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Print | Strategic ManagementPage 1 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.Case 2: Ann Taylor: Survival in Specialty RetailPauline AssenzaManhattanville CollegeAlan B. EisnerLubin School of Business, Pace UniversityJerome C. KupermanMinnesota State University Moorhead1 In the summer of 2008, headlines announced that the declining economy was generating a “wave of retail closures†among many wellknown companies, including Home Depot, Pier 1 Imports, Zales, Gap, Talbots, Lane Bryant, and Ann Taylor. The Chief Executive of J.C.Penney’s called the 2008 situation “the most unpredictable environment in his 39-year retail careerâ€.1 One industry group forecasted thatnearly 6,000 retail stores would close in 2008, a 25 percent increase from the previous year. A representative from the National RetailFederation (NRF) suggested that these businesses should “look at where they’re underperforming and how can they change their operationsso that they have a little bit more power in another area, or a little bit more growth potential.â€2 Kay Krill, President and CEO of Ann TaylorStores Corporation (ANN), was already considering this advice.2 Krill had been appointed President of ANN in late 2004, and succeeded to President/CEO in late 2005 when J. Patrick Spainhour retiredafter eight years as CEO. At that time, there had been concern among commentators and customers that the Ann Taylor look was getting“stodgyâ€, and the question was how to “reestablish Ann Taylor as the preeminent brand for beautiful, elegant, and sophisticated occasiondressingâ€.3 In order to reestablish the brand, Kay Krill had acknowledged the importance of the consumer, since for Ann Taylor to succeedlong term, “enough women still need to dress up for workâ€.43 Krill’s challenge was based in the ANN legacy as a women’s specialty clothing retailer. Since 1954, Ann Taylor had been the wardrobesource for busy socially upscale women, and the classic basic black dress and woman’s power suit with pearls were Ann Taylor staples.The Ann Taylor client base consisted of fashion conscious women from the ages of 25 to 55. The overall Ann Taylor concept was designedto appeal to professional women who had limited time to shop and who were attracted to Ann Taylor Stores by its total wardrobingstrategy, personalized client service, efficient store layouts and continual flow of new merchandise.Source: The CASE Journal 5, no. 2 (Spring 2009). TCJ 050202. This case is intended to be used as the basis for class discussion rather thanto illustrate either effective or ineffective handling of a management situation. © 2009 by the authors and The CASE Association.4 ANN had two divisions focused on different segments of this customer base:• Ann Taylor (AT), the company’s original brand, provided sophisticated, versatile and high quality updated classics.2-1 2-2• Ann Taylor LOFT (LOFT) was a concept that appealed to women with a more relaxed lifestyle and work environment and whoappreciated the more casual LOFT style and compelling value. Certain clients of Ann Taylor and Ann Taylor LOFT cross-shopped bothbrands.5 Ann Taylor Factory was the company’s newest division. The merchandise in these stores was specifically designed to carry the AnnTaylor Factory label. The stores were located in outlet malls where customers expected to find these and other major label bargains.6 ANN had regularly appeared in the Women’s Wear Daily “Top 10†list of firms selling dresses, suits and eveningwear and the “Top 20â€list of publicly traded women’s specialty retailers. The listings recognized the total company, i.e., the result of the impact of all threedivisions. Financial data from 2004–2008 shows the performance of LOFT compared to AT (See Exhibit 1: AT vs. LOFT FinancialPerformance 2004–2008.)7 In October of 2004, for the first time, the LOFT division outsold the flagship Ann Taylor (AT) division stores.5 In the second quarter of2004 LOFT had opened its 300th store, passing the Ann Taylor division in total square footage. Since its emergence as a distinctlycompetitive division, LOFT had been such a success for the company that some analysts credited the division for “keeping the entire ANNcorporation afloatâ€.68 In the company’s 2007 Annual Report Krill acknowledged the ongoing challenge: To be successful in meeting the changing needs of ourclients, we must continually evolve and elevate our brands to ensure they remain compelling—from our product, to our marketing, to ourin-store environment.79 Although Krill believed that the overall Ann Taylor brand still had its historic appeal, the question remained whether that appeal could besustained indefinitely in such a risky and uncertain specialty retail environment where success was so dependent on the “ability to predictaccurately client fashion preferences.