175 Beal Street
Talbots has a long-standing commitment to serving both its customer and the community in which she resides. This synergy between customer and community service is best summarized by the Company's credo, 'Do What is Right for the Customer.'
The Talbots, Inc. is a leading niche retailer of women's apparel and related products, with more than 600 stores and a catalog operation. The company got its start in New England in 1947 and remained a small regional chain for nearly 30 years before it was purchased by General Mills, which undertook its nationwide expansion. In the late 1980s, Talbots was sold to a Japanese retail conglomerate, which funded further growth for the company. In the 1990s, Talbots expanded both its product offerings and its geographical scope as it began to open stores overseas.
Starting a Tradition in Hingham, Massachusetts in the 1940s
Talbots was founded in 1947 by Rudolf and Nancy Talbot. The couple inherited a store in Hingham, Massachusetts, a suburb of Boston, from Rudolf's father and named it 'The Talbots.' Over time, the company became known simply as Talbots. The couple stocked their store with classic women's apparel. In their first year in business, sales totaled $18,000. During their second year in business, the Talbots branched out from in-store retailing and launched a catalog operation. After buying a list of subscribers to The New Yorker magazine, they distributed 3,000 black-and-white fliers featuring illustrations of Talbots clothing to these potential customers.
By 1950, the Talbots' business had outgrown its first location, and it moved to a two-story colonial frame house that had been built in the 17th century in Hingham. The first floor was given over to sales, and the second floor was converted into office space. The front door of this building was lacquered a bright red, and this architectural touch later became a hallmark of the Talbots chain. Five years after the expansion, Talbots opened its first branch store, in Duxbury, Massachusetts, a town south of Hingham. In the following years, stores also were opened in Lenox, Massachusetts; Hamden, Connecticut; and Avon, Connecticut.
Throughout the social and cultural upheavals of the 1960s, Talbots maintained its focus on classic styles and traditional clothing for an affluent, well-educated customer. By the end of the decade, the company's growth in store number and size, along with expanding catalog sales, necessitated larger facilities. In 1970 Talbots moved its business headquarters and mail-order operations to a new location in Hingham. By this time, the company's staff had grown to include 71 employees, who worked in the five New England Talbots stores.
Expansion Under General Mills Through the 1980s
By 1973, the original black-and-white Talbots brochure had evolved into four yearly full-color catalogs, which, combined with the company's five retail outlets, brought in $8 million in annual revenues. This success attracted the attention of larger companies, and, that year, the Talbots sold their chain of stores to consumer goods giant General Mills.
After purchasing the chain, General Mills began a program of limited regional expansion. Over the next seven years, Talbots opened eight new stores in locations throughout New England. In 1980 the company moved outside New England for the first time, inaugurating outlets in New York, Pennsylvania, and Delaware. With these new locations, Talbots's payroll swelled to include 800 people. Also in 1980, Talbots established a toll-free telephone number to make it easier for customers to order from its catalog. The company also expanded its headquarters facility from 80,000 to 200,000 square feet.
Throughout the 1980s, with a heavy infusion of funds from General Mills, Talbots expanded its chain of stores dramatically. The company grew from fewer than 20 stores to 126 stores in just eight years. With each new store that it opened, Talbots implemented its retailing strategy. The company strove to give all of its outlets the residential feel of the company's original 17th-century Hingham home. Interiors were decorated with maple floors and wainscoting, and walls were hung with traditional botanical and equestrian prints, to simulate the atmosphere of a gracious English home. In addition, each store was fitted with a bright red door and, wherever possible, matching red awnings over the windows.
In 1984 Talbots expanded the range of its merchandise offerings when it introduced clothing in petite sizes in both its stores and catalog. In this way, the company hoped to tap into the sizable market of women who needed professional and sophisticated clothing in smaller sizes. The following year, Talbots expanded its efforts in this area, opening a Talbots Petites store in Cambridge, Massachusetts.
