2013

[NAMES REMOVED]

Contents

Case Overview............................................................................................................2

Central Case Issues....................................................................................................3

Ann Taylor’s Success..................................................................................................4

Key Changes in the General Environment..................................................................6

Ann Taylor within the Industry....................................................................................7

Analysis of Ann Taylor Companies using Porter’s Five Forces....................................8

Threat of New Entrants...........................................................................................8

Bargaining Power of Suppliers.................................................................................8

Threat of Substitute Products/Services...................................................................9

Bargaining Power of Buyers....................................................................................9

Rivalry Among Existing Competitors.......................................................................9

Ann Taylor and Competitive Strategy.......................................................................10

Ann Taylor Stores Internal Resources.......................................................................11

Ann Taylor Stores Branding Strategy.......................................................................11

Ann Taylor’s Strategic and Corporate Strategy........................................................13

Ann Taylor’s Growth Strategy...................................................................................13

Conclusion................................................................................................................15

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Case OverviewFor upper class women to be fashionable, they used to have to hire dressmakers to

create their unique, stylized garments. This started to change when seamstresses and

dressmakers started mass producing dresses. This led to the emergence of retail stores: some of

them specialty stores and some of them department stores. A store in the specialty store sector,

Ann Taylor, was founded in 1954. Ann Taylor was a specialty store for classy, professionally

dressed women. The two major staples of Ann Taylor’s wardrobe line are the “classic basic

black dress” and the “woman’s power suit”. With this concept they developed a mail-order

catalogue business, a fragrance line, and shoe stores in 1994. When their catalogue business

failed in 1995, they developed Ann Taylor LOFT as a way address the younger, professional

consumer with a more casual, cost-conscious wardrobe option. In 1998, ANN, also branched out

into a third division, Ann Taylor Factory. This division offered Ann Taylor items “off the rack”

at prices 25-30% lower than the Ann Taylor division prices. With the same items offered for less

and consumers trending toward a more casual work attire style, the LOFT and factory divisions

seemed to be cannibalizing profits from the original Ann Taylor division. While Ann Taylor was

facing the pressure that division branches had caused, there was also pressure from competitors

in the market: Talbots, Coldwater Creek, and Chico’s. Stylistically, consumers were trending

toward a more casual style which was beneficial to Ann’s competitors. Ann’s competitive edge

was that LOFT’s casual style was aimed at a younger crowd whereas their competitors were only

focused on women over 35. Ann Taylor also faced problems with the declining economy. If

consumers were watching their budget, they weren’t likely to spend money on higher priced

clothing. Some consumers felt the constrictions placed on their pocketbooks and opted for

purchases at department stores or discount stores instead of specialty retail. Executives at Ann

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Taylor were not worried and said that their customer base was made up of upscale women that

weren’t likely to be feeling the pressures of the declining economy, and were willing to spend a

lot of money on quality clothing. Ann’s investments in branch extensions and company

expansion brought about two major concerns: the internal distribution system would be pressured

due to increased sales volumes, and if projected earnings would be enough to cover Ann’s lease

obligations due to the economic conditions. The company went through a restructuring, in 2008,

where they wanted to keep both brands, Ann Taylor and LOFT, evolving while keeping prices

low and pursuing growth. In attempts to accomplish these goals they closed underperforming

stores and eliminated 260 corporate and divisional staff positions throughout the company.

Central Case IssuesAnn Taylor Stores Corporation (ANN) has a huge presence in the market for professional

women who have disposable income and are ready to take on the current fashion trends, while

still respecting the classics. With that being said, ANN has had their share of struggles and

competition in recent years and fought through it, head on, with the help of their CEO, Kay Krill.

In 2008, with the economic climate in what seemed to be a downward spiral, ANN faced

new challenges. Companies, like ANN, had to evaluate their operations to see what changes

could be made in order to operate efficiently during this time. Kay Krill was already ahead of

the curve with changes to stimulate growth as well as changes within the company that would

see it through this tough economic climate. Of course, Krill focused on keeping the two main

brands of ANN afloat- Ann Taylor and Ann Taylor LOFT. She implemented new departments

such as their (now popular) maternity line, a line of personal beauty products, and a new concept

store for women 55-64 years of age. Unfortunately, only one of those departments flourished in

this economic downturn and Krill had to make changes elsewhere within the firm.

