The Proper Fit

Could Boston Proper become the new Chico's?

Chico's FAS President and CEO David Dyer suggested as much during a conference call with investors recently to announce plans for the $205 million cash acquisition of Boston Proper, a women's apparel catalogue retailer. The deal is scheduled to close next quarter.

That's because Boca Raton-based Boston Proper has no brick-and-mortar stores. It operates only by catalogue and on the Internet.

Meanwhile, Chico's now has 598 boutiques and 77 outlet shops. Some analysts have suggested that Chico's has saturated most U.S. markets and can't power the company's growth like it once did.

But Boston Proper has proved popular among women in the 40-to-50 age group, the same demographics that Chico's targets. Surprisingly, officials with both companies say there's very little overlap in their customers, perhaps because Boston Proper's jackets with faux-fur and leopard-print shoes are more daring styles than Chico's.

“We did overlay files and it's very interesting when you look at our total file with the Boston Proper, less than 5% of their customers are on our database,” says Dyer. “So we look at it as a whole new customer that they bring to the table. We think it's exciting.”

Chico's says Boston Proper will contribute to earnings within a year. “Boston Proper itself has experienced double-digit top-line growth over the past several years, including a 15% growth in revenues to $110 million in its last fiscal year, which ended end of January 2011,” Dyer told investors. “Boston Proper is on track to deliver another double-digit increase for this fiscal year and has lots of room for future growth. And of course you won't be surprised that over the longer term, we will assess Boston Proper as a branded store format.”

This suggests that Chico's executives see Boston Proper as more than a boost to their Internet business, which now will account for 15% of total sales. For some time, the company has said one of the company's major growth engines would be Soma Intimates, which Dyer has said could become a $1 billion-a-year business. Company officials could not be reached to discuss how many Boston Proper stores might open or share details about the acquisition. Chico's stock fell 2% on Aug. 17, the day the deal was announced.

Besides the Chico's brand, publicly traded Chico's FAS also owns and operates 381 White House | Black Market stores and 162 Soma Intimates stores. As of July 31, the company had no debt and more than $500 million in cash and marketable securities. Net income in the second quarter ended July 31 grew 47% to $43 million on sales of $551 million.

Boston Proper is a privately held firm controlled by Michael Tiernan. In 2008, he appointed Gap and Old Navy veteran Sheryl Clark as CEO. Clark will remain with Chico's after the acquisition to run Boston Proper from Boca Raton.

“Boston Proper's culture is similar to the Chico's FAS brands culture,” says Dyer. “Both companies share a common foundation focused on building lifetime relationships with customers, offering high-quality fashion merchandise and fantastic personal service.”