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Saturday, July 18, 2009

FYI - Plus Size on Wall Street

NEW YORK (Dow Jones)--As retailers' selection of clothing size narrows, plus-size retailer Charming Shoppes Inc. (CHRS) is stepping in to try to pick up the slack, or slacks.

In a consumer spending crunch, retailers like Old Navy, owned by Gap Inc. (GPS), and AnnTaylor Stores Corp. (ANN) are offering their plus-size apparel only online. An Ann Taylor representative said the move was because of low demand in their stores. And industry experts say it involves extra work and a different process for private-label retailers to produce plus-size clothing, because the clothing should be fitted differently, instead of just sized up.

But specialty retailer Charming Shoppes is revamping its core plus-size brands, with the help of new management led by recently hired Chief Executive and President James Fogarty, known as a turnaround specialist after serving as managing director of restructuring firm Alvarez & Marshal. Charming Shoppes' main brands are Lane Bryant and Catherines, along with Fashion Bug, which has both plus and misses sizes. The company has moved to make Lane Bryant more fashion-conscious, which brand President Brian Woolf first saw as a risk.

"We were almost afraid of the fashion side of the business," he said. "Now we're driving the business with fashion and trends."

Investors have reacted well to change in the company's management and approach. In just the last five months, shares have risen more than eight times in value since hitting a year low of 45 cents in early March, and are now changing hands at $4.34. Over the same period, the S&P 500 has risen 31.9%

The company also plans to produce more of the clothing it sells, which Woolf said he expects to happen around 2010.

About two-thirds of the U.S. is either overweight or obese, a significant demographic for retailers to direct away from their stores or even ignore. While growth in the numbers has leveled out over recent years, the average U.S. woman remains around 5'4" and 164 pounds, according to the Centers for Disease Control and Prevention.

Kat Fay, an analyst with market research firm Mintel, said the plus-size market is "grossly under-served."

"Women are not very happy with the selection," she said. "They find it very difficult to shop."

Consumer dissatisfaction, which has been a constant in the plus-size market, could leave room for retailers like Charming Shoppes to grab more of a fragmented market. It is spearheading the effort with changes at Lane Bryant and Fashion Bug. At Fashion Bug, the store has limited its size selection from 6 to 30. And some experts say Lane Bryant's focus on fashion has started to pay off.

The brand's merchandise margin has improved despite a 13% drop in same-store sales in the first quarter, meaning that for the customers who do shop at the store, the company doesn't have to mark down its merchandise very far.

It is "the first glimpse this strategy is working," said Christopher Kim, an analyst with J.P. Morgan. But he rates the stock at neutral because the company's short-term results might be weak.

The company also said in its first-quarter conference call that it had inventory problems at Lane Bryant because of increased demand for more trendy items. Woolf said that a new advertising strategy had been more effective than expected, and the company has adapted.

"We've made our adjustments in terms of the product assortment going forward," he said.

But plus-size clothing has taken the biggest hit in consumer spending over the past year, falling 9.6%, according to a report by NPD Group Inc., compared with a 5.1% drop in all women's clothing. Kim says sales might have fallen not because the women don't want to shop, but because the women have fewer options because of cuts in size selection from retailers and department stores.

Charming Shoppes hopes to attract the shoppers that shy away from Lane Bryant's trendy fashion to its conservative brand, called Catherines. And for bargain hunters, the company is emphasizing low prices at Fashion Bug.

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