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WIKI ANALYSIS
Talbots (NYSE: TLB) is a high-end clothing company with stores in the U.S., Canada, and the UK. In early 2008, Talbots closed its men's and children's operations, in order to focus on high-income women over the age of 35, in particular the 40 million baby boomers who are nearing retirement.[1] The worsening state of the U.S. economy, however, has caused the company trouble. Two of Talbot's lenders decided to not renew $265 million in credit to to the company, limiting its ability to borrow money and pay for inventory and possibly setting it up for the bankruptcy. Futhermore, revenue for the second quarter of 2008, though up from the first quarter, fell year-on-year because middle-class consumers have shifted spending away from luxury goods. Talbots competes with other luxury retailers like AnnTaylor Stores (ANN), Chico's FAS (CHS), and Limited Brands (LTD).
Business and Financials
Talbots is composed of two segments: Talbots and J. Jill.
- Talbots offers classic sportswear, apparel, shoes and accessories, marketing to the demographic of high-income, college-educated professional women over 35.
- J. Jill was acquired by Talbots on May 3, 2006. It offers fashionable clothing meant to appeal to women age 35 and over.[2]
Talbots decided to close its men's and children's businesses in January 2008, and has also closed twenty underperforming stores in order to better focus on its aforementioned core demographic.[4] Net income has been below expectations for the past five years, even becoming negative in 2007. The company's lackluster performance is attributed mainly to decreased consumer spending in response to an unstable economy, as well as tough competition with more attractive product offerings.
| Year | Number of Stores at Year's Start | Stores Opened | Stores Closed | New Acquisitions | Number of Stores at Year's End |
| 2003 | 886 | 96 | 5 | 0 | 977 |
| 2004 | 977 | 75 | 3 | 0 | 1,049 |
| 2005 | 1,049 | 50 | 16 | 0 | 1,083 |
| 2006 | 1,083 | 84 | 8 | 205 | 1,364 |
| 2007 | 1,364 | 75 | 18 | 0 | 1,421 |
Despite the discontinuation of its men's and children's lines, Talbots has increased its number of stores for the past five years, thanks in part to its acquisition of J. Jill. Talbots' strategy for recovering from its profit slump involves focusing on only one group of consumers--professional, educated women over the age of 35. The firm is currently improving its image among this demographic by further developing its apparel; focusing on exclusive colors and fabrics, as well as fashion-forward design.[6]
Key Trends and Forces
Worsening of U.S. Economy Will Further Curb Consumer Spending
Fears of a recession are leading consumers to be more conservative about their spending, causing many companies in the retail industry to see a decrease in sales. Talbots, however, has seen an increase in sales, with 2008 revenues growing from $388 million for Talbots and $86 million for J. Jill in the first quarter,to $436 million and $106 million in the second quarter, respectively. [7] [8] Although Talbots' revenues have increaed for the last two quarters, they are still much lower than last year's revenues for the same quarters. Before the state of the economy became so uneasy, middle-class consumers were more confident, with more money and more access to credit, meaning they were more likely to purchase luxury goods. With a recession looming, however, those same middle-class consumers have been holding back and buying less from luxury retailers, leading to the overall decrease in revenues from 2007 to 2008.[9] The quarterly increase, however, is due to Talbots' more affluent customers being relatively unfazed by recessionary fears, coupled with the company's decision to hold monthly sales instead of quarterly sales.[10]
Credit Crunch Negatively Affects The Talbots, Inc.
Many banks are trying to limit their risks due to the credit crisis. In April 2008 two of Talbots' lenders stopped a $265 million line of credit to the company. [11] Talbots relies on credit to purchase inventory and merchandise from overseas vendors. If it is unable to secure sufficient credit, the company will purchase less inventory, meaning it has fewer products to sell, leading to decreased revenues and profits.[12] Talbot's credit issues have resulted in its stock price decreasing by almost half in April 2008, from $12.83 to $7.83 per share.
