Intimate business

What's so hard about selling bras and panties?

Turns out, Fort Myers-based Chico's FAS has lost about $100 million cumulatively at Soma Intimates since it launched the lingerie brand targeted at older women five years ago.

Although Soma has never made money, Chico's Chief Executive Officer David Dyer says it could become a brand with $1 billion in annual sales. Last year, the flagship Chico's brand posted sales of $1.1 billion from its 660 stores.

Currently, Soma has 75 boutiques and two outlet stores. The company plans to add another 33 Soma stores next year, a level executives hope will make the lingerie brand profitable (Chico's doesn't break out the Soma financials and neither Dyer nor Soma's interim brand president, Verna Gibson, were available for interviews.)

“We believe that once we hit a certain volume that then the brand can support that corporate overhead,” Dyer told analysts on a conference call recently, according to a transcript at SeekingAlpha.com. “Then all of our growth going forward will really drop to the bottom line. That's what we're doing this year.”

Chico's certainly has the wherewithal to fund a more aggressive expansion of Soma. As of Oct. 31, Chico's had $423 million in cash and marketable securities and zero debt.

Dyer and his new management team have turned sales around at Chico's, whose stores were hit hard at the beginning of the recession. Stores opened longer than one year rose 12.8% in the most recent quarter.

But missteps in store sizes and merchandise by prior management hurt the brand.

“This management team is taking a much more measured approach,” says Robert Atkinson, Chico's vice president of investor relations. “We experimented with larger store sizes and learned to regret those decisions.” Charles Nesbit, the brand president of Soma, left the company for undisclosed reasons on Aug. 7.

Future Soma stores will be half the size of Chico's stores to create a more intimate atmosphere. Some of the new stores will be located inside existing Chico's stores. “We have spent a good part of 2009 in our construction department reengineering the Soma Intimates store,” Atkinson says.

Success isn't guaranteed.

“When and how and whether we reach those numbers remains to be seen,” Dyer told analysts. “First thing we have to do is to get it to the tipping point where we feel very comfortable about making major investments in it.”

Chico's is experimenting with leases of one year or less, an advantage it has while malls are struggling to attract tenants. Such “fast stores” will tell executives how well a location or concept works. “It allows us to test the viability of the name and location without engaging in long-term leases.”

Executives hope that older women will choose to buy lingerie at Soma rather than at a competing “self serve” department store because of Soma's more-attentive sales staff. “What we offer is the ability to measure a woman to see if she's wearing the right bra size,” Atkinson says. Turns out, 40% of women are wearing the wrong bra size.

In addition, Soma offers sleepwear that's made of lightweight materials and active wear made of spandex. “We can't make a living selling bras and panties throughout the year,” Atkinson says.

—Jean Gruss