By 1988, Talbots had expanded its primary store concept to 25 states, and the company was taking in $350 million annually in sales. Of those revenues, 40 percent were derived from catalog sales. The company's 24 annual glossy and colorful brochures were distributed to 70 million customers throughout the world. To better serve catalog customers, Talbots opened a new catalog fulfillment and merchandise distribution center in Lakeville, Massachusetts, in January 1988. The 555,000-square-foot facility processed an average of 20,000 items a day and was capable of completing two-and-a-half times as many during peak periods, such as the holiday shopping season.
Refocusing Operations in the Late 1980s as Part of the ÆON Group
At the start of 1988, General Mills announced that it was divesting itself of its clothing retail operations, to concentrate fully on its food-related businesses. Talbots's corporate parent put it up for sale along with Eddie Bauer, Inc., an outdoor clothing company that also maintained catalog operations. Although industry observers were hesitant about General Mills' asking price of $250 million for each chain and also were concerned about difficulties in the mail-order business overall, several companies indicated interest in purchasing Talbots, among them Sears, Roebuck & Company and Spiegel, Inc., another women's clothing cataloger.
Ultimately, however, General Mills sold the chain to the Jusco Group, a leading Japanese retailer that was the core company of the ÆON Group. ÆON brought together approximately 150 different international retail properties, led by Jusco, a major chain of Japanese department stores. Jusco purchased Talbots for $350 million in June 1988. At the time of this sale, Talbots also acquired a data processing center in Tampa, Florida, owned by General Mills, and Arnold B. Zetcher, a seasoned retail executive, became CEO.
Talbots's new owner planned to use the company as a first step toward American retailing operations and also hoped to successfully expand the Talbots concept in Japan. Although Talbots's president had resigned when General Mills announced that it was selling the chain, its second-in-command remained, and Jusco put him in charge of running its new purchase.
Talbots's rapid expansion had left it with some problems in its operation. At the catalog sales telemarketing center, frequent computer breakdowns forced employees to write out orders by hand, a cumbersome process. In addition, customers often had difficulty getting through on the phone. Moreover, systems in Talbots's stores also needed improvements. For instance, employees had no way of monitoring stock at stores to recommend that customers seek certain items at other locations. Jusco spent $50 million implementing new computer systems in an effort to fix these and other problems.
In addition, Talbots refocused its merchandise offerings. Rather than rely on other clothing manufacturers' labels for 75 percent of its merchandise, the company decided to rely almost exclusively on its own private label. In this way, it was able to keep more of the money it made on clothing and also was able to maintain strict control over the quality of the clothes it sold. Under this new program, 95 percent of the clothes sold in Talbots stores carried the Talbots label.
Talbots also decided to emphasize its retail outlets over its catalog operations. Under this strategy, the company began to use its catalog primarily as a market indicator of the most potentially profitable parts of the country. Once mail-order sales were running at $100,00 to $150,000 within a given zip code, a store located in that area would draw $1 million to $1.5 million in annual sales, while only cutting catalog sales by 25 percent. With this in mind, Talbots set out to open a large number of stores in areas across the nation. In addition, Talbots embarked on a multifaceted program to expand beyond women's clothing into other related lines of merchandise. This facility augmented the operations at the company's original Hingham, Massachusetts telemarketing location.
At the same time, Talbots also inaugurated its first overseas operation, establishing Talbots International Retailing Limited, Inc., in Hong Kong. This office was responsible for overseeing manufacture of many Talbots private-label products in the Far East, including quality control, design, and testing. It also provided a communications link between the company's Asian manufacturers and its American Product Development and Merchandising offices.
In July 1989, Talbots introduced a catalog devoted entirely to children's clothing called 'Talbots Kids.' With this line of goods, the company hoped to capitalize on the brand loyalty of mothers who bought Talbots merchandise for themselves, hoping they would also want to do so for their children. When the Talbots Kids catalog proved successful, the company went on to open the first two Talbots Kids stores, in Westport, Connecticut and in Charlotte, North Carolina. These stores were placed next to existing Talbots stores, to make a block of stores carrying the Talbots line. The children's stores featured bright colors, whimsical fixtures, and fun children's furniture. About 80 percent of the goods they offered carried the Talbots brand name.
