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1 In the summer of 2008, headlines announced that the declining economy was
generating a “wave of retail closures” among many well-known 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 career”.1 One industry group forecasted that nearly
6,000 retail stores would close in 2008, a 25 percent increase from the previous year. A
representative from the National Retail Federation (NRF) suggested that these businesses
should “look at where they’re underperforming and how can they change their operations
so that they have a little bit more power in another area, or a little bit more growth
potential.”2 Kay Krill, President and CEO of Ann Taylor Stores 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 retired after eight years as CEO.
At that time, there had been concern among commentators and customers that the Ann
Taylor look was getting “stodgy”, and the question was how to “reestablish Ann Taylor
as the preeminent brand for beautiful, elegant, and sophisticated occasion dressing”.3 In
order to reestablish the brand, Kay Krill had acknowledged the importance of the
consumer, since for Ann Taylor to succeed long term, “enough women still need to dress
up for work”.4
3 Krill’s challenge was based in the ANN legacy as a women’s specialty clothing retailer.
Since 1954, Ann Taylor had been the wardrobe source 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 designed to appeal to professional
women who had limited time to shop and who were attracted to Ann Taylor Stores by its
total wardrobing strategy, 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 than to 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:
o • Ann Taylor (AT), the company’s original brand, provided sophisticated,
versatile and high quality updated classics.
2-12-2
• Ann Taylor LOFT (LOFT) was a concept that appealed to women with a more
relaxed lifestyle and work environment and who appreciated the more casual
LOFT style and compelling value. Certain clients of Ann Taylor and Ann Taylor
LOFT cross-shopped both brands.
5 Ann Taylor Factory was the company’s newest division. The merchandise in these
stores was specifically designed to carry the Ann Taylor Factory label. The stores were
o
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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 20” list of publicly traded women’s specialty
retailers. The listings recognized the total company, i.e., the result of the impact of all
three divisions. Financial data from 2004–2008 shows the performance of LOFT
compared to AT (See Exhibit 1: AT vs. LOFT Financial Performance 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 of 2004 LOFT had opened its 300th
store, passing the Ann Taylor division in total square footage. Since its emergence as a
distinctly competitive division, LOFT had been such a success for the company that some
analysts credited the division for “keeping the entire ANN corporation afloat”.6
8 In the company’s 2007 Annual Report Krill acknowledged the ongoing challenge: To
be successful in meeting the changing needs of our clients, we must continually evolve
and elevate our brands to ensure they remain compelling—from our product, to our
marketing, to our in-store environment.7
9 Although Krill believed that the overall Ann Taylor brand still had its historic appeal,
the question remained whether that appeal could be sustained indefinitely in such a risky
and uncertain specialty retail environment where success was so dependent on the
“ability to predict accurately client fashion preferences.”8
10 Krill was evaluating the company and its growth prospects. Macroeconomic
conditions had worsened, and the retailing environment was being threatened by slowing
consumer demand. As one analyst put it, More mature female shoppers are probably
more likely to be very careful how they spend their money in this economy. They are not
your footloose-and-fancy-free teen shoppers. These consumers are far more likely to
open their pocketbooks only if the merchandise is right (and now, probably only if the
price is right, too).9
11 Within the company, Krill was contemplating how to revitalize the flagship AT store
brand, and what effect that would have on the recent growth of LOFT. In addition, ANN
had recently launched a beauty business as a department within the AT and LOFT stores,
had expanded the high end fashion offerings in AT as a separate Collections line,
announced the opening of LOFT Outlet stores to complement Ann 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 had worsened. However,
she was confronted with significant questions. For example, was her agenda too
aggressive? Were the actions she had undertaken the kinds of moves needed to unleash
what she believed was the firm’s “significant untapped potential”?10
ANN TAYLOR BACKGROUND
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12 Ann Taylor was founded in 1954 as a wardrobe source for busy socially upscale
women. Starting out in New Haven, CT, Ann Taylor founder 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
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best selling dresses, “Ann Taylor”, 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 catalog business, a fragrance line, and free
standing shoe stores positioned to supplement the Ann Taylor (AT) stores. The mail order
catalog attempt ended in 1995, and the lower-priced apparel concept, Ann Taylor LOFT,
was launched. LOFT was meant to appeal to a younger more casual and cost-conscious
but still professional consumer. CEO Sally Kazaks incorporated more casual clothing,
petite sizes, and accessories in an attempt to create a one-stop shopping environment, to
“widen market appeal and fuel growth”.11
14 Following losses in fiscal 1996 that could be attributed to a fashion misstep—cropped
T-shirts didn’t fit in with the workplace attire—Kasaks left the company. New ANN
CEO Patrick Spainhour, who had been Chief Financial Officer at Donna Karan and had
also had 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 in the 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 with prices regularly 25–
30 percent less than at the high end Ann Taylor (AT) stores. The LOFT concept was
revamped and stores were opened in more prestigious regional malls and shopping
centers. By 1999 LOFT clothes were a distinct line of “more casual, yet business tailored,
fun, and feminine”, and were about 30 percent less expensive than the merchandise at the
flagship Ann Taylor (AT) division’s stores.12 At that time, the LOFT was under the
direction of Kay Krill, who had been promoted to the position as Executive Vice
President of the LOFT division.
