Francesca's Frills Spur U.S. Expansion as Retail Clothing Chain Mulls IPO
Francesca’s Collections Inc. has won over women in their 20s by tweaking current trends, selling clothes adorned with beads, lace and ruffles. That devotion may help take the chain public as soon as next year.
“We have found a niche that is not being served, and we’ve found a lot of success in that niche,” Chief Executive Officer John De Meritt said in an interview. The customer “is willing to pay a little bit more for a little bit higher quality.”
Proceeds from an initial public offering could allow Francesca’s to more than double its boutiques to 500 in the next five years, said De Meritt, 39. The Houston-based retailer would join Toys “R” Us Inc. and Gordmans Stores Inc. in pursuing a share sale as consumer spending rebounds from the largest economic slump since the Great Depression.
Francesca’s sales top $500 per square foot, De Meritt said, more than twice the specialty-store average for some other national chains, according to U.S. government data. The retailer, which targets women ages 18 to 32 who have their own incomes, is taking on more widespread operators such as Charlotte Russe Holding Inc. and Forever 21.
“I’ve seen this Francesca’s theme so often, and I guess it comes and goes,” said Candace Corlett, president of New York consulting firm WSL Strategic Retail. “There is that gap left by H&M on price and Old Navy on fashion but it seems to me that they’re right up against Forever 21.”
Nicer Nuances
Francesca’s fun merchandise and reasonable pricing may give the retailer a boost, Corlett said. Its “Blue Meadows” sleeveless frock goes for $38, while the “Blushing Peach” ruffled blouse with embellished buttons sells for $34.
“There may be a tunic top that doesn’t have beads around the neckline and we’ll request that beads be added, or we’ll raise the hem two inches,” De Meritt said in the June 22 telephone interview. “We’re able to take what is something that is off the rack and sold for $12.99 at x, y and z and we make it a little bit nicer and more Francesca’s-like and sell it for $39.99.”
That strategy is part of what attracted buyout firm CCMP Capital Advisors LLC, which bought an 85 percent stake in Francesca’s in March. CCMP Chairman Greg Brenneman, a Home Depot Inc. board member who also served as a director at J. Crew Group Inc., deems the chain “the best retail business model I’ve ever seen.”
The retailer plans to open as many as 65 stores annually for the next two or three years and may eventually grow to more than 1,000, said De Meritt. He came on board as CEO in 2006 at the behest of Chong Yi, his best friend and one of three siblings he co-founded the firm with more than a decade ago. Revenue may rise to more than $125 million this year, De Meritt said.
Attracting Interest
While the chain’s growth has drawn interest from other private equity and retail companies, a public offering is the most likely route for Francesca’s, De Meritt said. June 2011 would be “the very earliest” an IPO would occur, according to Brenneman.
Francesca’s, which will open its 200th store in August, operates in small spaces -- about 1,200 square feet -- and limits the size of orders, meaning it can get merchandise in and out of the stores quickly and minimize markdowns, Brenneman said. The stores receive new goods daily, prompting some customers to visit three or four times a week, he said.
Some shoppers are venturing out again amid the economic recovery, with consumer confidence rising last month to the highest level since March 2008, according to the New York-based Conference Board.
While spending and confidence have rebounded, the chain benefited from the U.S. recession, which put some retailers out of business and made more spots available for less at prime locations, Brenneman said.
“It’s the best real estate environment for growing retail brands in 25 years,” he said. “Francesca’s wasn’t even in the malls because space was too expensive.”
To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.
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