Aging Baby Boomer Population Increases Talbots' Target Demographic
As of 2005 there were 78.2 million baby boomers in the United States, of which about 40 million were women. With ages varying from 44 to 62, these women are part of Talbots' key demographic.[13] As baby boomer women move into the upper echelons of the professional world, and then retire, they will have more money to spend on luxury items, so Talbots is revamping its products and its image in order to best capitalize on this target demographic.
Competition
| Competitors | TTM Sales ($Millions) | Number of Stores |
| Talbots, Inc. | 2,289 | 1,421 |
| AnnTaylor Stores (ANN) | 2,397 | 929[14] |
| Limited Brands (LTD) | 10,134 | 2,926[15] |
| Nordstrom (JWN) | 8,828 | 157[16] |
| Chico's FAS (CHS) | 1,714 | 1,045[17] |
AnnTaylor Stores (ANN) is a clothing retailer with stores throughout the entire United States and Puerto Rico. Its principal store, Ann Taylor, provides professional clothing, while Ann Taylor Loft provides casual clothing, both geared towards professional women.
Limited Brands (LTD) owns a number of well-known brands, namely Victoria's Secret and Bath & Body Works. Victoria's Secret is a lingerie retailer, while Bath & Body Works focusees on beauty products.[19] In 2007 Limited Brands increased its line of credit to $1.5 billion.[20]
Nordstrom (JWN) is an "affordable luxury" retailer that sells clothing, shoes, and accessories to individuals of both genders. It's target demographic is individuals between the ages of 25 and 54 who generate an income in excess of $100,000 per year.
Chico's FAS (CHS) sells casual clothing to middle-aged women with moderate to high income. It also owns Soma, a lingerie store, and WH|BM, a brand that targets a younger demographic.[21]
Among its closest competitors, Talbots' sales are lower than most, higher than only Chico's. The high discrepancy in sales is at least partly attributable to the fact that some retailers, such as Nordstrom and Limited Brands, Inc. serve a much larger clientele. Among the competitors that serve similar demographics of middle-aged women (Talbots, Ann Taylor, and Chico's), Talbots makes comparable revenues. In the past year, none of Talbots' competitors have seen a decrease in the amount of money they could borrow. Since Talbots' line of credit is substantially decreased, the amount of inventory it can purchase will decrease, meaning it will be less capable of competing with its main rivals.
References
- ↑ "Oldest Baby Boomers Turn 60!" US Census Bureau website
- ↑ 2007 10-K. Item 1, Page 2.
- ↑ TLB 2007 10-K. Item 6, Page 25.
- ↑ Talbots, Inc. Morningstar Report, Page 1.
- ↑ 2007 10-K. Item 1, Page 8.
- ↑ TLB 2007 10-K. Item 1, Page 9.
- ↑ TLB 2008 8-K, Second Quarter.
- ↑ TLB 2008 8-K, First Quarter.
- ↑ "The Death of Mass Luxury." BusinessWeek January 17, 2008.
- ↑ "Talbots Profit Beats Estimates; Reaffirms Forecast" Bloomberg, May 21, 2008
- ↑ "Two banks to cut $265m in credit for struggling Talbots." The Boston Globe. April 16, 2008.
- ↑ "Shares of Talbots Tumble 29% After Two Banks Cancel Credit." The New York Times. April 17, 2008.
- ↑ "Oldest Baby Boomers Turn 60!" US Census Bureau website
- ↑ ANN 2007 10-K. Item 1, Page 4.
- ↑ LTD 2007 10-K. Item 1, Page 3.
- ↑ JWN 2007 10-K. Item 1, Page 1.
- ↑ CHS 2007 10-k. Item 1, Page 1.
- ↑ Talbots Inc. Morningstar Report, Page 3.
- ↑ LTD 2007 10-k Section 1, Pages 1-2.
- ↑ LTD 2007 10-k Section 7, Page 34.
- ↑ CHS 2007 10-k Section 1, Page 2.
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