16 Ann Taylor attempted a cosmetic line in 2000, which it discontinued in 2001. In 2000,
the Online Store at www.anntaylor.com was launched, only to be cut back in late 2001
when projected cash flow goals were not met. In early 2001 Spainhour restructured
management reporting relationships, creating new President positions for both Ann
Taylor (AT) and Ann 2-42-5Taylor LOFT divisions. Kay Krill was promoted from
executive vice-president to president of LOFT. Spainhour commented that, Kay has been
instrumental in developing the strategy for the Ann Taylor Loft concept since its
inception. Her in-depth understanding of the Ann Taylor Loft client, and strong
grounding in the Ann Taylor brand, combined with her proven ability in driving the
development of this division, make her an ideal choice for the new President position.13
17 Kay Krill was made president of the entire ANN corporation in 2004, bringing both
Ann Taylor and LOFT under her control. In February of 2005 Kay Krill announced that
LOFT had reached $1 billion dollars in sales, stating, This is an important milestone for
our Company. In an intensely competitive and fragmented apparel market, Ann Taylor
LOFT has been one of the industry’s most successful and fastest-growing apparel retail
concepts since its launch in 1998 …. LOFT’s success reaffirms the importance of
maintaining a strong connection with our client and evolving with her wardrobe needs
over time.14
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18 In June 2005 ANN completed a move to new headquarters in Times Square Tower in
New York City.15 In the fall of 2005, Chairman and CEO J. Patrick Spainhour retired and
President Kay Krill was elevated to the CEO position. In a conference call following her
promotion, Krill stated her goals as “improving profitability while enhancing both
brands”, “restoring performance at the Ann Taylor division and restoring the momentum
at LOFT”.16
19 Krill felt the outlook for fiscal year 2006 was cautiously positive, and announced
continued plans for expansion and related capital expenditure. The stock responded with
new highs, moving to a peak of over $40 in late 2006. At that time, analysts were mainly
supportive citing “confidence in the retailer’s strong management team, improving store
products, and conservative inventory management”.17 ANN’s stock price subsequently
retreated in 2007, along with the rest of the retailing sector. (See Exhibit 2: ANN Stock
Price 1992–2008; Exhibit 3: 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 to shareholders Krill said, We understand
that the economy invariably goes through cycles. We firmly believe that the manner in
which we approach growth and manage our business through these cycles will
differentiate us and determine our success in the market over the long term. In this
regard, we have planned fiscal 2008 cautiously and realistically, focusing on three key
areas—the evolution of our brands and channels, the reduction of our overall cost
structure, and the continued pursuit of growth.18
THE APPAREL RETAIL INDUSTRY
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21 History Prior to the development of a retailing industry, the only option for upperclass wealthy women who desired to be fashionable was to hire local dressmakers to
create one-of-a-kind personalized garments. Women with more limited resources had few
options until 2-72-8 2-82-9the 1800s. Enterprising seamstresses began mass-producing
dresses at that time, utilizing the increased availability of textiles and the invention of the
sewing machine. The increasing availability of diverse products led to the creation of the
variety store, the precursor of the current department store. At the same time,
entrepreneurial seamstresses previously working as personalized dressmakers began to
open specialty stores for fashionable women’s clothing. Thus came the origins of modern
retailing, with both department stores and specialty retailers co-existing in many
downtown locations.
