76-An Industry Leader Stumbles

It is essential to be clear about the business in which the company competes. Lack of a clear identification of the business customers, products and competitors leads to strategic missteps. This company carefully defined and separated its three businesses. Still, that was not enough to create an attractive business. This blog explains why.

Posted 2/2/09

For years, Chico’s FAS grew rapidly by selling attractively priced, colorful clothes, to baby-boomer women. But the company began to stumble in 2006. Its growth slowed and its core customers migrated to other companies’ offerings. The company’s costs rose faster than its revenues, squeezing margins.

The company stumbled by chasing after customers of other competitors, especially younger women. From the standpoint of their original core customers, baby-boomer women, Chico’s failed to deliver the products that they had come to expect from Chico’s. (See the Perspective, “Reliability: The Hard Road to Sustainable Advantage” on StrategyStreet.com.) In this case, the failure was a failure in Reliability, one of the key measures of the Customer Buying Hierarchy.

Since its failure started as recently as 2006, there is a good chance that Chico’s can recover from its mis-steps. The company searched for new customers at the expense of its core customers and threw the baby out with the bath water. (See the Perspective, “Convenience: Much Tougher than it Looks” on StrategyStreet.com.) Other companies have succeeded in search of new customers by ensuring that their core customers are well provided for before the search begins, and while it progresses.

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Update 2022:

Chicos seems to have continued its ambivalence about its core customer. The company itself claims Chicos targets women of relatively high income over 35 years of age. The growing demographic of the aging baby boomers has pushed the chain along. Chicos designs it’s clothes for plumper figures and relaxed but not flamboyant tastes. Chicos competitors include Talbots, ANN Inc. and Macy’s, each stronger with older demographics. Recently, industry analysts have wondered whether Chicos now appeals to younger consumers. They cite recent advertising focus and quality fabrics that contrast with the fast fashion embraced prior to Covid. In 2018, Chicos joined the crowded lingerie market with a new online only intimates collection for women ages 25 to 40.

The company is struggling. It closed 40 stores in 2020 and planned to close another 13 to 16% of its remaining 1300 locations over the following 3 years. In 2022, it appears to have returned to some level of profitability.

In our system, it appears that Chicos hasn’t really defined the business that it is in. A business is a set of specific customers, products and competitors. Whenever any two of these change, the business changes and you need to develop a separate strategy for each business. As Chicos wandered from its original core customers, it actually changed businesses because all three of the defining components changed: core customers, products that appeal to those customers, and competitors for those core customers. See HERE for more explanation.  Chicos would need a separate strategy for each separate business it would choose to enter.

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Update 2/26/26

Chicos has established its three category brands (three separate businesses) as capable followers to relatively stronger category leaders, who grow faster with somewhat lower costs.

Chicos has three separate businesses: Chicos, White House Black Market (WHBM), and Soma. Chicos operates in the Missy/petite specialty apparel category, focusing on women in the 55 to 75-year-old age range. Its key competitors include Talbots, J.Jill and department stores. WHBM competes in the workwear/occasion specialty apparel category where it competes with Ann Taylor, Banana Republic and Nordstrom private label for higher income women 35 and older. Soma also competes for women 35 and older in the comfort focused intimates and sleepwear category. Each of the three categories has shrunk its store footprint over the last five years.  The Chicos brand stores have declined at about the same pace as the rest of the category. These are not great places to compete.

The Chicos businesses tend to be mid-level followers in these three businesses. Each business has at least one competitor who outshines the Chicos business. J.Jill leads the Chicos product category where it has gained share and produced leading margins. Chicos has gained a bit of share because department stores are declining in the category. WHBM is a close competitor to its category leader in a shrinking market. It follows the lead of Ann Taylor in its category. Its growth is comparable to Ann Taylor, but its margins are somewhat lower. This is a competitive, shrinking category in 2025. Aerie is a strong leader in Soma’s category. Its growth and margins are twice those of Soma. Still, Soma is gaining a bit of market share as one of its key competitors, Victoria’s Secret, is suffering revenue declines.

Chicos has succeeded in establishing a separate presence in each business. The problem is that the businesses are not attractive. There is not much revenue growth nor margin potential in these three businesses for Chicos. The categories are competitive, declining, and offer low returns to any brand that does not lead the category.

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