• by Sarah Mahoney  @mahoney_sarah, November 30, 2006

Chico's FAS Inc. -- long a favorite for its smart strategy of targeting affluent older women -- reported disappointing sales and earnings this week, and said it is shifting its marketing plan away from TV and toward more economical direct-mail approaches. It also is livening up its catalogs.

The retailer said some major fashion faux pas -- too much beige and grey, too many casual looks, and not enough dress-up options -- will likely lead to plenty of markdowns in the near future.

While overall sales increased 13 percent, to $404 million from $359 million in the same period last year, same-store sales -- the number many industry observers believe is the most important measure of how well a retail company is really doing -- slipped 1.2 percent.

In a conference call, CMO Michael Leedy, who joined the company in April, also elaborated on Chico's changing marketing strategy. Back in June, he said, the company began looking for more cost-effective ways to acquire new customers. It determined that mass-advertising strategies -- including ads on TV and in magazine catalog sections -- were too expensive, and switched to acquiring names through third-party databases, reducing the cost per acquired customer.

The company has also revamped its catalog approach: "Our customers are alive, and wanted to see themselves that way, not standing by themselves. We wanted to capture that in the catalog," he said, which has meant a shift toward lifestyle layouts. Follow-up research has shown that some 70 percent of Chico's shoppers feel satisfied with the new catalog.

Analysts attending the J.P. Morgan retailing conference earlier this week said Chico's is testing kids' clothes in some locations, which some said was yet another example -- like Gap -- of a retailer spreading itself too thin. Chico's "is competing with Gap to see who can have the most distractions in stores," joked one analyst. Chico's did not return phone calls.

In addition to its 538 Chico's front-line stores and 32 Chico's outlet stores, the company also owns 247 White House | Black Market front-line stores, 14 White House | Black Market outlet stores, and 47 Soma by Chico's stores, which sell intimate apparel. Its 9-unit Fitigues stores, a casual clothing chain for older women that it acquired earlier this year, is still being evaluated for expansion potential.