Hitting Their Target Sales Have Soared Since Coldwater Creek Put Its Focus On Women’S Apparel And Housewares

At Coldwater Creek, the customer is always “she.”

The North Idaho company has built a national reputation by appealing to a select niche: affluent women, 35 to 55, who buy into a romantic image of unhurried life in the Northwest when they purchase leather skirts, amber earrings and jersey dresses from Coldwater Creek.

“I think we sell serenity to some degree,” said Georgia Shonk-Simmons, president of catalog and retail sales.

“The way our stores look, the way we talk to customers is a break away from the rush rush rush of racing through life.”

A canny understanding of the customer is behind Coldwater Creek’s recent expansion, analysts say. Over the past 18 months, the Sandpoint-based company sold off a poorly performing men’s catalog to concentrate on women’s apparel and housewares, launched a successful Internet site and opened new retail stores.

For the past 10 quarters, Coldwater Creek earnings have exceeded Wall Street’s expectations. Sales and earnings are growing at a record pace.

The company expects to sell $400 million worth of merchandise in the current fiscal year, up from $328 million last year.

The changes chart a new direction for the 16-year-old company founded by Dennis and Ann Pence.

“If you looked at us two years ago, you would have called us a catalog company,” Shonk-Simmons said. Now the company calls itself a “multi-retailer.”

More than 150 million catalogs mailed annually still generate most of Coldwater Creek’s sales.

However, its Web site, coldwatercreek.com, now accounts for 24 percent of the company’s business. Plans over the next several years call for 80 retail stores nationwide.

The company has also set an ambitious goal of capturing 1 percent of the $96 billion women’s apparel market.

“The synergies are terrific” between the Internet, catalog and retail stores, Shonk-Simmons said. “The more contact we have with the customer, the more she wants to buy.”

Bonding with customers

At his terminal in Coldwater Creek’s Coeur d’Alene call center, Kenya Williams chats online with a customer.

The woman ordered a velour jumpsuit and a skirt. She wants to make sure her $160 purchase arrives before she leaves for Ireland in five days. Williams, an Internet specialist, tracks the order in the warehouse, and flags it for overnight delivery.

Nearby, Karen Harris does the same kind of customer service work by phone. The $180 leather jacket is in the mail, she assures a caller from Michigan.

The bond with customers is part of Coldwater Creek’s success, said Jeffrey Klinefelter, senior research analyst for US Bancorp Piper Jaffray in Minneapolis.

“They really understand that customer well, that 35- to 55-year-old woman,” he said.

The company, which started as a mail order business from the Pences’ home, has information on more than 9 million customers in its files.

The typical woman buying Coldwater Creek’s clothes and accessories is an educated, time-strapped babyboomer.

In an effort to groom new customers, Coldwater Creek launched a new catalog targeting a slightly younger crowd this year.

Sixty percent of the company’s customers live east of the Mississippi, though California and Texas are also good markets.

Coldwater Creek didn’t embrace the Internet until after the 1998 Christmas season, when women’s online purchases caught up with men’s.

“We actually waited for our customer to tell us she was ready,” Shonk-Simmons said.

Coldwatercreek.com was designed with feminine tastes in mind. The company wanted the Web site to reflect the artistic, uncluttered look of its catalogs, Shonk-Simmons said.

A search button allows customers to browse by “shoes” or “blazers” or other categories.

But most of all, the site had to be fast.

“The reason we all use the Internet is speed,” Shonk-Simmons said. Customers who use the online chat get a response within 15 seconds.

The Web site is already more profitable than the catalog business on a per-sale basis, Chairman and CEO Dennis Pence told analysts during a conference call last week. By year’s end, he expects 30 percent of company sales to come from the Web site.

“For the first time, I can see a clear vision and path to $1 billion in sales,” Pence said. “This is because of the new channels.”

Instead of diverting existing catalog customers, the Web site has actually attracted new ones, Shonk-Simmons said. That’s also the strategy behind Coldwater Creek’s retail expansion plan.

Nearly 90 percent of women’s apparel is still sold in stores, because women like to touch the fabrics and try on garments.

Retail stores help Coldwater Creek establish its “name brand,” and direct new buyers to its catalog and Web site, Shonk-Simmons said.

The company expects to open its ninth retail store before Christmas. Another 10 to 15 store openings are planned for 2001.

The stores are in areas where Coldwater Creek has already been successful, Shonk-Simmons said. More than 150,000 Coldwater Creek customers live within 50 miles of the store that recently opened in Dallas.

Like other Coldwater Creek stores, it comes with a soothing waterfall.

A new trend

Multi-retailing isn’t new to the catalog industry, analysts note.

Eddie Bauer has 500 retail stores, and J Crew and L.L. Bean are accelerating new store openings.

“I think it’s going to be one of the biggest trends going forward,” Klinefelter said. “For maximum consumer impressions and building the greatest brand equity, companies are leveraging all three of the distribution channels.”

In terms of sales percentages, however, Coldwater Creek’s Web site is on the industry’s leading edge, he said.

In many ways, the Internet is a natural step for catalog companies, D.A. Davidson analyst Michael Shea said in a report last year.

Catalog companies are already experts at direct marketing. Their extensive client data bases can be mined to send company e-mails to customers.

And Internet orders are actually cheaper to process than catalog orders, Shea said.

Companies with recognizable brand names have the most to gain from the Internet, because they don’t have to spend a lot on outside marketing, he added.

Coldwater Creek already sends weekly e-mails to the million customers who’ve given the company their addresses.

There’s more technology in Coldwater Creek’s future, Shonk-Simmons said.

At the moment though, Coldwater Creek isn’t chasing the “virtual model” developed by catalog rival Land’s End.

The model allows viewers to create their body type on screen, and “try on” clothes.

“Technology has to get a lot better for us to go there,” Shonk-Simmons said.

Besides, Coldwater Creek was a trend-setter in displaying clothing without models, she noted.

“The customer doesn’t have to wonder, `Will it look as good on me as it does on her?”’ Shonk-Simmons said.

“You can visualize yourself in the apparel, no matter what size you are.”

These 2 sidebars appeared with the story:

1. COMPANY PROFILE

Coldwater Creek

History: Founded in 1984 by Dennis and Ann Pence.

Background: Dennis Pence spent eight years as a national marketing manager for Sony Corp. Ann was an advertising copy editor.

Ownership: The company went public in 1997. The Pences each retain 33 percent ownership in the company.

Employees: About 2,000 employees in Sandpoint, Coeur d’Alene and distribution center in Parkersburg, W. Va.

Sales: $328 million in fiscal 1999.

Catalogs: North Country, Spirit of the West, Natural Elements, The Home Book

Retail store locations: Sandpoint; Jackson Hole, Wyo.; Seattle; Kansas City; Dallas. New stores planned in Cincinnati, Denver and Chicago.

Company strengths: Management team and recognizable brand name, Dan Rauscher analyst Robert Toomey said.

2. ON THE WEB

What’s next?

Coldwater Creek launched a Japanese Web site in July. German and Scandinavian Web sites will be out after Christmas.