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Chico’s FAS, Inc. sells its own private label brand of clothing and accessories to a core audience of women with a moderate to high income level. The firm's namesake brand, Chico's, sells relaxed fit casual clothing which the company targets to women 35 and older. Chico's also owns White House Black Market (WH|BM), aimed at slightly younger customers, and Soma, a lingerie store. The firm closed down its small Fitigues chain in early 2007.

95% of the company's sales come from its retail stores, and the remaining 5% come through its catalogue and website. While Chico's stores account for the bulk of the company's sales (73.5% in 2006), the strongest growth has been in its WH|BM stores. WH|BM grew 40% last year, while Chico's grew only 10%. Sales growth has been strong in past five years, but has slowed in recent months. Generally, women's clothing sales are closely tied to the state of the economy, and in the event of recession and slow consumer spending Chico's will struggle to maintain its revenues.

To reverse this trend, Chico’s is looking to grow through its two niche concept lines rather than its traditional namesake brand. to devote more attention to its newer concepts, especially Soma, while streamlining the assortment in its existing brands. [1] Recently, the company has been experimenting with expansion within its concepts. It is looking to increase its offerings in non-clothing gift items (leather goods, watches, gifts for children, etc.) within its retail locations. The compay is also expanding efforts to increase its retail square footage, relocating and pursuing larger properties for new stores. [2]

Company Overview

Chico's sells clothing and accessories, as well as an increasing number of non-clothing gift items to women aged 25 and older. It sells primarily through its retail locations, although it does generate about 5% of its sales through e-commerce and catalogue operations.

Recently, more in-house design, a higher number of contracts executed directly with manufacturing and the introduction of on-site quality control mean that the brand has been able to improve its merchandise margins while keeping products affordable and stylish. [3]

Sales Channels

Retail Locations

adsfasdf Chico’s FAS Inc. operates three brands, all offering private label clothing and complementary accessories. [4]

Chico’s targets women 35 and over in a middle market, selling clothes that are accessible to middle class customers but emulate the styles of luxury brands. It interprets current fashion trends, offering frequent new designs along with core and seasonal merchandise in easy-handling fabrics. Chico’s brand utilizes a unique sizing system, facilitated by its relaxed styles. The sizing scheme groups traditional women’s sizes (0-16) into four groups. Because the brand does not have to invest in a wide array of sizes within a single style, it is able to offer a wider array of clothing. In February of 2007, there were a total of 541 front-line Chico’s stores, 34 outlet locations, and 13 franchise locations.

Soma shares its target market with Chico's brand. The concept’s merchandise falls into two categories— lingerie and clothes(including activewear, sleepwear and loungewear). At the beginning of 2007, the brand operated 52 retail locations, many of them located near or adjacent to Chico’s stores.

Last year, Chico’s and Soma stores accounted for 73.5% of the company’s net sales.

WH|BH (White House| Black Market) has a younger target market – working women 25 and older with active social lives. This concept focuses on delivering a classic and very feminine look, with merchandise in black, white and related shades. In February 2007, the brand operated 254 front-line stores and 16 franchise locations. In 2006, WH|BM stores were responsible for only 22.3% of net sales, however, it is in this concept that the company is seeing its strongest growth.

Sales Growth For Chico's/Soma as Compared with WH|BM

' 2003-04 2004-05 2005-06 2006-07
Net Sales44.7%38.9%31.7%17.2%

Outlet Stores

As of March 2007, the company operated 34 Chico’s outlet stores and 16 WH|BM outlets. These locations market slower-selling items removed from primary retail locations, pieces that are pushed out by new merchandise, as well as items from the company’s “Additions by Chico’s” label. This label, designed exclusively for Chico’s outlets, seeks to promote the clearance of existing merchandise, and currently accounts for about 25% of sales. The existence of outlet locations helps the company to clear merchandise while allowing its front-line stores to maintain a less generous markdown policy. In fiscal 2006, outlets accounted for 4.6% of the company’s net sales.

