Women’s apparel chain Talbots might have no choice but to accept a private equity buyout offer if one materializes later this month as expected.

In December, Talbots rejected a $3 per share unsolicited buyout proposal from Sycamore Partners, a New York-based private equity firm, because its executives felt the bid undervalued the company. Facing plummeting sales and a large debt load, however, Talbots needs a savior with deep pockets to revamp its image and help it hold its own against competitors including Ann Taylor, Chico’s and Coldwater Creek.

On Jan. 20, several news outlets reported that Talbots started actively soliciting bids for the company, with frequent retail buyers Golden Gate Capital and Texas Pacific Group (TPG) singled out as potential bidders. Talbots declined to comment on the matter.

San Francisco-based Golden Gate Capital owns Express, Eddie Bauer and Zale Corp., and in 2009 purchased Talbots’ J.Jill division for $75 million. Last year, it sold the chain to a foreign bank.

Fort Worth, Texas-based TPJ holds investments in J. Crew, Neiman Marcus and David’s Bridal, among other retail and restaurant chains.

A buyout by either of these firms might allow Talbots to undertake a much-need overhaul, including a new merchandising strategy, a better marketing campaign and a resized store portfolio. In the third quarter of 2011, Talbots’ same-store sales fell 2.4 percent, after an 11.1 percent drop in the second quarter and a 7.7 percent drop in the first quarter. This year, the company’s total debt to capital ratio will reach 70.3 percent, with its net debt at approximately$118 million, according to a report from Barclays Capital, while its same-store sales are projected to decline by another 1.5 percent.

“It just doesn’t seem like they are doing anything in the marketplace that’s unique or differentiated and they haven’t been able to make a connection to the younger generation of consumers,” says Doug Stephens, president of Retail Prophet, a retail consultancy. “They are positioned for a consumer and an economic reality that doesn’t exist anymore. It would take a wholesale re-invention of what they do,” to save them.

Given Talbots’ almost non-existent real estate holdings, however, the company shouldn’t expect a price tag much higher than that offered by Sycamore Partners. In those cases when retailers own a lot of valuable real estate private equity firms can finance their acquisitions by closing underperforming stores and selling them to third parties. As of January 2011, however, Talbots owned only five of its 586 stores in U.S. and Canada. Most of its stores are leased on a 10- to 15-year basis, with 129 of the U.S. leases scheduled to expire in 2011-2012.

The only thing that Talbots’ has to appeal to potential buyers right now is “a low stock price, because it’s going to take a lot to reposition” the chain, according to Jeff Green, president of Jeff Green Partners, a Phoenix-based retail real estate consulting firm.

What ails you?

The number one issue Talbots faces is that it no longer has a core customer base, according to consultants. Historically, the chain appealed to middle-aged women with its classic styles and tailored fit but it has since abandoned those shoppers to chase women in their 20s and 30s. In the process, it managed the alienate its traditional base while failing to attract the younger consumers, according to Bob Phibbs, a retail consultant who operates The Retail Doctor, a Coxsackie, N.Y.-based firm.

What the chain needs is a visionary executive, akin to J. Crew’s Mickey Drexler, to once and for all decide who its core demographic is, bring in fresh new merchandise to attract that demographic and launch a strong marketing campaign using social media, Phibbs and others say.

“What’s the compelling reason any woman would get into her car and come shop there?” he asks. “They need a real specific niche, which they have lost.”

In addition, both Phibbs and Green say Talbots should significantly downsize its store portfolio, both in number and average store size. In Phibbs’ view, it’s possible that the chain needs only 100 stores given its limited customer base. In Green’s view, Talbots should close anywhere between 35 and 50 percent of its stores and take its prototype stores from approximately 6,500 sq. ft. to 4,000 sq. ft.

“Their stores are too large for the kind of retail environment [we’ll have] going forward,” he says.

As of January 2011, Talbots operated 511 stores in the U.S. It already had plans to close 83 locations in fiscal 2011, 25 locations in fiscal 2012 and two locations in 2013.