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22 The movement of the U.S. population into the suburbs, along with an increasing use of
automobiles, led to the development in the 1930s and 1940s of planned shopping centers
and highway strips of unified shopping stores. This expansion included the first freestanding stores with on-site parking, as run by Sears Roebuck & Co. The shopping mall
concept expanded further in the 1950s. Usually “anchored” by either supermarkets or
department stores, these shopping centers also allowed specialty and department retailers
to co-exist in the same physical 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 more convenient and quicker service,
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alternatives to traditional ‘brick and mortar’ shopping centers appeared. They included
non-store direct mail order, infomercial and shopping channel TV venues, and online
options. Many retailers also made a strategic decision to create specialty clothing
departments and focus on items such as sports wear, or appeal to specific niches such as
either large-sized or petite women.20 In addition, response to the threat of discounter
department stores like Target and Wal-Mart prompted some established specialty firms to
create separate divisions focused on lower priced fashions.21
24 Industry Sectors Practically speaking, industry watchers tended to recognize three
separate categories of clothing retailers. Industry publications 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.
o • Multitier department stores (those offering a large variety of goods, including
clothing, like Macy’s and J.C. Penney’s, and the more luxury-goods focused
stores like Nordstrom’s and Neiman Marcus).
o • 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, and children’s clothing stores (e.g., Victoria’s
Secret for women’s undergarments22, Men’s Wearhouse for men’s suits, Abercrombie
Kids for children aged 7–1423). Women’s specialty stores were “establishments primarily
engaged in retailing a specialized line of women’s, juniors’ and misses’ clothing.”24
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26 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
Ralph Lauren 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 own specialty stores to sell directly to the consumer.
SPECIALTY RETAILER GROWTH: BRANDING
CHALLENGES
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27 Unlike department stores that sold many different types of products for many types of
customers, specialty retailers focused on one type of product item, and offered many
varieties of that item. However, this single product focus increased risk, as lost sales in
one area could not be recouped by a shift of interest to another entirely different product
area. Therefore, many specialty retailers constantly sought out new market segments (i.e.,
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niches) that they could serve. However, this strategy created potential problems for
branding25. A participant at the 2007 NRF convention commented, Brand building,
acquisition, and tiering is hotter than ever in retail and consumer products—so much so
they may be contributing to shorter life spans for some brands and perhaps diluting the
value of all. In any event, the massive proliferation of brands in recent years—some out
of thin air, others even reborn from the grave—brings with it a minefield of potential
dangers.26
28 Gap, Inc. was an example of a specialty retailer that had added several brand
extensions to appeal to different customer segments. In addition 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 million to open a chain for upscale
women’s clothing called Forth & Towne, which closed after only 18 months. The store
was supposed to appeal to upscale women over 35—the “baby boomer” segment—but,
instead, the designers seemed “too focused on reproducing youthful fashions with a more
generous cut” instead of finding an “interesting, affordable way” for middle-aged women
to “dress like themselves.”27
29 Chico’s FAS, Inc. was another specialty retailer who tried brand expansions. Chico’s
focused on private-label, casual-to-dressy clothing to women 35 years old and up, with
relaxed, figure-flattering styles constructed out of easy-care fabrics. An outgrowth of a
Mexican folk art boutique, Chico’s was originally a stand-alone brand. Starting in late
2003, Chico’s FAS decided to promote two new brands: White House/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, offering fashion and merchandise in black and
white and related shades. Soma was a newly developed brand offering intimate apparel,
sleepwear and active wear. Each brand had its own storefront, mainly in shopping malls,
and was augmented by both mail order catalog and Internet sales. The idea was that the
loyal 2-112-12Chico’s customer would be drawn to shop at these other concept stores,
expecting the same level of 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, a downturn 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, partly because of “fashion missteps” and
lack of sufficiently new product designs. The company’s response was to create brand
presidents for the three divisions to hopefully create more “excitement and
differentiation.”28
32 In an attempt to better manage the proliferation of brands, many firms, similar to
Chico’s, created an organizational structure where brands had their own dedicated
managers, with titles such as executive vice president (EVP)/general merchandise
manager, chief merchandising officer, or outright “brand president.”29 Since each brand
was supposedly unique, companies felt the person responsible for a 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) and rebuilt A&F to represent the
“preppy” lifestyle of teenagers and college students aged 18–22. In 1996 Limited Brands
spun A&F off as a separate 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 the casual 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
WOMEN’S SPECIALTY RETAIL—COMPETITORS AND
THE “OLDER WOMEN” SEGMENT
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34 The National Retail Federation, a Washington, D.C.-based trade group, reported that
the retail niches showing the greatest growth in 2006 were department stores, stores
catering to the teenage children of baby boomers, and those apparel chains aimed at
women over 35.32 The four major women’s specialty retailers who were trying to target
older upscale shoppers were Ann Taylor, Chicos FAS, Coldwater Creek and Talbots.
