Friday, September 19, 2008

Coldwater Creek Suffers Cold with its Spa Concept

Women's clothing retailer Coldwater Creek (CWTR-$7.17), which caters to females ages 35-60, with average household income in excess of $75,000, opened the first of its nine day spa locations in Spring 2006. Management believed that the spa concept would increase retail traffic and offer cross-merchandising synergy, especially from its line of assorted Sports apparel.

In the second-quarter 2008 ended August 2, the company admitted that certain assets (equipment, furniture, and fixtures) at some spa locations would never be recovered, and took a $1.5 million writedown related to the Coldwater Creek Spa concept, according to the 10-Q filed with the SEC on September 11. To date, the spa business has had a negative impact on earnings.

Retail trends remain sluggish, as seen in new co-branded credit activations, which fell about 60 percent year-over-year to 10,700 in the second-quarter. Nonetheless, management refuses to admit the day spa concept was a mistake:
  • "We have not formed a conclusion as to the long-term prospects of this concept, although we have no plan to build additional day spas. "

Such wording suggests behavior to the contrary. In addition, how can management determine that the day spa concept has been long enough to perform a detailed impairment evaluation -- as the concept continues to incur operating and cash flow losses -- but not long enough to reflect long-term prospects?

"Health is the greatest possession," said Chinese taoist philosopher Lao Tzu (600 BC - 531 BC). Coldwater should not lose sight of the reality, however, that clothes can bring the greatest joy to women shoppers. [Ed. note. Forgive me for that sexist comment!]

In the filing, management did admit to a failure to differentiate its merchandise from its competitors, for comparable same-store sales declined 13.7% year-on-year. The company is hoping its fall wardrobe-prints, prints, and more print fashions -- will resonate with its customers.

Editor David J. Phillips does not hold a financial interest in any companies mentioned in this posting. The 10Q Detective has a Full Disclosure Policy.

1 comment:

Wendy Fried said...

Sexist, yes. But, in my case. unfortunately true.