â€810 Krill was evaluating the company and its growth prospects. Macroeconomic conditions had worsened, and the retailing environmentwas being threatened by slowing consumer demand. As one analyst put it, More mature female shoppers are probably more likely to bevery careful how they spend their money in this economy. They are not your footloose-and-fancy-free teen shoppers. These consumers arefar more likely to open their pocketbooks only if the merchandise is right (and now, probably only if the price is right, too).911 Within the company, Krill was contemplating how to revitalize the flagship AT store brand, and what effect that would have on therecent growth of LOFT. In addition, ANN had recently launched a beauty business as a department within the AT and LOFT stores, hadexpanded the high end fashion offerings in AT as a separate Collections line, announced the opening of LOFT Outlet stores to complementAnn Taylor Factory, and was considering a 2-22-3 2-32-4new concept store specifically targeting the “older†segment of women ages 55–64. Krill was firmly committed to long-term growth, and felt that she could pursue that growth agenda even as the economy hadworsened. However, she was confronted with significant questions. For example, was her agenda too aggressive? Were the actions she hadundertaken the kinds of moves needed to unleash what she believed was the firm’s “significant untapped potentialâ€?10EXHIBIT 1: AT vs. LOFT Financial Performance 2004–2008(Net sales in millions)… 12/9/2014Print | Strategic ManagementPage 2 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.Comparable Store Sales Percentage Increase (decrease)The following table provides consolidated income statement data expressed as a percentage of net sales. All fiscal years presented contain52 weeks, except for the fiscal year ended February 3, 2007, which contains 53 weeks:Source: Company financials at TAYLOR BACKGROUND12 Ann Taylor was founded in 1954 as a wardrobe source for busy socially upscale women. Starting out in New Haven, CT, Ann Taylorfounder Robert Liebeskind established a stand-alone clothing store. When Liebeskind’s father, Richard Liebeskind, Sr., a designer himself,as a good luck gesture gave his son exclusive rights to one of his best selling dresses, “Ann Taylorâ€, the company name was established.Ann Taylor was never a real person, but her persona lived on in the profile of the consumer.13 Ann Taylor went public on the New York Stock Exchange in 1991 under the symbol ANN. In 1994 the company added a mail catalogbusiness, a fragrance line, and free standing shoe stores positioned to supplement the Ann Taylor (AT) stores. The mail order catalogattempt ended in 1995, and the lower-priced apparel concept, Ann Taylor LOFT, was launched. LOFT was meant to appeal to a youngermore casual and cost-conscious but still professional consumer. CEO Sally Kazaks incorporated more casual clothing, petite sizes, andaccessories in an attempt to create a one-stop shopping environment, to “widen market appeal and fuel growthâ€.1114 Following losses in fiscal 1996 that could be attributed to a fashion misstep—cropped T-shirts didn’t fit in with the workplaceattire—Kasaks left the company. New ANN CEO Patrick Spainhour, who had been Chief Financial Officer at Donna Karan and had alsohad previous experience at Gap, shelved the fragrance line, and closed the shoe stores in 1997.15 Originally the LOFT stores were found only in outlet centers, but later expanded to other kinds of locations. In 1998 the LOFT stores inthe discount outlet malls were moved to a third division, Ann Taylor Factory (Factory). The Factory carried clothes from the Ann Taylor(AT) line. The concept offered customers direct access to the AT designer items “off the rack†without elaborate promotion, and withprices regularly 25–30 percent less than at the high end Ann Taylor (AT) stores. The LOFT concept was revamped and stores were openedin more prestigious regional malls and shopping centers. By 1999 LOFT clothes were a distinct line of “more casual, yet business tailored,fun, and feminineâ€, and were about 30 percent less expensive than the merchandise at the flagship Ann Taylor (AT) division’s stores.12 Atthat time, the LOFT was under the direction of Kay Krill, who had been promoted to the position as Executive Vice President of the LOFTdivision.16 Ann Taylor attempted a cosmetic line in 2000, which it discontinued in 2001. In 2000, the Online Store at waslaunched, only to be cut back in late 2001 when projected cash flow goals were not met. In early 2001 Spainhour restructured managementreporting relationships, creating new President positions for both Ann Taylor (AT) and Ann 2-42-5Taylor LOFT divisions. Kay Krill was… 12/9/2014Print | Strategic ManagementPage 3 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.promoted from executive vice-president to president of LOFT. Spainhour commented that, Kay has been instrumental in developing thestrategy for the Ann Taylor Loft