Coldwater Cools Off

For three years, apparel and gifts cataloger Coldwater Creek was hot. Sales grew an average of 60% a year, from $76 million in 1995 to $247 million for the year ended Feb. 28, 1997. Its initial public offering in January 1997 raised more than $38 million. And the company, which produces the Spirit of the West women’s apparel book and the Northcountry home decor and gifts catalog, spun off men’s apparel title Milepost Four in 1996, and Coldwater Creek Bed & Bath in 1997.

But the Sandpoint, ID-based company’s hot streak has cooled considerably over the past year. Despite a 61% rise in circulation of its Northcountry, Spirit of the West, and Bed & Bath catalogs, to a total of 128.2 million copies mailed during the first nine months of fiscal 1998, the company’s 12-month buyer file grew only 33%, to 1.95 million, and sales rose only 43%, to $235.6 million. The cost of the heavy prospecting caused net income for the same nine-month period to drop 15%, from $6.8 million the previous year to $5.8 million.

What’s more, last year Coldwater put Milepost Four up for sale. “It just didn’t do as well as the company had hoped,” says Kevin Silverman, managing director at investment firm Chicago-based ABN Amro. No suitable takers have been found; in April the company stopped mailing the book altogether. Then, too, disappointing fall/holiday sales companywide contributed to the closing of Coldwater Creek’s Sandpoint call center and layoffs of 45 people at its Coeur d’Alene call center (although it does plan to open another call center).

Investors have reacted to what they view as the company’s travails. From a year high of $40 a share during the summer of ’98, Coldwater Creek’s stock price plunged to slightly above $9 a share in late December. At the end of trading on March 25, the stock was less than $13 a share.

“But Coldwater Creek is by no means in trouble,” Silverman insists. Indeed, analysts estimate that Coldwater Creek’s sales will have grown 40% overall for the fiscal year ended Feb. 28-a figure that would delight most consumer catalogers. (Final year-end sales figures weren’t available by press time.)

A shift in emphasis “A soft year in the overall catalog industry forced us to respond with internal measures that have put us in a sound financial position,” says Coldwater spokesman David Gunter. The cataloger is shifting its emphasis from expanding its customer base to maximizing efficiencies. The company has slowed its aggressive circulation strategy; analysts expect catalog circulation to increase only 15% during each quarter of 1999, a considerable decline from last year’s growth rate of more than 50% each quarter.

The company is also investing in its back-end the funds it might have spent on heavy prospecting and running Milepost Post. This summer Coldwater will open a 580,000-sq.-ft. call center in Parkersburg, WV, to better serve its East Coast customers. The new call center will pick up the volume previously handled by the now-closed Sandpoint call center.

“Coldwater needed to balance the call flow between its distribution centers in Idaho and West Virginia,” Silverman says. “The problem with that part of [Northwestern] Idaho is that there is only one telephone router switch, so if it goes down, there’s really no backup system. Coldwater needed to ensure that service levels would remain the same. Plus, now it’s in a better position to take early morning orders from the East Coast.”

Another symbol that Coldwater is far from ready to roll over and play dead: The company is preparing to open its second distribution facility, a 500,000-sq.-ft. warehouse also in Parkersburg, this summer. (Coldwater already has a 150,000-sq.-ft. facility in Sandpoint.) The new distribution center will employ 1,500 full-time workers. Until it is operational, the state of West Virginia is providing the cataloger with a 120,000-sq.-ft. temporary facility.

“Coldwater’s core competency is customer service, so it makes sense that it would begin to invest in the back-end to support those service levels,” says Susan McIntyre, president of Portland, OR-based catalog consultancy McIntyre Direct.

In fact, McIntyre sees Coldwater’s slowing growth as a positive sign of the firm’s maturity. “It’s natural to want to grow aggressively when you’re a young company. But you don’t need to maintain that growth all the time.” Besides, it’s unlikely, if not impossible, for any company to maintain 60%-plus annual growth over the long term-the universe of customers and prospects is a finite one. And to retain customers, a company might be wise to limit its growth at some point. “When you grow too fast, you can’t keep up customer service levels,” McIntyre adds.

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