Catalogue and Internet

In fiscal 2006, catalogue and e-commerce accounted for 3.3% of net sales.

Loyalty Programs

Central to all the brands are loyalty programs, designed to encourage repeat sales and inspire higher spending. Chico’s and Soma jointly offer membership in the “Passport Club,” while WH|BM’s has a program of its own. Preliminary membership is free, and permanent membership is attained after a certain dollar value of merchandise has been purchased. Last year, the Passport club had 3.6 million active preliminary and permanent passport members. WH|BH’s club, Black Book, had about 1.8 million. During fiscal 2006, Passport members accounted for 83% of sales, averaging $108 per transaction and shopping 5-6 times a year. Non-members averaged $66 per transaction and shopped 1-2 times per year. Black Book members account for 63% of all sales, and preliminary members account for 31%.

Financial Performance

Fiscal 2006 heralded the end of the company's two-digit growth trend, both in new store and comp store sales. This decline was due to a series of factors:

  • Merchandising Missteps: Changes in management meant a shift away from coupons and toward brand development. The budget-conscious baby boomer market enjoys spending less on a product it loves, and is less concerned than younger consumers with brand image.
  • Expansion Program: The company's desire for larger retail locations and its growth-based model led to an aggressive relocation and expansion program in fiscal 2006. Larger locations meant higher operating costs and a larger payroll. This process also compromised customer service, a key standard of the company.
  • Refocusing of Market Initiatives: The maturity of the Chico's brand market led the company to refocus its energies on its newer brands, stretching management thin.

Net Sales and Operating Income in thousands of dollars

' Fiscal 2004 % Fiscal 2005 % Fiscal 2006 %
Chico's/Soma Stores$889,42983.4$1,095,93878$1,210,47473.5
BM Stores$142,09213.3$261,60118.6$367,06322.3
Catalog and Internet$26,8312.5$36,1512.6$53,5233.3
Other $8,5300.8$10,8850.8$15,4220.9
Net Sales$1,066,882100$1,404,575100$1,646,482100
Operating Income$224,376$298,313$251,053


Percentage Increase in Comp Company Store Net Sales

Year % Increase

Key Trends and Forces

Chico's Private Label Must Continue to Compete with National Brands

Chico's offers exclusively private-label casual-to-dressy women's clothing, intimates, accessories and a number of non-clothing gift items in three separate brands - Chico's, WH|BM and Soma. Currently, WH|BM is enjoying the fastest growth, and its contribution to the Net Sales of the Company has grown by 69% over the past two years (currently at 22%).

The use of a private label allows the company to respond more rapidly to changes in fashion and grants increased flexibility in changing its merchandise. However, in offering only its private label, the company is solely responsible for interpreting fashion trends, and must compete with national brands with larger marketing budgets. Private labels can offer cheaper alternatives to national brands, and they rely on customer loyalty to provide a revenue base. Chico's is no exception - 83% of its sales came from Passport club members who are returning customers, shopping at Chico's an average of 5-6 times a year.

Currently, the company distributes its merchandise from a single distribution center in Georgia. It is in the process of opening another distribution center in order to offset the risk involved in concentrating its merchandise in one location.

Chico's Depends on Foreign Manufacturers and a Single Distribution Center

Currently, the company distributes its merchandise from a single distribution center in Georgia. It is in the process of opening another distribution center in order to offset the risk involved in concentrating its merchandise in one location. In fiscal 2006, 51% of Chico’s and Soma merchandise was produced in China and 30% in other foreign countries. For the company’s WH|BM brand, these numbers were at 69% and 6%, respectively. Heavy dependence on foreign manufacture is risky, as potential glitches in the timeliness of delivery and economic and political situations in foreign countries can suddenly disrupt business. More specifically, potential increases in protectionist measures against Chinese textiles, which may be considered a threat to the domestic market, would imply lower margins for Chico’s products. [8]

Saturation Threatens to Cut Chico's market share

The Chico’s brand, making up the bulk of the company’s revenue, sells to women who are fashion-conscious, but not fashion-forward. Therefore, there is a limit to product innovation. The company’s focus on enlivened basics, items inspired more by necessity than fashion, puts a ceiling on what is purchased. With a total addressable market size of about 14.8 million, Chico’s entire Passport membership accounts for over 7 million women in this group, already an extremely high percentage. There are a growing number of competing brands and retailers who target Chico's core demographic, including growing firms like Coldwater Creek and retail giants like AnnTaylor, and Chico's must find a balance between emphasis on its traditional strengths while competing aggressively in its market.

