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Revenue stream

Coldwater Creek uses brick and mortar to build on success

By Kimberly Pfaff

Apparel and soft-goods cataloger Coldwater Creek moves from the mail to the mall with a plan to open brick-and-mortar stores, like this one in Seattle, across the United States.

You can take the retailer out of the North Country, but you can’t take that comfortable, North Country feel out of the retail store. But then, that’s exactly the idea at Coldwater Creek, the successful apparel and soft-goods cataloger and e-commerce retailer now expanding into brick-and-mortar.

This year, the Sandpoint, Idaho-based firm will open four stores in the Chicago, Dallas, Denver and Cincinnati markets; for 2001 and 2002, Coldwater will roll out about 20 locations each year. So far, the retailer has identified 29 states where it will seek a presence, and envisions around 80 locations nationwide.

Said Skip Jones, the firm’s vice president and director of retail operations, “If there’s a great project right now with great demographics, and our customer is there, we’ll do it.”

An aggressive marketer to its affluent 35-to-55-year-old female customer base, Coldwater Creek is famous for its laid-back, folksy appeal and dedication to customer service. Its four catalogs — Northcountry for casual apparel, jewelry and gifts; Spirit of the West for upscale apparel and accessories; Coldwater Creek Home for soft goods; and Natural Elements for more contemporary mix-and-match wardrobe fundamentals — are awash in long skirts and comfortable, flowing clothing, mixed in with matching jewelry and gifts. Accompanying the merchandise is catalog copy that’s as neighborly and familiar as if written by an old friend. Last summer, Coldwater Creek debuted its e-commerce site, www.coldwatercreek.com; Internet sales for first quarter 2000 were $13.2 million, or 15.2% of the firm’s net sales.

So, why the push for stores now? Jones noted that it makes good business sense, since the majority of consumers still shop at brick-and-mortar locations. “We’ve been successful in catalogs and e-tailing, but there are customers who don’t do either one of those things, that we’re not currently hitting,” he explained. “We want to make sure we can capture that market right now.”

According to Jones, the firm will concentrate mainly on retail locations in the Northeast, Midwest and West. As a catalog company, he noted, “One of the advantages we have is that we know where our customers are, and two-thirds are east of the Mississippi River, so we know the pockets where we need to be.”

Industry watchers say the company is making the right move. “Coldwater Creek is a great example of the effectiveness and potential profitability of a multichannel merchandising concept,” said Jeff Klinefelter, a senior research analyst with Minneapolis-based U.S. Bancorp Piper Jaffray. “They’ve got great customer service, a good brand — not a dominant brand, but one that they’ve built over the years through solid customer equity.

“The stores are a good idea,” Klinefelter emphasized. “In my view, the most effective model for branded commerce will be some combination of catalog, e-commerce and stores.”

Coldwater Creek is not exactly a stranger to the brick-and-mortar side of the business. The firm opened its first store, in its home base of Sandpoint, Idaho, in 1988. At 17,000 square feet, it’s the largest, and has become something of a tourist attraction. Between 1997 and 1999, three more locations followed — downtown Jackson, Wyoming; Seattle, in the former Nordstrom building; and in November 1999, the Town Center Plaza in Leawood, Kan.

And, while the company has remained true to its core customer, it’s also made strides to attract a slightly younger customer, what Klinefelter terms the industry “sweet spot” for apparel expenditures.

“They’ve recently launched the Natural Elements type of sub-brand, and they’ve figured out what their core demographic needs to complete their wardrobe — versatile, interchangeable basics that are very, very well-priced, and targeted to a slightly younger customer. So they satisfy that need, and in the process they use that as a feeder system to their core customer.”

Still, there have been a few missteps along the way: The firm’s Milepost menswear catalog was short-lived, for example, as was its brief foray into full-line furniture. “They found out that they shouldn’t carry pine entertainment chests and full dining tables and couches, but focus on their core competency: high quality but with a value formula in textiles,’’ said Klinefelter.

“What I like is the management team isn’t afraid to make a mistake — and if they do, they quickly get out of it,” he added. “Those are great qualities in a company, and it hasn’t hurt them dramatically.”

In fact, the company has been thriving. Net sales for fiscal 1999 were $328 million, and so far the firm seems certain to better that for 2000. Sales for first-quarter 2000 were up 33.4%, while net income for the quarter rose a whopping 129% over the prior year to $3.6 million.

So, how does one translate Coldwater Creek’s trademark comfortable, outdoorsy feel to a store setting? By taking great pains to create a distinct architectural environment, for one thing. Each 7,000- to 10,000-square-foot unit is outfitted with natural materials such as wood walls and ceilings, touches of slate and a soothing water element — most stores have a waterfall, while a creek runs through the Seattle location.

Cozy seating throughout the store (with books placed nearby to thumb through) enhance the relaxed feel. And then, of course, there’s the merchandise mix itself — a relaxed, homey blend of hard and soft goods, typically arranged by color scheme.

“We want people to wander through the stores and see a different surprise around every corner,” said Jones. “We really feel our stores are unique from a look standpoint.”

Shopping center executives clearly feel the format is a winner. “We’ve been tracking Coldwater Creek for the past year and a half,” said Robb Cox, vice president of leasing for Indianapolis-based Simon Property Group. The developer is placing the chain into its $190 million renovation of the eight-month-old Shops at Mission Viejo in Mission Viejo, Calif., and is also considering it for the upscale Forum Shops in Las Vegas and Trolley Square in Salt Lake City.

“We follow strong catalogs and more upscale companies,” noted Cox. “We were fascinated by their operations, as well as the success of their early stores. It’s not only the architecture and presentation of the store that’s exciting, but the penetration of their catalog into the better demographics.”

“We liked the catalog; it offered a merchandise mix that seemed to fit our customer profile — it had some uniqueness to it,” said Terry McEwen, president of Poag & McEwen Lifestyle Centers. In November, the Memphis, Tenn.-based developer added Coldwater Creek to its upscale Town Center Plaza. Based on that store’s stellar performance, Poag & McEwen plans to add the retailer to its Chicago-area Deer Park Town Center and Denver-area Aspen Grove Center.

“The Town Center Plaza is one of the highest-producing sales-per-square-foot centers in the Midwest, and Coldwater Creek is doing better than the mall average in their first year,” McEwen noted. “Last year, tenants did $460 a square foot, this year should be over $500 a square foot, and Coldwater Creek is outperforming that.”

This August, Coldwater Creek opened to much acclaim in General Growth Properties’ new Stonebriar Centre, in the North Dallas suburb of Frisco, Texas. “The public response even before the store opened has been incredible — industry-leading,” said Robert Graham, senior leasing representative at Chicago-based General Growth.

Such built-in consumer loyalty is one of the firm’s greatest attributes — but also presents a challenge as Coldwater Creek moves forward. “Our customers’ expectations have generally been exceeded by our catalog and Web site,” noted Tom Bosch, senior vice president and director of retail. “When a customer comes in our store, they’ve already received a great experience through our catalog. That’s an advantage, and that’s also a very high standard that we have to maintain.”