As Talbots made the transition from the ownership of General Mills to ÆON and tried to retool itself for further growth in the 1990s, the company experienced several challenges. In 1990, for instance, Talbots introduced clothing in more trendy, less traditional colors, stocking stores with blouses and skirts in avocado and gold, rather than the traditional navy blue and red. Customers were less than pleased with this development, and operating profits dropped by 40 percent, as the chain suffered a loss for the year of $7 million. In response to these poor results, Talbots returned to its more traditional styles, and the chain's sales soon began to recover.
In November 1990, Talbots also branched out into its first nonclothing line of merchandise, when it began to market 'Talbots,' a white floral perfume. The company offered the scent in five different forms, including lotion, powder, and gel. By the end of 1990, Talbots had also begun to roll out the expansion of its Talbots Petites stores, opening locations next to previously established Talbots outlets. Further extension of Talbots's line of products came in July 1991, when the company began to offer underwear and sleepwear through its fall catalog. This line was designed to compete with the market that Victoria's Secret had pioneered, but in a more traditional vein.
International Expansion in the 1990s
Also that year, Talbots launched its first international subsidiary, creating Talbots Canada, Inc., headquartered in Toronto. In September 1991, the first Canadian Talbots stores opened in three separate Toronto locations. Seven Talbots stores already had been opened in Japan, but these were directly owned by the company's Japanese parent and thus were not run by the American subsidiary. By the end of the year, Talbots ran 240 stores of its own, 43 of which had been opened in the preceding 12 months. Overall, Talbots sales from these locations and its catalog operation, which made up one-third of the whole, totaled more than $500 million.
Part of Talbots's strategy for maintaining its profitability was to resist the lure of constant discounting to pump up sales. The company conducted four annual markdowns and otherwise sold all merchandise at full price. In addition, Talbots benefited from a strong demand for its traditionally styled clothing among those who rejected other emerging fashion trends, including grunge and the baby-doll look, from the rest of the fashion industry.
Talbots continued its strong showing in 1992. The company began to team up with other niche retailers, such as the Gap, to open stores in mini-malls, which offered lower rents than larger suburban malls. In addition, the company pushed forward with its policy of clustering the different stores in its line, Talbots Kids and Talbots Petites, for greater selling power.
In October 1992, Talbots introduced a new member of its retail family, when freestanding Talbots Intimates stores were opened in Austin, Texas; St. Louis, Missouri; and Troy, Michigan. In addition, the company opened in-store boutiques in existing outlets in Boston; Chicago; Pittsford, New York; and Short Hills, New Jersey. Each of these locations was designed to look like a New England summer cottage, with lots of light and whitewashed wood. The stores offered perfume, books, and an assortment of gifts, as well as lingerie and sleepwear. About half of the merchandise carried the Talbots label, a percentage lower than that of the company's other operations. Talbots Intimates goods also were offered through a separate catalog.
By the end of 1992, Talbots sales had increased 23 percent over the 12-month period, to reach $642 million, and the company continued to open new stores at a brisk pace. In May 1993, Talbots opened a Midwest flagship store on Michigan Avenue in Chicago. With its location in a popular shopping area, the outlet was expected to become the company's highest grossing store. In addition, Talbots moved forward with its Canadian expansion, opening four new stores in the fall of 1993, in Ottawa and Vancouver, British Columbia.
In September 1993, Talbots's Japanese parent announced that it would sell shares in the company to the public. The initial public offering of 11 million shares, which took place in November 1993, reaped $242 million, with ÆON Group retaining 67 percent ownership in the company. In the first day of trading, the company's stock proved to be extremely popular with investors, and its price quickly rose by 20 percent, as buyers responded favorably to Talbots's strong brand name and image. With the money from the sale of stock, Talbots paid off some debts and repurchased some trademark rights from ÆON's European arm.