Ann Taylor was the only one of these with a significant brand extension for the younger
professional, but all four were promising a shopping environment and merchandise
clearly focused on women over 35. (See Exhibit 7: Selected Retail Performers.)
35 Talbot’s CEO Trudy Sullivan noted, Nobody is clearly winning in the 35+ consumer
space right now … we need to absolutely wow her with this irresistible product and none
of us have done that.33
36 This group of women, born between 1946 and 1964, was part of the “baby boomer”
demographic, and the purchasing power of these women had not gone unnoticed.34
Accounting for nearly half of the $102.7 billion in women’s clothing purchases in 2007,
these women were very diverse, ranging from “traditional types who prefer flat shoes and
ankle-length skirts to women who resemble characters from Desperate Housewives.”35
37 To respond to this diversity in the marketplace, woman’s specialty retailer Talbot’s
Inc. acquired catalog and mail order company J.Jill Group in 2006. J.Jill was a woman’s
clothing specialty retailer offering quality casual fashion through multi-channel mail
order, Internet, and in-store venues. J.Jill targeted women ages 35–55, while Talbot’s
focused on the 45–65 age group. The acquisition positioned Talbot’s as “the leading
apparel retailer for the highly 2-142-15coveted age 35+ female population,” and allowed
the company to “protect the distinct identity of each brand, while maximizing the
synergies” in its business model.36
38 Coldwater Creek, with its large jewelry, accessory, and gift assortment in addition to
apparel, targeted women over 35 with incomes in access of $75K by appealing with a
Northwest/Southwest lifestyle approach that included a group of Spa locations.
Coldwater’s customer was not considered “trendy” by any means: “She’s never going to
be a fashion leader … but she wants to look modern.”37 Coldwater Creek created a
common brand identity for its three distribution channels: catalog, Internet, and in-store
shopping. This distinct brand image yielded the best shareholder return in the group
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(Coldwater Creek, Chico’s FAS, Ann Taylor, and Talbot’s) since 2002, with a 33.8%
revenue growth in fiscal year 2006.38
39 Chico’s FAS was one of the first to introduce the concept of apparel designed for the
lifestyle of dynamic mature women who were at the higher age end of the boomer
demographic.39 Chico’s, along with Coldwater Creek, was one of the recipients of the
50+Fabulous Company award in 2007, an award that promoted positive images of
women who were in their 50’s or older. The founder of 50+Fabulous had established this
award to promote “the value of 50+ women in the workplace and beyond”, noting,
“companies have been slow to recognize the vast potential” of this demographic.40
40 In August of 2007 Kay Krill announced ANN would be creating a new chain of stores
expected to launch sometime in 2008 or 2009, targeting this “older women” segment,
stating, While there are a number of companies that currently play in the broader boomer
market, we believe that this particular segment has been the most significantly
underserved and a huge opportunity for us.41
41 Some analysts wondered about this move into an overlooked but risky market that
“has tripped up several competitors like Gap.” They pointed out that although ANN’s
clothes were expected to be more fashionable, the company still faced stiff competition,
made even tougher given the uneven performance of AT and LOFT.42 In 2008, as a result
of the overall economic conditions, Krill announced that this new concept offering would
have to be delayed at least until 2009.43
ANN OPERATIONAL INFORMATION44
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42 At the end of fiscal year 2007, ANN had 929 stores in 46 states, the District of Columbia and Puerto Rico, with flagship locations in New York, San Francisco, and Chicago. 2152-16(See Exhibit 3: Stores Operational Data for specifics.) The company had also had
an online presence since 2000, and transacted sales at www.anntaylor.com and
www.anntaylorLOFT.com. This “very profitable” Internet channel was considered “a
meaningful and effective marketing vehicle for both brands”, representing 10 percent of
AT sales, less than that for LOFT, and was a way for ANN to reach out to the
international market.45
43 Substantially all merchandise offered in ANN’s stores was exclusively developed for
the company by its in-house product design and development teams. ANN sourced
merchandise from approximately 231 manufacturers and vendors, none of whom
accounted for more than 4 percent of the company’s merchandise purchases in Fiscal
2007. Merchandise was manufactured in over 15 countries, including China, the
Philippines, Indonesia, Hong Kong and Thailand.
