Coldwater Creek started in a closet in Sandpoint, Idaho; company now has 13 million customers

When Coldwater Creek founders Dennis and Ann Pence started their company in January 1984, their distribution center was a closet in their two-bedroom Sandpoint, Idaho apartment.

By Kathy Gurchiek
The Salt Lake Tribune

Ann Pence, Coldwater Creek’s vice chairman and creative director until her retirement last year, chose the company’s name because it evoked a northern-woods feel of a secluded, cozy spot offering escape from the tensions of life. Never mind that there are no nearby creeks named Coldwater.

Two-thousand people received Northcountry, Coldwater Creek’s first catalog, which featured 18 nature-related items, such as Ansel Adams calendars, wind chimes, bird feeders and a $300 water phone used to call humpback whales.

When an order came in, Dennis Pence boxed it in the upstairs laundry room and jumped on his bike to deliver it to United Parcel Service. The company’s lone employee — a woman sitting at the Pences’ kitchen table on a pillow she brought from home — typed the packing slips.

Nearly 20 years later, Coldwater Creek has become a national retailer of upscale, yet casual, women’s clothing whose name is mentioned with the likes of J. Jill, Chico’s, Land’s End and Talbot’s as companies successfully marketing to affluent baby boomers.

Coldwater Creek is a public company with approximately 3,000 employees, located on 20 acres near the shores of 43-mile-long Lake Pend Oreille.

It operates 53 full-line stores in 24 states — including one at The Gateway in Salt Lake City — 16 outlet stores and two resort stores. It distributes three catalogs to more than 13 million customers, runs a 600,000-square-foot distribution center in Parkersburg, W.V., and a 60,000 -square-foot customer service center in Coeur d’ Alene, Idaho.

Coldwater Creek in 1999 launched its Web site, http:// http://www.coldwatercreek.com, and said online sales now represent about one-third of its total business, which amounted to $501.5 million in sales and a $7.86 million profit last year.

It all started when the 30-something couple left their jobs in Manhattan for the wide open spaces of Sandpoint, located 53 miles south of Canada and with a population between 4,500 and 5,500. There, the Selkirk and Cabinet mountains surround an area that is home to black bear, bald eagles, moose and elk.

"[New York] was just too crowded for us, too busy, just too much urban congestion and pollution," recalls Dennis Pence, who was dressed in khaki shorts as he sat in a conference room at company headquarters. "A lot of people do have this craving to start their own business and want to create something on their own."

Ann Pence, whose retail advertising career included serving as copy director for Macy’s California division before she quit to co-found Coldwater Creek, designed that first catalog and others. Dennis Pence, a former Sony executive, photographed merchandise on the picnic table behind the couple’s home.

The couple ran out of money before first realizing a profit in 1986. They maxed out their credit cards, tapped out their bank loans and borrowed money from Ann Pence’s parents.

"We were broke. I finally went and pawned everything we owned to help pay for that Christmas mailing. I pawned jewelry and clothes and things like that we weren’t using anymore — big city stuff — and then it turned around," Dennis Pence recalls.

Success came down to finding the right product mix. The Pences successfully added American Indian jewelry in 1986 and in 1991, the company included a couple of broomstick skirts in the catalog. Eventually, Coldwater Creek morphed into a company whose privately designed clothing now makes up 80 percent of its merchandise.

Women’s Wear Daily (WWD) this year listed Coldwater Creek among 10 companies that as of Feb. 1 had a market capitalization of $50 million or more and did significant business in women’s apparel and/or accessories. It shared the list with companies such as Coach, Gap Inc., Abercrombie & Fitch and Reebok. WWD cited the company’s $191.7 million market capitalization as of Jan. 31 and a 262.7 percent increase in profits for the quarter ended Nov. 2, 2002.

Dennis Pence said the company was able to earn such recognition by returning to basics and focusing on what it did best. Previously, "we were trying to offer too many widely varied items to our customers. Not water phones, but certainly items that they didn’t want. We had too broad of a merchandise assortment with tens of thousands of different items. We honed that down to a more tailored selection that was much more appropriate to our customers’ lifestyles."

The typical customer is a career woman age 35-60 with a salary in the $75,000-plus range, a woman with more money than time, says Georgia Skonk-Simmons, president and chief merchandise officer. You won’t find tailored blazers here. The clothing is softer, unstructured, featuring unique embroidery and prints and a color spectrum ranging from neutrals to jewel tones. Comfort and versatility among pieces are key and sizes range from 4 to 26W (3X); 5-foot 6-inches tall is considered an average height.

Two Sandpoint women, a size 8 and a 1X, each spend 12 hours weekly as models for fine-tuning clothing fit, says senior technical designer Russell White.

However, customers won’t see models in the catalogs. Clothing and accessories are portrayed in the catalog as if on invisible mannequins. Attention is on the merchandise. The idea is to not visually limit an item to a particular body type and thus lose a potential sale. The catalog is photographed at an in-house studio the company opened this spring; Coldwater Creek is expected to realize a potential annual savings of $1.3 million by having its own studio, company spokesman David Gunter says.

