Chico’s FAS, Inc.

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Chico’s FAS, Inc.

11215 Metro Parkway
Fort Myers, Florida 33912
U.S.A.
Telephone: (941) 277-6200
Fax: (941) 277-5237
Web site: http://www.chicos.com

Public Company
Incorporated: 1983 as Chico’s Folk Art Specialties
Employees: 3,500
Sales: $259.4 million (2001)
Stock Exchanges: New York
Ticker Symbol: CHS
NAIC: 44812 Women’s Clothing Stores

Chico’s FAS, Inc. is a prominent chain of women’s clothing and accessories stores. The company began with one modest shop, but grew quickly in the 1990s. As of 2001, the chain had nearly 300 stores in 40 states. Most are directly owned and operated by Chico’s, while about a dozen are franchised. Chico’s targets women of relatively high income and over 35 years of age. The growing demographic of the aging baby boomer has been a goldmine for the chain, which designs its clothes to suit plumper figures and relaxed but not flamboyant tastes. The company designs and sells its own lines exclusively. Chico’s saw double-digit growth in the late 1990s, even at a time when the retail environment as a whole was flat or shrinking. Founders Helene and Marvin Gralnick continue to run the chain.

Drifting Around Mexico in the 1970s

Chico’s FAS was founded by the husband-and-wife team of Helene and Marvin Gralnick. Marvin Gralnick was born in 1935 and grew up in a suburb of St. Louis, Missouri. After dropping out of college, he moved to Mexico in 1964. In 1971, he met Helene, a Florida native who was vacationing in Guadalajara. They married there and went into business together designing fringed leather vests for export to the United States. The couple loved Mexico, and their business at the time seemed more of a way to get by than the start of a multimillion-dollar retail empire. In fact the Gralnicks lost what money they had a few years later, when the value of the peso tumbled during the Mexican economic crisis of 1976. They moved back to the United States, settling in a Florida resort spot, Sanibel Island. They continued to support themselves by selling Mexican imports, going down to Mexico four times a year to buy art work and clothing. In 1983, the couple opened their first store, an 800-square-foot space that had formerly housed a tobacco shop. This was Chico’s Folk Art Specialties. Chico was a bilingual parrot owned by a friend. The emphasis of the shop was on Mexican arts and crafts, though the Gralnicks also sold clothing, such as hand-knitted Mexican fishermen’s sweaters. Soon it became clear that the clothing was the biggest draw, and the couple repositioned the store as a funky boutique selling its own Chico’s brand apparel. In 1985, the Gralnicks opened a second store, on Captiva Island, Florida. Chico’s opened its first franchise two years later. This came about because one customer, a Minnesota woman, had fallen in love with Chico’s style while vacationing in Florida, and she convinced the Gralnicks to let her become a franchisee.

Struggling for a Niche in the Early 1990s

Chico’s became a quiet hit, and the Gralnick’s franchised more stores. It seemed a reasonable way to expand the company, because the founders did not have enough capital of their own to set up in new markets. The Gralnicks both worked to design the clothes, which they then had made for them in Mexico. Marvin Gralnick also designed and built distinctive display crates, and the stores were decorated with idiosyncratic Mexican furnishings. Overall, the Chico’s look was relaxed, offering casually romantic clothes that spoke of vacation and ease. The pieces fit loosely, and were mostly made of natural fabrics such as cotton and linen. Some items were printed by hand, so that each garment was unique. Separates could be mixed and matched easily, and prices were relatively modest. Chico’s franchises opened in shopping centers in other resort communities and in some suburban locations.

In 1990, the company shortened its name to Chico’s FAS, Inc. Marvin Gralnick became CEO, and a former franchisee, Jeff Zwick, became president. By 1992, the chain had expanded to 60 stores, with a mix of franchisee shops and company-owned units. Chico’s was thriving, and the Gralnicks thought about retiring. They took the chain public in 1993, selling stock on the NASDAQ. The initial public offering went well, and the Gralnicks themselves made a reputed $40 million. With that sizeable nest egg, the Gralnicks left the company, giving Zwick the leadership position. But without the founders’ vision, the company quickly reached a crisis. Under Zwick, the Chico’s look metamorphosed from relaxed to oversized. New designs came out in loud colors. The stores carried more stock, and new stores opened in regional malls, which the company had previously avoided. The eclectic look that had set Chico’s apart was lost, and customers fell away. Within a year under the new management, net income had fallen by half.