44 ANN’s planning departments analyzed each store’s size, location, demographics,
sales, and inventory history to determine the quantity of merchandise to be purchased for
and then allocated to the stores. The company used a centralized distribution system with
a single warehouse in Louisville, Kentucky. At the store level, merchandise was typically
sold at its original marked price for several weeks. After that, markdowns were used if
inventory did not sell. Store planners recognized that the lack of inventory turnover could
have been because of poor merchandise design, seasonal adaptation or changes in client
preference, or that the original price points had been set incorrectly.
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45 Recent ANN initiatives had focused on improving supply chain speed, flexibility and
efficiency. Reduced floor inventory levels combined with the use of new “quicksourcing” software were meant to help create quicker inventory turns. Faster turns would
lead to continual updating of floor merchandise and a greater emphasis on “full-price
selling”.46 As a result, ANN was hoping to see fewer markdowns and higher margins.
The new “quick-sourcing” software was just one example of continued efforts to improve
the company’s information systems.
46 ANN had initiated a real estate reinvestment program focused on enhancing the look
and feel of 43 stores in 2005, in a move toward the “store of the future”.47 In addition, the
firm had begun a real estate expansion program designed to reach new clients either by
opening new stores, relocating stores, or expanding the size of existing stores. Store
locations were determined on the basis of various factors including
o • Geographic location
o • Demographic studies
o • Anchor tenants in a mall location
o • Other specialty stores in a mall or specialty center location or in the vicinity of a
village location
o • The proximity to professional offices in a downtown or village location
47 Two potential concerns were emerging for ANN as a result of its recent investments in
store expansion and remodeling. First, the increasing sales volume threatened to put
stress on the company’s internal distribution system. The distribution center in Louisville
had been investing in incremental improvements through automation and software
integration. However the distribution center had only sufficient capacity to supply 1,050
stores. After that, ANN’s logistical experts cautioned that the building footprint would
have to be expanded.48
2-162-17
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48 A second concern was whether projected earnings, given economic weakness, would
actually be able to cover the projected long-term lease obligations that were being added.
One analyst had warned, Store expansion is a risk for all apparel retailers. Gap Inc., for
example, spent massively to add stores in the 1990s and … the stores became a big cost
overhead once Gap’s clothes stopped selling well.49
ANN TAYLOR’S BRAND IDENTITY
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49 When ANN went public in 1991, the Ann Taylor brand, with its historically loyal
following, was a candidate for brand extension. At one point in its history, the company
had five separate store concepts: Ann Taylor (AT), Ann Taylor’s Studio Shoes, Ann
Taylor LOFT, Ann Taylor Petites (clothing for women 5′4″ and under), and Ann Taylor
Factory. In addition, ANN’s management had experimented with a make-up line and
children’s clothes. By 2005, the company had closed the shoe stores, reduced the
accessories inventory that stores carried, and eliminated the make-up line. However,
ANN was still offering petites, as a separate section in the AT and LOFT stores, and
experimenting with children’s clothes and sleepwear through the LOFT division. A
separate maternity section in selected LOFT stores was also undergoing a trial period.
