One Coldwater Creek Drive
Sandpoint, Idaho 83864
Telephone: (208) 263-2266
Toll Free: (800) 262-0040
Fax: (208) 265-7108
Web site: http://www.coldwatercreek.com
Sales: $590.31 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: CWTR
NAIC: 448120 Women's Clothing Stores; 454110 Electronic Shopping and Mail-Order Houses
Coldwater Creek Inc. is a U.S. marketer of apparel, gifts, jewelry, and accessories aimed at affluent women over 35. Originally a direct-mail business, the company has augmented its catalog sales with an online presence and brick-and-mortar stores. The retail shops have grown rapidly to account for half of total sales; by the end of 2004 Coldwater Creek had 114 full-line stores with plans for dozens more. The company is headquartered in Sandpoint, Idaho and has facilities in Coeur d'Alene, Idaho and Parkersburg, West Virginia; its customer service representatives field up to 40,000 calls per day during the holidays. According to company founder Dennis Pence, great customer service for its busy, professional clientele has always been the foundation of the Coldwater Creek brand.
Coldwater Creek had its source in the Hudson River. Dennis Pence had earned a philosophy degree at Antioch College in Ohio and was working in 1983 for Sony Corporation, as national marketing manager for consumer video products. Pence and his wife, Ann, who had been a copy director for Macy's California, decided to flee New York City in 1983 and start a business they could run from a pristine rural location. The site they chose was Sandpoint, in northern Idaho, population 5,000; the business was catalog sales, a competitive, crowded field that would offer 7,000 different titles by the mid-1990s.
Savings of $40,000, credit cards, and pawn shops launched the business. While Ann served as creative director, later to become chairman of the board upon the company's incorporation, Dennis headed the management side of the operation, eventually filling the roles of president and CEO. They communicated with their first clientele using a typewriter. They designed their own materials from the beginning. Early one-color catalogs were printed by the local newspaper; the first was only a brochure proffering 18 items. Print advertising rounded out their marketing media. The other necessary part of the formula was the mailing list. Initially, the couple maintained a roster of clients on handwritten 3-inch by 5-inch index cards. They concentrated their initial efforts on distinctive crafts supplied from small makers and other nature-related items, such as bird feeders and binoculars. In spite of their modest means, the Pences dedicated themselves to providing the highest levels of customer satisfaction. They put an extension cord on their telephone so they could bring it to their bedroom to fulfill the 24-hour service they advertised, Dennis Pence later told Chain Store Age.
The romantic appeal of their pristine location next to Lake Pend Oreille factored into the company's plan from the beginning. Another advantage of the site, once the Pences moved their operations out of their small apartment, was a motivated, loyal workforce. The isolated location proved a tough sale when recruiting skilled management talent, however. Later, when Pence considered relocating to West Virginia, the state of Utah subsidized job training and helped obtain money to develop the area's infrastructure.
Northcountry, the company's first four-color catalog, debuted in 1985. This catalog of clothing, jewelry, and gifts would land most of the company's sales because of its broad appeal. In the mid-1990s, most items in Northcountry were priced between $15 and $90.
Writing and design were conducted in-house. The company maintained its own photographic studio and used outside photographers as well. Quality—in paper, printing, photography—was the watchword. Coldwater Creek commissioned original photography and artwork for the covers of its catalogs. Inside, pictures of rivers and mountains complemented photographs of the merchandise. Models were not used; the customer was not to be distracted by how the clothes would look on ideal bodies, but to relate to them directly, as if they were viewing them in a store. Color printing was done to the highest practical standard. Equally luxuriant were the purple prose captions describing the goods. The entire package was coordinated into a lushly illustrated narrative designed to take the targeted reader to a favorite place. Coldwater Creek's customers tended to be affluent, cultured female city dwellers who pined for outdoor spaces. The company made its first profit in 1986; at the time, the company had less than ten employees.