The Further Development of Soma and WH|BM are Key to Chico's Growth

Declining performance at the Chico's brand has led the company to devote further attention to its other concepts. WH|BM is the fastest-growing of Chico's three labels. Soma, currently linked to Chico's brand, could potentially attract a wider customer base than Chico's target market. Currently, Soma merchandise reads “by Chico’s,” and retail locations from this brand are often located near Chico’s stores. The company has determined that Soma may indeed have a larger market than Chico’s, given that it’s major competitor, Victoria’s Secret, sells to a young, body-conscious customer. Going forward, the company has announced its intent to open Soma stores independent from Chico’s locations, and remove “by Chico’s” from its labels, thereby distinguishing the brand.[9]

Fears of Recession, and Slower Consumer Spending, Could Hurt Chico's Sales Growth in 2008

The credit crunch resulting from tighter lending standards after the disastrous subprime lending crisis has led to slower spending on retail goods in the first months of 2008. Economic forecasters worry that the combination of rising commodity prices, driving up the cost of retail goods, combined with slower economic growth as banks limit cash flow and the housing market starts to recover, could cause 2008 to be a tough year for many retailers. Chico's might feel the effects of depressed consumer spending in the short term, but a temporary dip in sales should not be a serious issue for the firm in the long term. Its balance sheet is solid enough to withstand short term difficulties, and the U.S. economic cycle will rebound, and Chico's revenues along with it.


Chico’s was formerly one of the only retail chains targeting the baby-boomer market, and its outstanding customer loyalty system and customer service standards may continue to nurture that customer base. However, competition has been intensifying for the company recently, with other firms mimicking the Chico’s model and targeting its customers.

  • Talbots – One of Chico’s biggest competitors, Talbots shares a target market with Chico’s brand. Talbots sells clothing in a wider range of sizes, and unlike Chico’s, also sells shoes. The company operates over 1200 stores, while Chico’s operated 540 during the last fiscal year.
  • Coldwater Creek – This company has a wider array of sizes than Chico’s brand, and sells clothing for every facet of life—career, special occasion and weekend wear. It also offers personal care products, and has recently opened several day spa locations.
  • Banana Republic (Gap, Inc. ) – This Gap brand offers sophisticated casual and special occasion clothing. Its tailored, fashionable merchandise may appeal to Chico’s brand as well as WH|BM customers.

Chico's operating margin has been declining as it must spend more on marketing and promoting its goods in response to stiffer competition. Despite this decline its margin still compares favorably with its closest competitors.

' Operating Margin (2006) Same store sales growth (2005-2006)
Talbots (TLB) 1.03%1.3%[11]
Gap (GPS)7.77%-7%[12]
Nordstrom (JWN) 7.77%7.5% [13]
Coldwater Creek (CWTR) 3.71%n/a


  1. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business", pg. 2
  2. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business Strategies", pg. 8
  3. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business Strategies", pg. 8
  4. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business Strategies", pg. 4-8
  5. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Selected Financial Data", pg. 38
  6. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Selected Financial Data", pg. 34
  7. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Selected Financial Data", pg. 34
  8. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business", pgs. 15-17
  9. Chico's FAS, Inc. (CHS) Form 10-K, Fiscal Year 2007, "Business", pg. 8
  10. Chico's 2006 Annual Report, page 4
  11. Talbot's 2006 Annual Report, page 3
  12. Gap Stores 2006 Annual Report, page 14
  13. Nordstrom 2006 Annual Report, page 30
  14. Figures from Yahoo! Finance, projected by Capital IQ
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