Chico's FAS: How It Got Its Groove Back

The fashion retailer refocused on a customer, a look, and an ambience--and added a few sales tricks

When Marvin J. Gralnick retired in November, 1993, as CEO of Chico's FAS Inc. (CHS )--the women's apparel chain he started with wife Helene a decade earlier--the company had just gone public, the business was strong, and the Gralnicks looked forward to years of leisure.

It would be a short retirement. After they left, Chico's, which had been selling casual cotton resort clothes, changed radically and instead began selling large-size clothes for women. A year later, the Gralnicks raced back to the rescue. As Marvin, 66, bluntly puts it: "The company was going out of business." It took him and Helene, now 53 and senior vice-president of concept and design, three years to set things straight. In that time, they rejiggered the merchandise mix to come up with what has proven to be a winning formula: lines of loose-fitting stylish separates that flatter their over-35 women customers.

The turnaround landed Chico's at No. 6 on the Hot Growth list. From 1998 through 2000, its sales increased by an average 50% per year, with earnings climbing an annual average 112%. When the Gralnicks left in 1993, their 32% stake in Chico's was worth $21 million; now their 13% share is worth $100 million. And with a new management team, Marvin predicts a thriving business for years to come. "We can visualize this as a $1 billion-plus company with 500 to 600 locations," he boasts.

Chico's has 260 boutique-style stores, usually located in high-end malls, and it is adding about 50 stores per year. Each one purveys stylish original fashions of the sort its customers--mature women with household incomes of $75,000 or more--often have trouble finding. Talbots Inc. (TLB ) comes closest, but its clothes are generally more conservative than those at Chico's, where an oversize linen shirt, for example, goes for about $60. And the small Chico's stores specialize in pampering customers. "They've made women in their 40s and 50s feel that this is really a place for them to get terrific fashion value," says New York retail consultant Wendy Liebmann.

"MIND-BOGGLING." The company--named for a friend's bilingual parrot--is one of the hottest plays in retail. Same-store sales grew 23% in 1999 and 34% in 2000, boosted by the popular Travelers Collection of wrinkle-free, ribbed-knit separates and a 900,000-member loyalty program that gives customers 5% off after spending $500. Sales are also driven by the catalog mailings to 1.2 million households. In fact, sales growth has bested even retailing superstars like Talbots. "These are mind-boggling numbers," says Southwest Securities retail analyst Ozarslan Tangun.

Chico's has some neat tricks to keep sales climbing. There are no mirrors in the dressing rooms, so when shoppers step back on the sales floor to find one, clerks use the chance to sell additional items. That's how Carolyn Collins, 57, a Christian-education coordinator in Atlanta, spent $1,500 the first time she shopped at a Chico's three years ago. "The service is great, and I like the look--stylish but comfortable," says Collins, who makes twice-yearly pilgrimages to the store. "My problem is to quit buying when I'm here."

Gralnick was a college dropout designing leather jackets in Mexico in the early '70s when he met Helene, then vacationing in Guadalajara. There was "something at first sight," she recalls. They married in 1972 and by 1983 opened their first store in Sanibel Island, Fla. Today, Chico's operates in 40 states and has begun a national TV ad campaign to build brand recognition. But thankfully for Chico's, word is already out.

By Aixa M. Pascual in Fort Myers, Fla.

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