Jeff Zwick resigned in 1994, with the chain clearly failing. The Gralnicks returned, with Marvin Gralnick reclaiming the CEO position. The senior vice-president of operations became interim president, until the company hired Melissa Payner to take the job. Payner had been a merchandiser at the jeans company Guess and at the upscale department store chain Henri Bendel. She was in her mid-30s when she took over the presidency of Chico’s. She worked closely with Marvin Gralnick, traveling to Guadalajara with him to see the source and inspiration of the Chico’s look. Under Payner’s direction, the clothes came back to their original palette, mostly earth tones, black, and red, forgoing the bright prints Zwick had brought in. The clothes also became more tailored, losing the oversized look that had not sold well. In addition, the company bought back most of its franchises, so it had more control over each retail outlet.

Same-store sales began to inch up in 1996, even though the specialty apparel niche as a whole was shrinking at the time. (Same-store sales is a key economic indicator for retailers, comparing sales growth at stores that have been open for at least a year.) Nevertheless, Chico’s’ troubles were not behind it. Where Zwick had moved the Chico’s look to bigger and looser, Payner went in the other direction. The clothes she emphasized seemed designed for a younger figure. The stores began stocking short skirts and cropped tops, and this look was equally out of sync with Chico’s’ ideal customer. The Chico’s woman was from 35 to 65, had a household income of around $75,000, and liked to be comfortable but well-dressed. The tight, short look of 1996 proved as unappealing as the loud, baggy look of 1994 had been. Payner resigned in February 1997, and Marvin Gralnick became both CEO and president.

Focusing on the Aging Baby Boomer in the Late 1990s

Sales had begun to slump again at the end of Payner’s tenure. Almost as soon as Marvin Gralnick took over the presidency, same-store sales went up. By the end of the year, the chain was seeing double-digit same-store sales growth. Chico’s had grown to over 130 stores in 32 states. The company seemed to have found its niche again, and was determined to keep it. Chico’s’ core consumer base was the aging baby boomer. These women had come of age in the 1960s and were now in their prime. They had money to spend and appreciated comfort, style, natural fibers, and a certain lack of stodginess. Chico’s had been enormously appealing to this class of customer when it first opened, and it pursued the market now almost unopposed. Other successful chain apparel retailers such as The Gap and The Limited were aimed at younger women. Talbots, Inc, a longtime merchandiser of resort wear and other apparel, projected a more conservative image.

Chico’s applied innovative tactics to get and keep customers. It lavished attention on shoppers. Chico’s sales clerks received many more hours of training than at comparable chains, and they were taught to build personal relationships with customers. One unique thing about Chico’s stores was that the dressing rooms lacked mirrors. The customer then had to emerge from the dressing room to see how she looked. Sales clerks were to make astute judgments about fit and style and also offer accessories or additional pieces of an ensemble. Another ploy Chico’s adopted was nonjudgmental sizing. Chico’s clothes came in size 0,1,2, or 3. A woman who in another store would be wearing a size 16 might be flattered to fit into a 3 at Chico’s. Chico’s also offered a lifetime discount program to shoppers who had spent at least $500. This Passport Club program was initiated in 1994, temporarily withdrawn, then revived again in the late 1990s. Chico’s strove to make its customers feel valued, and apparently many older women felt other stores did not treat them as well. Helene Gralnick, who remained vice-president of design and concept, felt she knew what the Chico’s woman appreciated. She told Women’s Wear Daily, in a June 13, 2001 interview, that the typical Chico’s woman “likes to have a little dessert, and may not be too thrilled with her butt.” So clothes were not only loose, but styled to make women look slimmer. They washed easily. Some product lines emphasized that they could be jammed in a suitcase and then worn without ironing. Chico’s also kept the price of its clothes down. Most of the designing was done in-house, overseen by Helene Gralnick. This gave the company greater control over its merchandise costs. Most items retailed between $20 and $150.