concept since its inception. Her in-depth understanding of the Ann Taylor Loft client, and stronggrounding in the Ann Taylor brand, combined with her proven ability in driving the development of this division, make her an ideal choicefor the new President position.1317 Kay Krill was made president of the entire ANN corporation in 2004, bringing both Ann Taylor and LOFT under her control. InFebruary of 2005 Kay Krill announced that LOFT had reached $1 billion dollars in sales, stating, This is an important milestone for ourCompany. In an intensely competitive and fragmented apparel market, Ann Taylor LOFT has been one of the industry’s most successfuland fastest-growing apparel retail concepts since its launch in 1998 …. LOFT’s success reaffirms the importance of maintaining a strongconnection with our client and evolving with her wardrobe needs over time.1418 In June 2005 ANN completed a move to new headquarters in Times Square Tower in New York City.15 In the fall of 2005, Chairmanand CEO J. Patrick Spainhour retired and President Kay Krill was elevated to the CEO position. In a conference call following herpromotion, Krill stated her goals as “improving profitability while enhancing both brandsâ€, “restoring performance at the Ann Taylordivision and restoring the momentum at LOFTâ€.1619 Krill felt the outlook for fiscal year 2006 was cautiously positive, and announced continued plans for expansion and related capitalexpenditure. The stock responded with new highs, moving to a peak of over $40 in late 2006. At that time, analysts were mainly supportiveciting “confidence in the retailer’s strong management team, improving store products, and conservative inventory managementâ€.17 ANN’sstock price subsequently retreated in 2007, along with the rest of the retailing sector. (See Exhibit 2: ANN Stock Price 1992–2008; Exhibit3: Stores Operational Data. For full financials and operating statistics for 2004–2008, see Exhibits 4–6.)20 Challenges in the macroeconomic climate prompted Krill to announce a restructuring plan in 2008. In the 2007 Annual Report letter toshareholders Krill said, We understand that the economy invariably goes through cycles. We firmly believe that the manner in which weapproach growth and manage our business through these cycles will differentiate us and determine our success in the market over the longterm. In this regard, we have planned fiscal 2008 cautiously and realistically, focusing on three key areas—the evolution of our brands andchannels, the reduction of our overall cost structure, and the continued pursuit of growth.182-5 2-6EXHIBIT 2: ANN Stock Price 1992–2008For comparison purposes, the adjusted close stock price of the Exchange Traded Fund (ETF) S&P Retail SPDR is included. This fundbegan trading on 6/22/2006. The top ten holdings (22.48% of total assets as of 8/2008) in this fund (in alphabetical order) consist ofAeropostale Inc., AnnTaylor Stores Corp., Brown Shoe Co., Inc., Charming Shoppes, FootLocker, Inc., Genesco Inc., Limited Brands Inc.,Ross Stores Inc., Supervalu Inc., and Tiffany & Co.Derived from: 3: Stores Operational Data… 12/9/2014Print | Strategic ManagementPage 4 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.2-6 2-7Specific Store DetailSource: Company Reports at http://investor.anntaylor.comEXHIBIT 4: Income StatementsSource: Standard & Poor’s.THE APPAREL RETAIL INDUSTRY21 History Prior to the development of a retailing industry, the only option for upper-class wealthy women who desired to be fashionablewas to hire local dressmakers to create one-of-a-kind personalized garments. Women with more limited resources had few options until2-72-8 2-82-9the 1800s. Enterprising seamstresses began mass-producing dresses at that time, utilizing the increased availability of textilesand the invention of the sewing machine. The increasing availability of diverse products led to the creation of the variety store, theprecursor of the current department store. At the same time, entrepreneurial seamstresses previously working as personalized dressmakersbegan to open specialty stores for fashionable women’s clothing. Thus came the origins of modern retailing, with both department storesand specialty retailers co-existing in many downtown locations.EXHIBIT 5: Balance Sheets… 12/9/2014Print | Strategic ManagementPage 5 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.Source: Standard & Poor’s.EXHIBIT 6: Statement of Annual Cash Flows… 12/9/2014Print | Strategic ManagementPage 6 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.Source: Standard & Poor’s.2-9 2-1022 The movement of the U.S. population into the suburbs, along with an increasing use of automobiles, led to the development in the 1930sand 1940s of planned shopping centers and highway strips of unified shopping stores. This expansion included the first free-standing storeswith on-site parking, as run by Sears Roebuck & Co. The shopping mall concept