In 1991 and 1992, the company spent more than $1 million upgrading its computer system with a Hewlett-Packard minicomputer and software carefully customized to the company's requirements. The computing power was needed to process data on the millions of households that received the company's catalogs. Purchase records and demographic information were tracked; appropriate customers would be sent additional catalogs such as Milepost Four upon its introduction. To supplement its own data, the company rented mailing lists to identify prospects, who were started on Northcountry, which had the broadest variety and appeal of the Coldwater Creek catalogs. In addition to the equipment upgrades, new executive personnel were hired in 1992 to provide adequate administrative structure to the fast-growing company. In 1991, profits were $1.6 million on revenues of approximately $11 million.
High performance in customer satisfaction remained the company's focus. In 1992, the company reported a 3.5 percent merchandise return rate and minuscule abandoned call rates, as well as fulfillment accuracy and speed and call answering times that well exceeded industry standards. To provide the most knowledgeable assistance, merchandise samples were kept handy for the sales associates to answer detailed inquiries. Sales were $18.8 million in 1992.
New product lines stimulated sales in the mid-1990s. First introduced in the fall of 1993, Spirit of the West thrived in its niche of premium women's clothing and jewelry. As prices came down for the catalog's offerings, it proved even more successful. Beginning in 1996, a new spring edition boosted the line's sales further. From then on, the company's emphasis would be on clothing rather than jewelry and accessories. Eventually the company would develop its own line of private-label apparel, allowing it to tailor its offerings and differentiate itself further. To win a younger audience, Ecosong, first mailed in fall 1994, offered lower priced gifts than Northcountry, most between $10 and $50. The Coldwater Creek Credit Card, also introduced in 1994, helped maintain the company's customer relationships.
Coldwater Creek continued to develop its infrastructure in the mid-1990s. From 1994 to 1996, nearly $20 million was spent to upgrade telecommunications systems (based on Northern Telecom telephone switches), data processing systems (based on the Hewlett Packard 3000 series), and distribution facilities. A new call center was built in more densely populated Coeur d'Alene, Idaho, 50 miles south of the company's original call center. The new facility provided redundancy and additional capacity for the company's considerable toll-free telephone traffic: 1.1 million phone calls in 1995 and 2.1 million in 1996. The center's 195 stations brought the company's total to 315. During the height of the 1995 holiday season, the company received about 9,000 calls per day. If one of the centers ran out of available operators, an alarm would sound and personnel at all levels would be obliged to answer calls. In addition, if either center should be rendered unavailable through natural disaster or equipment failure, calls would be forwarded to the other call center. Should both centers become inaccessible, calls could be routed to sales agents' homes. A redundant data processing system, in which orders entered at either location were automatically recorded instantaneously at both sites, also was installed at Coeur d'Alene. A total of 80 percent of orders was received through the telephone; the remaining orders were mailed or faxed.
Coldwater Creek built a retail store in Sandpoint in 1995, converted from an entire two-story downtown shopping mall, perched atop a covered bridge. The 14,000-square-foot complex was eventually demarcated into stores for each of the catalogs as well as an "outlet" store. Other stores were opened a couple of years later in Seaside, Oregon and Jackson, Wyoming. Although the Pences chose Sandpoint because of its isolated location, tourist destinations were chosen at first to help raise brand awareness. Total sales were $75.9 million in 1995, producing earnings of $5.6 million.
To expand sales beyond the mostly female buyers into other members of the household, in spring 1996 Coldwater Creek introduced a men's clothing catalog, Milepost Four, which spurred sales. The average sale grew to $133 from $91 the previous year. Milepost Four would be sold off, however, in a couple of years.
In the fall of 1996, Smithsonian Magazine and the New Yorker ran advertisements supporting a national campaign to build the Coldwater Creek name, particularly to support its private-label apparel and store sales. Conversely, retail stores also helped establish the brand in the consumer's mind.
We embrace a shopping experience that is truly legendary in its ability to appeal not just to the fashion preferences of our customers, but to connect on an emotional level as well, conveying a perception of intimacy and smallness, no matter the size of the Company.
During the mid-1990s, the company's active customers increased in number from 30 to 50 percent per year. Half the sales were of apparel, the rest divided between jewelry and accessories. In 1994, sales were $43 million; in 1996 they reached $143 million and profits amounted to $12 million. The company's vendor list had grown from only a handful of suppliers to more than 400 manufacturers. Coldwater Creek offered more than 4,200 different products through its catalogs, which reached four million mailboxes. Catalog distribution grew more than 50 percent per year from 1994 to 1996.
