rico, and employs more than 7,100 workers. Revenue for fiscal 2003, which ended Jan. 31, 2004, was $768 million, up 44.7 percent from fiscal 2002, with income up 50.1 percent at $100 million.

The rollout comes at a somewhat tumultuous time for Chico’s. In 2003 the company discontinued its Pazo operations, a 10-store test that lasted less than a year. The closures followed the company’s purchase of The White House Inc., operator of White House/Black Market stores, for a total of $90 million in cash and stock. That deal boosted activity on the Chico’s sales floor by 45 percent.

White House/Black Market, which offers private-label clothing, accessories and gifts in black and white, operates 126 stores in the United States, the Virgin Islands and Puerto Rico. The chain appeals to a younger segment (average age 35), versus Chico’s 53-year-old average shopper.

Chico’s FAS says it plans to open about 90 stores across all its concepts by the end of this year. Besides the 10 Soma units, about 50 will be Chico’s and 30 will be White House/Black Market stores.

But that could just be the beginning, as far as Soma is concerned, says Pierce. The division could grow to 500 stores, she says, though she gave no time frame.

Tamminga identifies the catalysts for Chico’s growth as those fashion trends and colors that will appeal to the Chico’s customer, wide distribution of the company’s catalog and the successful integration of the White House/Black Market concept and others.

Chico’s has a bright future, says Richard N. Baum, a retail analyst at Credit Suisse First Boston in New York City. If there’s a downside, it could be that low inventory may constrain same-store sales for the short term, Baum wrote in his most recent analysis, issued in March.

Chico’s has excellent sources for fabrics and manufacturing, and good relationships in the industry, says Tamminga. “Chico’s has its own sample room in-house and creates everything right there and can make a decision on that garment before setting the specs for manufacturing.”

All of which seems to bode well for the heretofore forgotten boomer woman. Chico’s careful attention to this market will definitely encourage its rivals to reexamine their own focus, Barnard says. Is Chico’s on the right track? “Absolutely,” he said. “There’s no question.”