Coldwater Creek's Hot Run

Founder Dennis Pence has made the catalog retailer a force in the mall as well

In 1984, Dennis Pence launched a catalog-only line of women's accessories and Native American-influenced gifts with $40,000, one telephone, and what he calls a "maniacal belief" in his entrepreneurial talents. He and his then-wife, Ann, had left high-paying marketing jobs in New York and moved to sleepy SandPoint, Idaho, where they ran the fledgling business, called Coldwater Creek (CWTR ), out of their apartment. Money was so tight that rather than pay United Parcel Service Inc.'s (UPS ) $6 pickup fee, Pence stuffed packages in a backpack, rode his bicycle two miles to town every day, and waited in line at the UPS office to process his 10 or so orders. "We were so cheap it squeaked," says Pence, now CEO of Coldwater Creek. "Dinner was tuna casserole without the tuna."

It's fair to guess that tuna casserole -- with or without tuna -- is no longer on Pence's menu. Coldwater Creek, which caters to professional women and now offers a full range of what it calls casual and versatile clothing, is one of the nation's fastest growing retailers, with sales on track to increase 18% this year, to $698.4 million. Analysts estimate that profits will jump 52%, to $44.2 million.

Thanks to average annual profit growth of 137% over the three years that ended in May, Coldwater Creek landed at No. 70 on BusinessWeek's annual Hot Growth ranking. Approving investors have jacked the company's stock up more than 60% in the last year, to about 31. Pence held a 20% stake in the company at the end of 2004 but has been unloading stock to diversify his personal investments; he now owns $335 million worth of shares in the company.

Much of Coldwater Creek's growth has come from Pence's careful foray into bricks and mortar. The company has opened 170 stores since 1999, mostly in upscale strip malls. The shopping centers, located in upper-middle-class neighborhoods, cater to the company's core audience: women who earn an average of $70,000 a year and who are drawn to such Coldwater Creek staples as $79 burnished silk jackets and $65 reversible suede belts. The soft-spoken Pence has managed the retail chain's expansion without piling up any debt.

Pence is rushing to capitalize on an emerging demographic group that retail experts have dubbed the zoomers. "They are baby boomers with a zest for living," says Lois Huff, senior vice-president of Retail Forward Inc., a consulting firm in Columbus, Ohio. "They've got lots of money to spend, and they want to upgrade their entire life."


This year, the youngest of the baby boomers turn 40 and the oldest turn 60. Zoomer women will make up the largest percentage of female shoppers over the next decade. But because they often feel ignored by big department stores, they're apt to go hunting for alternative shopping destinations, according to Pence. "She's not happy with the service she's receiving," he says. "She's not happy with the quality of assortment or the return privileges." Pence would like Coldwater Creek to be first among those shopping alternatives.

Well, get in line. Coldwater Creek is far from the only retailer to recognize an opportunity in zoomers. Retailers such as Chico's (CHS ) (Hot Growth entrant No. 15) and Talbots (TLB ) are among some of Coldwater Creek's toughest competitors. Pence has been working hard to set his company apart. Coldwater Creek was one of the first retailers to introduce stretch denim for older women who couldn't fit into the tight jeans sold by other stores. It offers clothes that can be worn to work and out at night. And the company lavishes shoppers with such attention that in a poll conducted by the National Retail Federation, Coldwater Creek was voted No. 1 in the nation for customer service in the specialty retailer segment. Every salesperson who takes orders by phone, for example, keeps a selection of clothes nearby so they can answer customers' most nitpicky questions.

Coldwater Creek was anything but an overnight success. At Sony Corp. (SNE ), where Pence worked his way up to national sales director of consumer electronics, he built a reputation as an aggressive and ambitious executive. Pence got his first sales job there in 1976, after a Sony executive walked into the San Francisco electronics store where he was working and was wowed by his persuasive selling technique. But even with the help of his wife, who had written advertising copy for Macy's, Coldwater Creek struggled to find its footing in the cutthroat retail business. Just two years into their entrepreneurial venture, Pence had burned through their life savings, and the stress was eating at him. One day he thought he was suffering a heart attack and was flown by helicopter to a hospital in Spokane, Wash.

It wasn't until the mid-1990s that Coldwater Creek, which by then was offering more than just accessories, started to attract the attention of well-to-do, older women. But the strain of launching a business, even one that eventually succeeded, took its toll on the marriage. The couple divorced in 2003, and Ann no longer works for Coldwater Creek, though she still has an estimated 20% stake in it. Pence says there are no hard feelings. "We had an unusual combination of skill sets," he says. "I think without the one or the other neither of us would have made it."

These days Pence is focusing on his ambitious agenda to open about 500 stores over the next six years. He predicts that the expansion will push annual revenues into the $2 billion range. As he sits back in a conference room inside the company's sprawling 175,000-square-foot headquarters -- now the largest building in SandPoint -- Pence muses at how far Coldwater Creek has come. He recalls that the company's first employee, a typist, brought her own pillow to work every day to cushion the hard dining room chair that she sat on when she typed up packing slips. "We really didn't know what we were doing," recalls Pence, "but we had great confidence in ourselves."

By Stanley Holmes

    Before it's here, it's on the Bloomberg Terminal.