Lost Faith in Chico's FAS’s CEO's Ability to Turnaround the Company
Aug 21, 2018
Quarter after quarter, CEO of Chico's FAS (NYSE:CHS) , is repeating the same mantra that the company is turning around, yet the company continues to struggle. It is closing stores. Its namesake brand and While House Black Market are offering deep discounts. A retailer offering a deep discount is an indication that its products are not resonating with its customers. All three brands of Chico's FAS comp sale is on the decline.
When it comes to the retail industry, customers have a very low switching cost. Once a customer walks out of a retail store, the only thing that guarantees their next visit is their current store experience. So it depends on whether they liked the product offering, whether they were happy with the price points and the shopping experience they received.
If customers repeatedly do not find products they are looking for in a brand, then they will abandon that brand. It is not an easy task for any brand to reacquire customers who had abandoned the brand, especially if was due to poor shopping experience. When a brand's products are not resonating with customers, it has a short window to turnaround.
We believed that Chico's FAS' strength was its loyal customer base. For the last couple of years, the company has been struggling to excite customers with its product offerings. The declining comp sale is an indication that its customers are abandoning its brands. The company's short-term challenges have manifested into long-term challenges.
As a high tide raises all boats, during favorable industry conditions, even mediocre companies can strive. However, right now, that is not the case with the retail industry. This industry is transforming and facing challenges. Mall traffic is on the decline. The current industry landscape is not favorable for retailers like Chico's FAS. In challenging times, companies that have a competitive advantage can adapt and survive. In this industry condition, Chico's FAS will not be able to reacquire its lost customer base using the same failed strategies. We have lost confidence in the current CEO's ability to turnaround the company, so we are exiting the trade.
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