How Talbots Grew—and Lost—Its CustomersBy
It's one of the toughest challenges in retailing: appealing to new, often younger customers without alienating shoppers who have long been loyal fans. When the transition is handled badly, things can go south in a hurry. Ask Talbots, which tried to entice thirtysomethings with cocktail dresses and frilly tank tops and left the pearl-wearing career women who had shopped there for decades feeling jilted.
Talbots on June 7 announced that fiscal first-quarter sales fell 8 percent after sales had already declined in 14 of the past 15 quarters—and second-quarter sales will decline "significantly." Talbots's stock fell a dizzying 41 percent after the news and the company's announcement that discounts to lure back customers will hurt profit margins. The retailer, which is shuttering about 20 percent of its 568 stores, has bled about $763 million in red ink over the past four years as confused shoppers went elsewhere.
"For many years, younger women in their 30s and 40s saw Talbots as their mother's store, and now there is a mix of items," says Jennifer Davis, an analyst at Lazard Capital Markets. "If they want to save themselves, they should make up their minds about who their audience is."
Talbots began selling women's suits, blouses, and dresses to New Yorker readers via mail order just after World War II. Its first stores opened in the suburbs around Boston, ballooning to more than 600 locations by the time Talbots went public in 1993. After the recession hit in 2007 and Talbots customers stopped replenishing their wardrobes, Chief Executive Officer Trudy F. Sullivan opted for radical change. Two years ago she told investors to forget about the brand's stodgy legacy and prepare for an edgier image.
The retailer tried to add to its glamour by hiring actress Julianne Moore to appear in TV commercials showing off embellished handbags and sky-high stilettos to a techno soundtrack. Talbots stores placed bold "statement" jewelry next to strings of classic pearls and metallic blazers beside seasonal appliqued sweaters. Meanwhile, most stores' traditional cherrywood interior and warm carpeting, meant to evoke a residential feel, were left untouched. The effect, Davis says, was jarring. "How is a young woman going to feel trendy when a snowflake sweater is nearby?" she asks.
When St. John Knits International, the high-end knitwear maker, began focusing on younger customers four years ago, it hired Angelina Jolie to model its dresses and sweaters. The ads, which featured the actress at her sultry best, were a big leap for a brand that until then had projected a wholesome image through models that included the founder's daughter. Jolie was dropped in 2010. Today, St. John's spokeswoman is Kate Winslet, whose down-to-earth vibe will resonate more with both twenty-somethings and people in their 50s, says George Sharp, the Irvine (Calif.)-based apparel company's creative director.
Adrienne Tennant, an analyst at Janney Montgomery Scott, says any retailer courting a new generation of customers must be prepared to "spend lots and lots of capital" to change everything about its stores—even down to the lighting and floor plans—to draw in the desired demographic.
That's what happened at Ann Taylor, where CEO Kay Krill sharpened the retailer's focus as part of a complete overhaul of the company. The goal was to sell clothes to more-affluent women instead of a wider variety of customers. She hired Heidi Klum and Katie Holmes, celebrities known for their fashion sense, as spokeswomen to bring in young mothers. Clothing was redesigned—longer skirts, neutral colors—to appeal to young affluent women. Stores were also remodeled; sleek, all-white walls, flooring, and shelving replaced yellow walls and sale signs that appeared to be handmade. A year later, profits had vaulted 21 percent. "These increases are gratifying, and the stores continue to significantly exceed our expectations," Krill told investors last month.
Lazard Capital's Davis says Talbots may need to decide whether it is targeting mothers in twill or their daughters in animal prints before it can return to profitability. "If a specialty store tries to please everyone," she says, "they alienate everyone."
The bottom line: Talbots stumbled as it expanded its focus to lure younger women. As a result, its stock has lost 90 percent of its value in 10 years.