Gap Inc.’s problems have been well-documented. Between a loss of product cachet, trouble with information systems, an underperforming CEO and poor marketing campaigns, it seems that just about everything has been blamed for the retailer’s problems.
But one wonders, with more than 3,000 stores, perhaps Gap has simply expanded beyond the bounds of its target market. It’s rather ironic really: While many retailers complain (and rightly so) that their technology infrastructure inhibits their growth, Gap, a company with a solid technology infrastructure that would support expansion almost limitlessly, finds itself otherwise limited (no pun intended).
Enter Chico’s, my former favorite stock, and many of my friends’ favorite brand. Chico’s found an underserved niche, and has served it well.
Women of a certain age and size can be assured of finding really interesting products that actually fit them. Even the size numbers have been changed to protect the customer’s self-esteem, so where other retailers sell clothes in size 14, Chico’s touts a size 3.
Over the past few years, the chain grew and comparable-store sales rocketed quarter after quarter. Then along came acquisitions and new businesses, including Chico’s purchase of White House/Black Market and its launch of Soma, selling lingerie to the original banner’s target customers. Chico’s was special, and everyone knew it.
Last year the company opened 150 new stores, the most in its history. But 2006 was unique for Chico’s in other ways, too. Last August, for the first time in 111 months, Chico’s posted negative year-over-year comparable-store sales, and October sales were flat in both Chico’s and White House/Back Market.
The company’s CFO blamed poor sales on “higher price points and more casual styles.” Of course, the company is shifting back to its former price points, even as it plans to open 80-plus stores this year.
Chico’s made big changes on the technology front as well in 2006. In May, Chico’s chose SAP as its “end-to-end solution” to help fuel the company’s growth.
Infrastructure changes are required when a company moves into the rarified air of Tier 1, and as some of Chico’s systems began to groan under the company’s growth, there’s no doubt that this was a smart move.
But a disturbing pattern is emerging. Chico’s is starting to smell a