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50 Since 1999 analysts had warned that ANN needed to be wary of cannibalization
within the brands. The analysts speculated that customers might turn away from Ann
Taylor (AT) in order to buy at LOFT. ANN had always tried to respond to the customer
with “wardrobing”, a philosophy of “outfitting from head to toe”, combining relaxed
everyday wear with more dressy pieces.50 Since LOFT sold more relaxed but still tailored
items at a lower price than AT, it was possible that some of AT’s customers shopped at
LOFT for things that they previously would have bought at AT.
51 The industry was used to brand extensions such as Gap’s Old Navy chain. In contrast
to Gap, LOFT used “Ann Taylor” in its name, reinforcing the perception of customers
that they could get the same brand for less. As one analyst put it, It’s not clear that the
Ann Taylor customer will continue paying $88 for a silk cardigan sweater when she
knows she can pick up a similar cardigan for $39 … a few blocks away at LOFT.51
52 As new CEO in the fall of 2005, one of Krill’s first actions was to recruit Laura Weil
to a new position as Corporate Operations Officer (COO). Weil came from American
Eagle Outfitters where she had focused on financial issues involving real estate, pricing,
sourcing, and logistics. In addition, Weil handled the divestiture of underperforming
assets. In her role as COO at ANN she would be expected to “focus on inventory
management and merchandise planning, information systems and supply chain
operations”.52
53 The appointment of Weil and four other staff changes reconfigured ANN’s top
management structure. Krill created three positions that reported directly to her—COO,
Executive 2-172-18Vice President (EVP) of planning and allocation, and EVP/chief
marketing officer. The three additional positions provided specific expertise while still
allowing Krill to “lead both divisions [AT & LOFT] in a more hands-on-way”. Krill then
focused on merchandising and marketing, especially brand differentiation.53 AT and
LOFT continued to have separate EVP’s for merchandising and design, and Senior Vice
Presidents for divisional marketing, design, sourcing and store direction.
54 Krill had asked her staff to spend time with ANN customers and develop “brand
books” or profiles of the typical Ann Taylor (AT) and LOFT clients.54 The “Ann” (AT)
marketing profile was of a married 36 year-old working mother with two children and a
household income of $150K. She would lead a busy, sophisticated life. When giving a
presentation to a client, she’d wear a formal suit with a blouse, not a camisole,
underneath, and her idea of dressing down at work might be a velvet jacket with jeans.
55 In contrast, the typical LOFT client was married, in her 30’s with children, worked in
a laid-back less corporate environment, and had a household income between $75K and
$100K. She would call her style “casual chic” and might wear pants and a floral top with
ruffled sleeves to work, while on the weekend she would wear a printed shoulder-baring
halter top with cropped jeans. Krill had always felt that both AT and LOFT were
recognizably different from one another. In 2005, Krill stated that there was “a pretty
clear differentiation”, with “special occasion and work primarily being the focus” at AT,
and “more relaxed, separates and fashion” at LOFT.55
56 In support of the AT brand, the company also expanded its focus on special events
with the introduction of its Celebrations collection. The company introduced
Celebrations into the AT stores as a line of classic, elegant dresses and coordinating
accessories for special occasion, such as weddings and engagement parties. Of particular
interest to long-term ANN customers was the introduction of dye-to-match sashes and
accessories for bridesmaids, with fully coordinated jewelry and shoe styles, offered in
petites as well as regular sizes (petites being women shorter than 5′4″ in height). The
expansion of the selection in petite sizes, especially online, was seen as a “great
opportunity”, since some department stores had reduced their petite offerings.56
TOP MANAGEMENT TEAM TURNOVER
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57 As Krill was working to resolve branding issues between divisions, improve
efficiencies and find ways to grow the company, she also had to deal with a variety of top
management team resignations. In the spring of 2006 COO Laura Weil left abruptly after
only a few months. Weil’s many responsibilities at ANN included merchandise planning;
information systems; all supply chain operations including sourcing, logistics and
distribution; real estate; construction and facilities, and purchasing; as well as finance,
accounting and investor relations.57 Krill decided not to replace Weil and eliminated the
position on the organizational chart. Krill assumed leadership of LOFT again, playing a
dual role while searching for a new divisional president.
