In effort to save profits, Chico's killed discounts, as data shows. Did it work?
Before the market opened today, Chico's ($NYSE:CHS) announced its Q3 sales report and saw its stock drop by over 20% in pre-market trading. That's because in that quarter, net sales were down 6.1%, same store sales dropped 6.8%, and its net income dropped 61%.
To put it simply, Chico's has a sales problem, and although it has a "brand improvement plan" in place, alternate data shows changes are already being put into place.
At Chicos.com, the average discount of all of its products online dropped drastically month-to-month starting in July 2018. What started out as an average discount of 48.61% for on-sale products plummeted to 34.23% during the month of September, or in other words, during the third fiscal quarter.
Hypothetically, if the same $100 shirt was on sale for the average discount in July and September, a shopper would be spending $14.38 more for that shirt in September than they would in July. That, in the mind of a budget-savvy shopper, is an issue.
Recently, the average percentage discount rose back up to 40.09% for the average day in November, but that may be due to the Black Friday shopping season.
However, this drop in the average discount wasn't due to a decrease in the number of products offered at a discounted price. From month-to-month, there was not a drastic difference in the number of discounted products compared to other periods where the average percentage discount was high.
Along with its Q3 sales, Chico's also put out a "brand performance improvement plan" in its report, which includes the departure of its Brand President Diane Ellis, as well as design changes on its clothing items. Several retail reporters pointed out that these changes could have alienated older customers, who just want simplicity over bold styles.
As Chico's looks to avoid the "retail apocalypse" that made other women's clothing brands such as Nine West ($NINEWEST) declare bankruptcy, it is going to have to re-evaluate its customers and, most importantly, their wallets.