Another way the company attempted to establish its name as a national brand on par with L.L. Bean was through its initial public offering (IPO) in January 1997, which raised $37.5 million. The Pences retained 75 percent ownership. Other benefits desired from the IPO were to make the company more attractive to management talent because of higher visibility and incentives such as stock options.
The company planned to heighten international efforts in 1997. Significant inroads had been established in Japan and Canada, which accounted for 10 percent of total net sales. In addition to increasing its mailings in those countries, Coldwater Creek also planned to enter the European market. Most of the company's products were made in either the United States or Canada.
Coldwater Creek's marketing efforts also began to flow into a new frontier, the Internet. Initially, the company's web site informed prospective customers about Coldwater Creek products and lore. They also could request a catalog online.
Coldwater Creek employees numbered more than 1,000 in 1997, most of which (745) were temporary. It had had fewer than 175 employees in 1993. Employment rolls swelled by as much as 300 during Christmas.
Coldwater Creek's operating figures continued to increase. From fiscal years 1995 to 1997 net sales rose from $45 million to $143 million, despite considerable increases in expenses such as paper and postage. Its unique setting, sophisticated approaches, and single-minded focus on the customer provided lessons that its well-heeled customers would be happy to see other businesses emulate.
Chain Store Age ranked Coldwater Creek the top High Performance Retailer for 1997 and 1998. "Our success has everything to do with intense customer focus," CEO Dennis Pence told the magazine. "We have never allowed ourselves to believe that we are smarter than the customer is or can anticipate what she wants. We take all our cues from her." In the late 1990s, the company had three years of 60 percent annual growth, a pace difficult to sustain.
Coldwater Creek began a three-channel approach in 1999, just as its traditional catalog sales were losing steam in a slowdown that effected the industry as a whole. During the slowdown, the company made layoffs at its Idaho call centers while opening a new call center in Parkersburg, West Virginia. It also opened a nearby distribution center around the same time.
While maintaining the cachet of its upscale brand, Cold-water Creek would experience incredible growth online and through its new retail stores. In July 1999, the company began selling its full line—15,000 stockkeeping units—through its web site, www.coldwatercreek.com. The site proved more profitable than the catalog business after just two years. The web also proved a good way to move discontinued merchandise, and three of a dozen outlets were soon closed. Within a few years the online operation was accounting for one quarter of total sales. To enhance the online experience for the busy professional women it served, Coldwater Creek provided support via telephone, e-mail, and live chat. All of the company's agents were trained in phone and online service.
The greatest growth would come from brick-and-mortar locations, however. The company's first full-line retail store opened in November 1999. This would become Coldwater Creek's fastest growing channel.
There were some setbacks as the e-tail and retail businesses became established. An unexpected profit warning hammered Coldwater Creek's share price in early 2001, slashing its market cap from $374 million to $212 million on one cold February day. The company was well poised to outperform the rest of the economy as it slogged through the recession. During this time, founder Dennis Pence was replaced as CEO by company president Georgia Shonk-Simmons. After about a year and a half, in September 2002, Pence returned to the chief executive spot.
To help cut costs in a lean environment, the Home catalog and its associated web site were shut down in 2002, with the merchandise reassigned to other catalogs, mostly Spirit of the West. Home had featured hard goods, apparel, and jewelry. As the economy slowly improved, Coldwater Creek invested in ways to better serve its customers, opening a design studio in New York in 2004.
The company ended 2004 with 114 full-line retail stores, up from 66 in 2003 and 41 the previous year. By this time, retail sales accounted for half of Coldwater Creek's total revenues. The company also had two resort stores and 19 outlets. The company's market capitalization had risen to more than $1.1 billion from $197 million in just two years.
According to company literature, Coldwater Creek had 15 million names on its customer list, including 2.7 million active (12-month) buyers. The company's customer service reps fielded up to 40,000 calls per day during the 2004 holiday season.
Chico's FAS, Inc.; Dillard's, Inc.; The J. Jill Group, Inc.; Nordstrom, Inc.; The Talbots, Inc.
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—Frederick C. Ingram