At the time of its sale to the public, Talbots had grown to comprise 313 stores in 44 states, which included eight Talbots Surplus stores, where the company sold outdated merchandise at discounted prices. By the end of 1993, Talbots sales had risen to $737 million, a gain of 15 percent. The company's net income also rose, to $35 million. Overall, earnings had grown sevenfold since the start of the 1990s. At the end of 1994, the company's first full year as a public entity, net income was $54.5 million on net sales of $879.6 million.
In April 1994, Talbots opened three more stores in Canada and announced plans for a major push into Europe. Anticipating that its current rate of growth&mdash⟩proximately 50 new stores in the United States each year--would saturate the market within seven years, the company turned to foreign shores for future growth. On the basis of its strong success in Canada, Talbots chose England as its next target, and in September 1994, the company opened a test store in a London suburb. Pending the results from the London store, Talbots planned to open 30 stores in the United Kingdom and 170 stores in other parts of Europe and Mexico.
Concurrent with its expansion overseas, Talbots also sought to expand its market at home. In response to customer demand, it introduced two new retail concepts in 1995, Talbots Babies and Talbots Accessories & Shoes. Of its 65 new stores in 1995, five were separate shoe and accessory stores.
Product lines were not the only thing to see change at Talbots in the late 1990s. Talbots entered a new merchandise field when it began distributing a catalog focusing on shoes and accessories. In the same way that it had previously used other catalogs to test the market for children's clothing and lingerie, Talbots hoped in this way to fine-tune its entry into yet another retail category. Yet, despite breaking the $1 billion mark in sales in 1997, Talbots faced a two-year softening of sales at its 600-odd stores. Revenues had grown only 3.9 percent in 1996, a fraction of the 23 percent gain posted in 1992. Earnings rose just two percent to reach $63.6 million, a small gain compared with the 55 percent posted in 1994. In 1996 the company was cited for buying goods from manufacturers that had flouted the nation's wage and hour laws. To counter the slump in the industry and head off any negative publicity, the company responded by changing its focus with its 1997 spring-summer line to more casual clothes aimed at a younger, less 'traditional' customer.
The result was disastrous; the new line bombed so badly, Talbots was forced to take steep markdowns. Sales and stock price slumped, and Talbots beat a quick return to the classics as profits dropped from $63.6 million in 1996 to $5.84 million in 1997. It contracted with Arnold Communications to develop an ad campaign, the company's largest and most comprehensive effort in its 50-year history, that stressed the personality of the Talbots woman by showing her in different, 'real' situations and settings. Arnold also modified the company slogan from 'Talbots is the classics' to 'It's a classic' in an attempt to contemporize the company's image, to update it in a way that attracted new customers while not, as before, alienating the old.
But signs persisted that Talbots's growth machinery was tiring. Even as it stepped up its print campaign, the company hit a 52-week low on the New York Stock Exchange. In early 1998, Talbots reported flat sales and greatly reduced income for fiscal 1997. Still the company and analysts were optimistic about its future. Under a new merchandising team, headed by Mark Shulman, Talbots instituted plans to open another 35 stores in 1998 and launch both a new catalog and retail operations aimed at full-figured women. Talbots also planned to open a prototyped Talbots Woman store in St. Louis as well as departments in seven established stores, to showcase its plus-size clothing line.
By late 1998, Talbots appeared to be regaining sales momentum. Third-quarter earnings for the year exceeded expectations, and company stock was once again trading close to its 52-week high. The company put preventive measures in place, such as lower inventory levels, but by mid-1999, Talbots felt confident enough to experiment again, this time with a plan to launch an e-commerce site in the fall. With a still-solid base of loyal customers, a trusted brand name, and a commitment to woo back those it had lost, Talbots appeared well situated to prosper in the years to come.
Principal Subsidiaries: Talbots Canada, Inc.
Principal Competitors: Ann Taylor; Federated; May.
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