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KNOWLEDGE IS POWER

Chico’s familiarity with its customers keeps it ahead in tough times

By Kimberly Pfaff

While the first rule of retail is “know thy customer,” few firms follow through on that credo with the same commitment as Chico’s.

What began in 1983 as a small store owned by Marvin and Helene Gralnick on Sanibel Island, Fla., has grown into a 282-unit retail powerhouse by following one clear objective: providing comfortable, attractive apparel for women age 35 to 55.

At a time when many women’s apparel firms are floundering, Fort Myers, Fla.-based Chico’s has some of the best numbers in the business. Sales for 2000 rose 67.4 percent to $259.4 million, while comp-store sales were up 34.3 percent. Sales for 2001 are expected to be around $380 million, and executives believe the company can easily grow into a $1 billion concern eventually.

Specializing in comfortable, easy-to-wear apparel, Chico’s sells casual offerings that are stylish, but clearly designed with a woman, not a teenager, in mind.

“We don’t try and fit a mature woman into kids’ clothing, and that’s extremely important,” said Jim Frain, vice president of marketing. “They’re comfortable right away.”

While the merchandise is contemporary, “We’re not over the top; we’re not trying to be cutting edge,” he added.

The company also retains a firm grip on its brand; its private-label designs are all exclusive to Chico’s, which handles everything from sourcing, design and the supervision of manufacturing, to merchandising and delivery.

“You’ve got maybe a handful of companies that are as vertically run as we are,” said Frain. “There are not many companies doing that.”

Those looking for a measure of the firm’s success at focusing on its customers need look no further than Chico’s Passport loyalty program. Less than three years old, it has more than 1.2 million members who account for about 80 percent of the retailer’s sales. The average transaction for Passport customers is more than $130, compared with under $90 for those not enrolled in the program.

Chico’s success stems from many fronts, according to Mercedes Sanchez, a vice president with Raymond James Financial in St. Petersburg, Fla., praising the store’s management for devising an attractive merchandise assortment and “stellar” marketing programs.

“They’ve carved out a niche for themselves with their customer,” she said. “It seems like every year this company has an ace up their sleeve.” This year, for instance, Chico’s has turned to TV ads and a greater circulation of catalogs to draw customers.

“Management clearly has to be given credit for their consistency,” she said. “It’s a management team that’s been together for a long time and achieved great success together.”

Chico’s also delivers on another retail mandate: customer service.

“We look at it as a person-to-person relationship with our customer that’s executed every day,” Frain said. “For our customers, it’s almost like going to a friend’s house; they don’t think of themselves as customers.”

It probably doesn’t hurt that more than 30 percent of the store’s managers began as Chico’s customers themselves, and for staff members, the number is likely even higher. Consequently, they know what it feels like to be a valued customer, Frain said.

Customer service is a keystone of the store’s success, Sanchez agreed.

“The service at Chico’s is noticeably different from other specialty retailers, from the minute you walk in to when you’re in the dressing room,” she said. For instance, there are no mirrors in the dressing room, obliging customers to come out to find a sales rep waiting to help them accessorize an outfit.

“They also wrap everything up for you, and tie little colorful ribbons around your bag,” Sanchez said. “It’s the kind of great customer service you’d expect from a small boutique.”

All of this has made Chico’s a sought-after retail addition for developers.

“They’re one of the most focused companies out there today,” said Robert Michaels, president of General Growth Properties, Chicago, Ill., which so far has 10 Chico’s stores at its centers. “We’ve been working with them for a number of years, and they have really done probably the best overall job of any apparel retailer within the past two to three years. Their numbers are fabulous, and their merchandise offerings are just right on.”

Terry McEwen, president of Poag & McEwen Lifestyle Centers, Memphis, Tenn., is equally enthusiastic, and has just negotiated the firm’s sixth deal with Chico’s. Poag & McEwen pioneered the lifestyle center format in which Chico’s thrives.

“They’re one of the top-performing women’s apparel stores in the country right now,” he said. “They’re leading, or close to leading, in sales per square foot in women’s apparel, in every one of our shopping centers.”

Chico’s plans to remain on track with an aggressive expansion program — 65 stores opening next year — despite the uncertain economy and the atrocities of Sept. 11, said James West, vice president of real estate. However, developers of about half the 22 new centers it intended to go into next year have delayed their project openings.

“As many as 10 to 12 will move back to 2003 deliveries, because of uncertainties with other major retailers, and, therefore, uncertainty with the lifestyle and mall developers,” he explained. “We will handle that by moving into more deliverable main street and strip-center product that’s available in the market.”

Currently, about 35 percent of the company’s stores are in main street and strip center locations. Lifestyle centers account for about another 35 percent, with the balance located in malls. Going forward, West said the mall percentage will probably decline, primarily because there are not as many malls being developed now, but also because they are less suited to Chico’s identity.

“We’re sort of a lifestyle tenant; we feel our customer will shop us a little more in a community environment than in regular malls, although we must maintain a presence there because they’re still significant,” he said.

Brick-and-mortar stores account for 98 percent of Chico’s business, but catalog and online shopping, first offered in May 2000, together bring in about $1 million a month.

“The catalogs help drive traffic into the stores,” said Frain. “That’s our absolute priority.”

Recently, Chico’s increased its store footprint: Where stores once were 1,600 to 1,800 square feet, newer locations typically range from 2,500 to 3,000 square feet; a few locations are at 4,000 square feet. The firm is also seeking to create a warmer atmosphere in its stores, with an aggressive remodeling plan featuring wood floors and original furniture pieces.

“We’re opening 60 new stores this year, and we’ll probably touch another 50 stores either in expansions, relocations or remodels,” said West. “That’s significant in a store base of 300.”

The firm’s vertical integration also keeps Chico’s site-selection process flexible. Since distribution is controlled through one central warehouse at corporate headquarters, the company can use that as storage space.

“We ship to many of our stores every day, in UPS containers that are 24 pounds or less,” noted West. “So if we do see a compelling 2,000 square feet of retail space that we like, we can take it; we’ll just supply the store out of our warehouse.”

The stores turn so quickly, he added, that some locations move more than one-third of their merchandise in a week.

 

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