Coldwater Creek’s Pence Looks to Recoup Lost Margins

Woman’s apparel seller Coldwater Creek’s third quarter sales were up 17% to $266.7 million, the company said last week. But the news from Sandpoint, ID wasn’t all that rosy: Coldwater Creek also announced it had suffered a $34.0 million net loss.

Determined to stem the downward slide of his company and return it to profitability, co-founder/president/CEO Dennis Pence said the merchant will put a new focus on its direct business, including a boost in its catalog circulation.

Catalog circulation increased in the third quarter and Pence said an increase in circulation in the third quarter, and that it led to a significant increase in reactivated customers as well as an increase in new customers. Coldwater Creek’s its third-quarter direct sales rose 12% to $59.4 million, up from $53.0 million the same period last year.

Pence said the company will work hard to regain the market share lost in the direct business with effective marketing and catalog distribution.

“We know that part of the deterioration can be attributed to a reduction in catalog mailings in response to the uncertain economic environment,” Pence said. “We believe we have the opportunity to regain the share we have lost by selectively increasing our catalog distribution.”

During fiscal 2008, catalog circulation decreased 33%, to 86.0 million catalogs from 128.6 million in fiscal 2007. Coldwater Creek has slashed its catalog circulation by 48% in the past two years, and plans call for 66.4 million books to be mailed in fiscal 2009.

Company officials said the decrease in catalog circulation was primarily due to reduced Northcountry catalog mailings and the discontinuation of Spirit catalog mailings. Northcountry is the main catalog for the Sandpoint, ID-based merchant. It sells women’s apparel, jewelry, and art. The Spirit catalog, which launched in fall 1993, offers more upscale women’s clothing and jewelry.

After building the 25-year-old company to a 355-store chain, generating more than $1.0 billion in net sales in fiscal 2008, Coldwater Creek has fallen on hard times. Pence, who served as CEO from 1984 through December 2000, and again from September 2002 until October 2007, came out of retirement in September following the resignation of Daniel Griesemer.

Last year Coldwater Creek focused on reducing promotional levels and driving full price sales, Spence said during the conference call, “however, we moved away from this strategy late last year in response to the challenging economic environment.”

Pence considered that to be a strategic blunder for the company. While this strategy was successful at driving traffic and sales, the combination of substantial value pricing, discounting through promotions and an unsuccessful October sale led to more significant margin deterioration than the company had anticipated.

“Overall, our promotional strategy was too aggressive, as our product was on trend and resonated well with our customers,” Pence said.

Pence said the company plans to address margins by adjusting value price strategy, fine tuning discounting cadence, and modifying its approach to the quarterly sale event. What’s more, plans call for improvements to the home accessory and jewelry businesses, which Pence said have been key differentiators relative to its competition.

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