expanded further in the 1950s. Usually “anchored†byeither supermarkets or department stores, these shopping centers also allowed specialty and department retailers to co-exist in the samephysical location.23 By the 1980s, there were 16,000 retail shopping centers in the U.S.19 However, as customers showed their increased interest in moreconvenient and quicker service, alternatives to traditional ‘brick and mortar’ shopping centers appeared. They included non-store directmail order, infomercial and shopping channel TV venues, and online options. Many retailers also made a strategic decision to createspecialty clothing departments and focus on items such as sports wear, or appeal to specific niches such as either large-sized or petitewomen.20 In addition, response to the threat of discounter department stores like Target and Wal-Mart prompted some established specialtyfirms to create separate divisions focused on lower priced fashions.2124 Industry Sectors Practically speaking, industry watchers tended to recognize three separate categories of clothing retailers. Industrypublications such as the Daily News Record (DNR—reporting on men’s fashions news and business strategies), Women’s Wear Daily(WWD—reporting on women’s fashions and apparel business), and industry associations such as the National Retail Federation (NRF)reported data within the clothing sector broken out by:• Discount mass merchandisers like Target, Wal-Mart, TJX (TJ Maxx, Marshall’s, A.J. Wright, Bob’s Stores), and Costco.• Multitier department stores (those offering a large variety of goods, including clothing, like Macy’s and J.C. Penney’s, and the moreluxury-goods focused stores like Nordstrom’s and Neiman Marcus).• Specialty store chains (those catering to a certain type of customer or type of goods, e.g. Abercrombie & Fitch for casual apparel).25 More specifically in the case of specialty retail, many broadly recognized primary categories existed such as women’s, men’s, andchildren’s clothing stores (e.g., Victoria’s Secret for women’s undergarments22, Men’s Wearhouse for men’s suits, Abercrombie Kids forchildren aged 7–1423). Women’s specialty stores were “establishments primarily engaged in retailing a specialized line of women’s,juniors’ and misses’ clothing.â€242-10 2-1126 A unique form of organization that sometimes appeared as competition in the specialty retail category was the clothing designer.Originally an evolution of the custom seamstress, for one-of-a-kind garments, fashion design houses such as Liz Claiborne and RalphLauren could also produce their creations in bulk, as ready-to-wear clothing. These firms were generally considered apparel wholesalers,with their items normally for sale to the clothing retailers, such as Macy’s, but well-established designers could also build their ownspecialty stores to sell directly to the consumer.SPECIALTY RETAILER GROWTH: BRANDING CHALLENGES27 Unlike department stores that sold many different types of products for many types of customers, specialty retailers focused on one typeof product item, and offered many varieties of that item. However, this single product focus increased risk, as lost sales in one area couldnot be recouped by a shift of interest to another entirely different product area. Therefore, many specialty retailers constantly sought outnew market segments (i.e., niches) that they could serve. However, this strategy created potential problems for branding25. A participant atthe 2007 NRF convention commented, Brand building, acquisition, and tiering is hotter than ever in retail and consumer products—somuch so they may be contributing to shorter life spans for some brands and perhaps diluting the value of all. In any event, the massiveproliferation of brands in recent years—some out of thin air, others even reborn from the grave—brings with it a minefield of potentialdangers.2628 Gap, Inc. was an example of a specialty retailer that had added several brand extensions to appeal to different customer segments. Inaddition to the original Gap line of casual clothing, the company offered the following: Old Navy with casual fashions at low prices,Banana Republic for more high-end casual items, and Piperlime as an online shoe store. However, in 2005 Gap had also spent $40 millionto open a chain for upscale women’s clothing called Forth & Towne, which closed after only 18 months. The store was supposed to appealto upscale women over 35—the “baby boomer†segment—but, instead, the designers seemed “too focused on reproducing youthfulfashions with a more generous cut†instead of finding an “interesting, affordable way†for middle-aged women to “dress like themselves.