74-An Industry Leader Stumbles

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 rate 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.

Posted 2/2/09

Update:

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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THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.