2-182-19
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58 Krill commented, “I believe that building a winning team is critical to fully realizing
our company’s full potential”.58 However, it appeared that creating that “winning team”
was taking longer than anticipated. One source wondered about the pressure on Krill,
especially since she didn’t have a “strong operating partner” to help with merchandising
and other creative decisions.59
59 Even though Krill had made differentiation between AT and LOFT a top priority,
analysts continued to challenge Krill’s efforts, noting that it had been hard to get both
divisions moving forward simultaneously. As one analyst said “it just seems like it’s a
struggle to get both of these divisions firing on all cylinders at the same time”.60 Krill
responded to the comment that consistency had been a problem: The notion that Ann
Taylor got soft because I was supporting the LOFT team is really a completely inaccurate
comment. As CEO of the company I have to spend my time on many things, and if one of
our businesses is softening in any way I will focus extra time on it.61
60 In August 2007, long-time CFO James Smith and Chief Marketing Officer Elaine
Boltz both resigned, and then in July 2008 long-time Chief Supply Chain Officer
Anthony Romano also left to “pursue other interests”62. Although she had hired a new
CFO and Chief Marketing Officer in late 2007, these departures left Krill once again
without a lot of depth at the top.63 However, Krill had had experience with management
turnover as she had had to deal with seven resignations, seven new hires, and two
promotions in her upper management team over two years’ time. As of the end of 2008
she had finally filled the AT and LOFT Divisional President positions. (See Exhibit 8:
Summary of Personnel Changes at ANN.)
FUTURE PLANS AND INITIATIVES
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61 As part of a multi-year restructuring program begun in 2008, ANN was focused on
reducing excess costs, and planned to do so by closing underperforming stores,
downsizing ANN’s corporate and divisional staff by eliminating approximately 260
positions, reducing executive compensation bonus payout as a result of higher
performance goals, and consolidating “all purchasing activities under a centralized
strategic procurement organization to leverage scale”.64 The restructuring program
included a suspension of the share repurchase plan and a scale back of capital spending,
and was expected to result in ongoing annualized savings of approximately $80 to $90
million.65 The pre-tax costs of this restructuring were forecasted to be $65 to $70 million
over the period from 2008 to 2010, but Krill felt 2-192-20the company was “well
positioned to support our brands and focus on strengthening our underlying business” due
to the “debt-free balance sheet and approximately $295 million in available liquidity”.66
•
62 The company planned to open fewer stores in 2008 than in previous years. The shift of
emphasis was planned to “aggressively invest in factory channel expansion” for both the
existing Ann Taylor Factory Stores and a new Ann Taylor LOFT factory outlet concept.67
These stores offered merchandise 25 to 30 percent less than at the AT or LOFT regular
stores. The outlet or factory business had delivered “strong gross margin” previously, and
was considered “an important growth driver” even though “the general economic
softness” was “having some impact on this price sensitive consumer”.68
63 Krill had also announced that the Collections line, an augmentation of the
Celebrations bridal and special occasion wear line introduced in late 2006, would have its
own department within the Ann Taylor (AT) stores. With offerings 40 percent more
expensive than regular AT merchandise, it would be an effort to “grab more affluent
working women who 2-202-21weren’t feeling pinched in the pocketbook,” and would be
built around the suits and dresses that created Ann Taylor’s reputation. The plan was to
introduce this upscale, expensive product in some of the top-selling Ann Taylor locations
around the country, where AT was already “sitting next to Neiman’s, Prada, Gucci,”
since, “we know there’s a client there who has an appetite for more upscale, expensive
product.”69
64 Krill also announced that ANN would be developing an exclusive beauty business.
The company introduced Ann Taylor label fragrance and bath and body products as a
separate department within AT stores for the 2007 holiday season, and scheduled the
launch of beauty products in the LOFT division during 2008. Krill believed that specialty
stores with only a 10 percent share of the beauty products market were in a position to
add to that share. Responding to comments about ANN’s previous foray into the cosmetic
business, Krill said, “in the past, we’ve dipped our baby toes in, and have not done it