In the five years since former Spiegel executive Skonk-Simmons joined Coldwater Creek, she has seen the company move away from clothes that are heavily Western-inspired.

"We still sell a lot of tapestry jackets and boots, but we have a broader spectrum of appeal to the customer today," she says. "We really are after her lifestyle and putting things in all parts of her closet vs. being very trend, Western-driven."

Discount retailers such as Target that introduce designer lines are kept in sight — competition is competition — Skonk-Simmons acknowledges.

"The difference is we have our own proprietary brands. We design everything and specify everything ourselves, therefore our fit is more consistent to our customers and our styling is exclusive to us," she says. "The idea of Target carrying more national brands will compete more with department stores than it will with speciality retail."

Coldwater Creek customers grew up shopping in department stores and are "looking to develop a little bit more style and be a little more unique and not have that sameness you may find in a department store," Skonk-Simmons says.

That uniqueness is highlighted in the catalog copy composed by the company’s eight writers. The language can get downright lyrical, evoking the kind of life the Coldwater Creek customer aspires to or identifies with when she buys its moleskin pants or flippy red floral skirt.

Typical is this description of a $109 brown silk jacket in its early autumn 2003 Spirit of the West catalog: Nonchalantly chic, tossed over jeans for an espresso at Caffe Barista. Swank, paired with black velvet when those theater tickets come through. Always stunning, turning heads wherever your go: this deep brown shantung jacket is garnished with intricate embroidery and encrusted with hundreds of glinting copper-and-jet hued beads.

Or this description of a chenille jacket ($139): Not that there’s a definite dress code. You simply like to look the part when playing the role of docent at the Decorative Arts Museum. In this: a chenille jacket hemmed with rows of jacquard-woven patterns borrowed, perhaps, from Grecian urns and coromandel screens.

Options for purchasing that chenille jacket are varied, thanks to the company’s emphasis on multichannel strategy. Customers can make purchases from direct-mail order catalogs, the Internet or its retail stores. Ninety-five percent of in-stock items are shipped within 24 hours, with Internet orders going to the front of the pack, Gunter says. Stores are equipped with Internet kiosks that allow a customer looking for a product she saw in the catalog to order it from the Web site if it’s not in stock when she visits. The company averages a two-day delivery from kiosk orders, with no shipping charge.

Joan Cutler of Salt Lake had her arms full of clothing to try on in the Gateway store last week.

"They just have a lot of fun things. There’re good color combinations," said Cutler, who has been a regular Coldwater Creek customer for five years.

"They have good quality clothes," said Annette Kasper, visiting from Grand Junction, Colo. "I love the styles and the colors and they’re really reasonably priced. That helps."

Stores average about 5,500 square feet. Like its clothing, the ambience is comfortable with wood accents, a waterfall and large fitting rooms with soft lighting and wall sconces. Each store follows a merchandising model that originates at the company’s virtual store. Store managers receive compact discs that illustrate where and how merchandise is displayed so there is a consistency throughout all stores, says Daniel Griesemer, senior vice president of retail and a former Gap executive.

Coldwater Creek likes to position its stores near other upscale clothing stores and coffeehouses, gourmet kitchen shops and bookstores, says Griesemer. At the Gateway, Coldwater Creek is near Subtle Tones clothing store and Z Gallerie home furnishings store, and a quick walk from Sur la Table and the Bombay Co.

"We know she [the typical customer] likes to cook, she likes to read, she likes to entertain, so we know other brands that cater to those elements of her life," Griesemer says. "There are several brands that would qualify and fit into this group of brands we like to be a part of because we know they have a similar customer and they add an element or dimension to her lifestyle that’s consistent with our customer."

The company’s latest store opened Tuesday in Naperville, Ill. It plans to have 66 full-line locations in place for the holidays, including five test stores to introduce the brand to smaller markets. The company’s build-out goal is 500 stores, Griesemer says. Two more outlet stores are planned for this year.

Dennis Pence acknowledges some amazement when he reflects on the company’s growth and evolution from a direct-mail heritage.

"If you’ve ever hiked up a steep hill with switchbacks, you’re amazed when you stop for a breather and you’re halfway up that ridge and you look down and see your car in that parking lot and it’s a tiny little speck down there," he says.

"You recognize that all the time you’ve been lost in that step-after-step prodding you were making some progress. Then you look back and you are amazed."

[email protected]

Coldwater Creek Inc.

* Headquarters: Sandpoint, Idaho

* History: Founded in 1984 as a direct-mail catalog and incorporated in 1988

* Chief executive: Dennis Pence, chairman and chief executive officer. Co-founded company with former wife Ann Pence. Both serve on the company’s board of directors.

* Major competitors: J. Jill, Land’s End, Chico’s, Talbot’s

* No. of stores: 52, including its only Utah location at The Gateway in Salt Lake City

* Annual sales: $501.5 million in 2002

* Net income: $7.68 million in 2002.

* Stock price: $12 as of Friday

http://www.sltrib.com/2003/Sep/09142003/business/business.asp