Company Perspectives:

Established in 1983, Chico’s began in a small store on Sanibel Island, Florida, with Marvin and Helene Gralnick selling Mexican folk art and cotton sweaters. Now, 18 years later, we have grown to over 280 stores in 40 states. From our exclusive, private-label designs to our most amazing personal service, Chico’s is truly a unique retail environment. When you walk into any Chico’s store, you can depend upon the sales staff to coordinate, accessorize, and help you build a "wardrobe to suit your needs. All of our products are designed and developed by our Product Development Team in our headquarters in Fort Myers, Florida, which enables us to provide you with new styles every week. We ’re moving fast, but not without you. Get yourself to Chico’s!

By 1998, Chico’s was one of the brightest lights in retailing. The company opened more stores, carefully picking likely spots. Chico’s worked with a consulting firm that compiled a complex database of consumer characteristics to find good locations for new stores. Though the chain saw potential to grow to perhaps 700 stores, it only opened about 30 to 50 stores a year in the late 1990s, aiming for controlled growth rather than blanketing the country. Chico’s began advertising in national magazines for the first time in 1998. By 1999, the stores began stocking some different types of items, such as soaps and aromatic oils, candles, watches, and shoes. New stores moved to a larger format, of about 1,800 square feet, to accommodate the growing product mix and to make room for a special section to house sale items. Chico’s also reinstated its Passport Club program in 1999, which gave a lifetime 5 percent discount to shoppers who had accumulated $500 in sales. This was a nice reward program for frequent shoppers, but it also provided Chico’s with a wealth of information about its most dedicated customers. In 1999, the Passport Club had some 300,000 members. This grew to 900,000 two years later. The company also put out a catalog and began selling through a Chico’s web site.

Chico’s stock did well as the company continued to roll out impressive sales statistics. Sales for 1999 were over 40 percent higher than 1998 figures, and nothing seemed to hold the company back. It still had room for geographic expansion, and its customer base seemed to be growing. An industry analyst quoted in the Wall Street Journal (February 22, 1999) stated that Chico’s’ core demographic of women aged 45 to 65 would grow by at least 24 percent a year until 2005. Chico’s just needed to keep serving this market well, and success seemed inevitable. The company brought in a new executive vice-president in 2000, Tedford Marlow. Marlow had previously worked at Saks Fifth Avenue, The Limited, Marshall Fields, and Neiman Marcus. Marlow instituted some more formal management procedures, such as weekly meetings and additional layers of mid-level executives. With his long career in retail, he also appeared to be a possible successor to Marvin Gralnick, who had already retired once in 1993 and was nearing 70.

In April 2001, Chico’s moved its stock from the NASDAQ to the more prestigious New York Stock Exchange. The chain planned to add another 60 stores that year, bringing its total up over 300. It brought out television ads and renewed its print ad campaign with a marketing budget of $10 million. Chico’s had posted double-digit sales gains every month since June 1997, and the chain showed no signs of slowing. Its Passport Club for preferred shoppers had grown to over a million members, and the company also sold its clothes and accessories through its catalog and web site. Passport Club transactions and catalog and online sales all gave the company the added bonus of supplying data about its customers. Catalogs, for example, arrived in mail boxes with a discount coupon. By tracking sales made with the coupon, the company had a finely focused tool for identifying who bought what.

Customers continued to buy. By mid-2001, the overall retail environment had slumped to what looked to be its worst state in over ten years. Yet Chico’s continued to boom. Despite a major stock market slow-down and grim news of recession, Chico’s customers kept spending. Chico’s Chief Financial Officer Charles Kleman said in an interview with Women’s Wear Daily (August 9, 2001) that the Chico’s customer was “going to spend on apparel whether the stocks are up or down, since the last thing she will give up is her looks.” Overall sales for the three quarters ending in November 2001 were up almost 50 percent over the same period a year earlier. Same store sales for the third quarter grew 7 percent. Though this was less than the double-digit gains of previous quarters, Chico’s’ strong performance stood out in a retail environment that was clearly in trouble. Chico’s named a new president and chief operating officer, Scott Edmonds, in the fall of 2001, and Helene and Marvin Gralnick also affirmed their commitment to stay on at Chico’s until at least 2004.