â€2729 Chico’s FAS, Inc. was another specialty retailer who tried brand expansions. Chico’s focused on private-label, casual-to-dressy clothingto women 35 years old and up, with relaxed, figure-flattering styles constructed out of easy-care fabrics. An outgrowth of a Mexican folkart boutique, Chico’s was originally a stand-alone brand. Starting in late 2003, Chico’s FAS decided to promote two new brands: WhiteHouse/Black Market (WH/BM), and Soma by Chico’s (Soma).30 Chico’s WH/BM brand was based on the acquisition of an existing store chain, and focused on women 25 years old and up, offeringfashion and merchandise in black and white and related shades. Soma was a newly developed brand offering intimate apparel, sleepwearand active wear. Each brand had its own storefront, mainly in shopping malls, and was augmented by both mail order catalog and Internetsales. The idea was that the loyal 2-112-12Chico’s customer would be drawn to shop at these other concept stores, expecting the same levelof quality, service, and targeted offerings that had pleased her in the past.31 Although Chico’s had been a solid performer during the decade, surpassing most other women’s clothing retailers in sales growth, adownturn in 2006 caused Chico’s shares to fall more than 50 percent when the company reported sales and earnings below analysts’expectations. Chico’s had seen increasing competition for its baby boomer customers, and said it had lost momentum during 2006, partlybecause of “fashion missteps†and lack of sufficiently new product designs. The company’s response was to create brand presidents for thethree divisions to hopefully create more “excitement and differentiation.â€2832 In an attempt to better manage the proliferation of brands, many firms, similar to Chico’s, created an organizational structure wherebrands had their own dedicated managers, with titles such as executive vice president (EVP)/general merchandise manager, chiefmerchandising officer, or outright “brand president.â€29 Since each brand was supposedly unique, companies felt the person responsible fora brand’s creative vision should be unique as well.33 An alternative to brand extension was the divestiture of brands. In 1988 Limited Brands30 acquired Abercrombie and Fitch (A&F) andrebuilt A&F to represent the “preppy†lifestyle of teenagers and college students aged 18–22. In 1996 Limited Brands spun A&F off as aseparate public company. Limited Brands continued divesting brands: teenage clothing and accessories brand The Limited TOO in 1999,plus-size women’s clothing brand Lane Bryant in 2001, professional women’s clothing brand Lerner New York in 2002, and in 2007 thecasual women’s clothing brands Express and The Limited. Paring down in order to focus mostly on key brands Victoria’s Secret and Bath& Body Works, the corporation had made it clear as of 2007 that it was still not done reconfiguring itself.31… 12/9/2014Print | Strategic ManagementPage 7 of 15PRINTED BY:Printing is for personal, private use only. No part of this book may be reproduced ortransmitted without publisher’s prior permission. Violators will be prosecuted.WOMEN’S SPECIALTY RETAIL—COMPETITORS AND THE “OLDER WOMEN†SEGMENT34 The National Retail Federation, a Washington, D.C.-based trade group, reported that the retail niches showing the greatest growth in2006 were department stores, stores catering to the teenage children of baby boomers, and those apparel chains aimed at women over 35.32The four major women’s specialty retailers who were trying to target older upscale shoppers were Ann Taylor, Chicos FAS, ColdwaterCreek and Talbots. Ann Taylor was the only one of these with a significant brand extension for the younger professional, but all four werepromising a shopping en…Case Study SWOT AnalysisConducting an internal and external analysis of the featured company’s strengths, weaknesses,opportunities, and threats (SWOT) can prove helpful when determining how to best approach the case studyanalysis process. Remember to use the Unit’s topic of the week to guide you through the SWOT Analysisprocess and to then focus upon your SWOT outcome to deliver the best alternative solutions (at least three) inthe case study analysis paper. The following lists in each quadrant are some ideas to use in the analysisprocess but are not limited to.StrengthsWeaknessesExamples:Examples:CapabilitiesDeadlinesExperience, knowledgeFinancesFinancesGaps in capabilitiesInnovationKey staff turnoverLocationLack of competitive strengthManagement and successionLocationMarketingManagement and successionPhilosophy and valuesMorale, commitment and leadershipPrice, value, and qualityQualificationsProcessesReliability of dataQualificationsReputation and presenceResources (Assets, People)SustainabilityTimeTimeVital contracts and partnersPage 1 of 3OpportunitiesThreatsExamples:Examples:Business and product developmentCompetitor intentionsCompetitors’ vulnerabilitiesConsumer preferencesEconomyEconomy, domestic and foreignIndustry or lifestyle trendsEnvironmentalMarket developmentsIT developments / TechnologyNew marketsLegislativePartnershipsMarket demandsSeasonality and weather effectsPoliticalTechnologySeasonality and weatherPage 2 of 3Page 3 of 3