justice. Now we are trying to find meaningful ways to grow the business”.70
65 Krill planned to eventually expand the beauty collection into every ANN brand.
Analysts predicted this introduction could generate up to $15 million in sales in its first
year, since it represented a high-margin category that traditionally drew greater repeat
traffic than apparel. It could also be an important gift business, especially around the
holidays. First quarter results in 2008 showed that although the fragrance line had done
well, the body care component had not. The line of maternity clothes in selected LOFT
stores was also still undergoing a test of this product’s viability.71
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66 Regarding ANN’s new initiatives, one brand consultant commented, Tweaking a few
elements of a product line doesn’t work. Branding is far more than just product. It is
about the entire entity and the perception that entity (in all of its components) has created
in the consumer’s mind … The most successful brands in any category never fail to cater
to and reward their core customers all the time. [And, responding specifically to the
announcement of the upscale Collections line,] … trying to be too many things to a
diverse audience under one roof is a losing business strategy for an established brand.72
67 Krill responded, The Company remains firmly committed to long-term growth, and
we believe we have significant untapped potential ahead of us …. For fiscal 2008, we are
relentlessly focused on strengthening our business, improving our gross margins with
tight inventory management, executing our restructuring program with excellence, and
pursuing growth in a measured and prudent manner. Beyond 2008, we are confident that
we have positioned the Company for long-term growth and success.73
68 Krill appeared to be confident in her strategies for the future. However, the retail
environment was increasingly unpredictable. Had Krill’s new strategies been well
considered, given the ongoing challenges of AT and LOFT, and the difficult specialty
retail environment in 2008? What else could Krill have done to create growth? Should
ANN have focused on improving its current businesses, or on developing new initiatives?
Assignment Grading Rubric
Course: MT460
Unit: 8
Points: 45
_________________________________________________
Unit 8: Strategic Control Systems
Case Study Analysis Paper:
Prepare a case study analysis of Case 2, Ann Taylor: Survival in Specialty Retail, found in the Cases section of your
digital book.
Closely follow the Case Study Analysis Template by clicking on the hyperlink. Please utilize this template format for this
Assignment. Use titles and subtitles per the format for readability purposes.
Focus upon the idea of the company’s balanced scorecard and control systems to guide and monitor its strategy
implementation in order to help move Ann Taylor competitively forward. Please include the SWOT Analysis with the four
quadrants in the appendix of your paper (after the References page). You can find the SWOT Analysis template in Doc
Sharing.
Assignment Checklist:
•
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Conduct a SWOT Analysis on the case study company’s current lack of strategic control.
Create a case study analysis focusing on the company’s challenge relative to strategic control through a balanced
scorecard and implementation.
Format
The case analysis should be 2--3 written pages in length (not including the formal title page and References page),
double-spaced. Ensure that you use correct spelling, grammar, punctuation, mechanics, and usage. The citing of sources
(text and list references) should use the current APA format and style.
For assistance with APA format and citation style visit the Kaplan Writing Center.
Directions for Submitting Your Project
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•
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Before you submit your project, you should save your work on your computer in a location and with a name that
you will remember.
Make sure your Assignment is in the correct file format (Microsoft Word .doc or .docx).
Submit your completed document to the Unit 8 Assignment Dropbox.
Need help with the Dropbox? Click on the Dropbox Guide link under Academic Tools tab.
MT460 Unit 8 Assignment Grading Rubric
Maximum
Percent
Criteria
Maximum
Points
Content
Answer provides correct and complete
information demonstrating critical
thinking:
50%
•
•
Conduct a SWOT Analysis on
the case study company’s
current lack of strategic control.
Create a case study analysis
focusing on the company’s
challenge relative to strategic
control through a balanced
scorecard and implementation.
22
Analysis and Critical Thinking
30%
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•
•
•
•
•
•
Synopsis of situation
Key issues
Problem definition
Alternative solutions
Select a solution
Implementation
Recommendations
14
15%
Writing Style, Grammar
6
5%
APA Format and Citation Style
3
Running head:
Unit Case Study Analysis
Kaplan University
School of Business
MT460 Management Policy and Strategy
Author:
Professor: Dr.
Date: ,
1
2
Name of Case Study
Company Name:
Topic of the Week:
Synopsis of the Situation
.
Alternative Solutions
1.
2.
3.
Selected Solution to the Problem
.
Implementation
Recommendations and Conclusion
3
4
References
5
Appendix
Figure 1. SWOT Analysis based upon the topic of the week for the company case.
Strengths
1.
2.
3.
Weaknesses
1.
2.
3.
Opportunities
1.
2.
3.
Threats
1.
2.
3.
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