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Kay Krill had to make the difficult decision to restructure the company in order to reduce

the firm’s costs. This restructuring included laying off staff at the company’s headquarters,

reevaluating executive bonuses and even consolidation of positions within the company.

Although in the short term, this seemed like a brash move on Krill’s part, it led the company to

regain its footing in the market in the long term.

In addition to the financial problems faced nationwide, the company was also facing stiff

competition from other popular stores within the market. Unlike many of their competitors,

ANN specialized in one area without much deviation. The company’s main store Ann Taylor

focuses on mature, sophisticated women who dress for success in updated classics. Their LOFT

store brings similar styles as their flagship store, but with a more casual feel and a lower price

point. This LOFT store attracts a younger crowd while still providing the signature Ann Taylor

style and sophistication. However, even with the combination of both stores, the company still

does not have the majority of the market. As the CEO from Talbot’s states, “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.” The competition faced by ANN includes such

retailers as Talbots, Chico’s, Gap, and the enormous Limited Brands. All of these competitors

have a similar line of clothing as ANN while having a lower price point. The thing that sets

ANN apart from the rest is the quality, luxury, and overall brand that Ann Taylor provides. Still,

even with this, Krill still feels that the company has untapped potential that will allow them to

flourish and become an even bigger name.

Ann Taylor’s SuccessThe summer of 2008 was an extremely difficult time for the economy but specifically for

the retail market. Many people didn’t have enough money to buy “luxury” items. Even though

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Ann Taylor had this disadvantage, ANN has managed to increase its sales from 2004 to 2008. In

2004 total company sales totaled $1,587,700. Every year after 2004, ANN has managed to

increase their sales and by 2008, sales totaled $2,396,500. ANN has successfully increased sales

when the 2008 situation was “the most unpredictable environment in his 39-year retail career”,

said Chief Executive of J.C. Penney’s. Compared to sales verses ANN’s immediate competitors

like Talbots, Chico’s and Coldwater Creek, Ann successfully brought in more revenue than any

of the three in 2007. ANN had total revenue of $2,396,500 in 2007 and impressively operates

fewer stores than Talbots and Chico’s. During this time, ANN appeared in the Women’s Wear

Daily “Top 10” lists of selling dresses, suits and eveningwear as well as appearing in the “Top

20” most publically traded retail stores. ANN seems to continue to impress through a difficult

financial period, which further proves why ANN is one of the most successful retail companies.

In addition to beating other retail companies in sales and achieving high rankings on prestigious

list, ANN creates competition within the company itself. In October of 2004, LOFT out sold the

main line of clothing ANN in overall sales and opened up more retail stores which brought the

total square footage for LOFT over the total square footage of ANN. Creating competition

within the company is a great way to challenge the sales directors of each company to strive to

increase sales and to never settle. Continuing the trend of creating competition within the

company, in 2008 Ann Taylor Stores Corp. recorded $130,603 in individual revenue from the

company’s employees. The sales revenue recorded beats all other rival companies except

Talbots, but Talbots had a net income of negative $188,800,00 while Ann Taylor had a net

income of a positive $97,300,000. Through 2004 to 2008 Ann Taylor has been extremely

successful because of their recorded internet sales of $189.5 million in 2011.

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Key Changes in the General EnvironmentThe biggest key change in the general environment is the increase in popularity and

functionality of today’s technology. Retailers are having to “enter new water” when considering

how to market their goods and services. This is caused by the rapid expansion of the technology

sector with the introduction of new smartphones, tablets and computers, seemingly every month.

The expansion now allows the consumer the opportunity to shop from virtually anywhere

without ever entering a store, or, if they do enter a store, digitally produce coupons with the press

of a button. Retailers now have to consider how to reach the fast paced and always on the move

consumer from the palm of their hands. Many retailers have switched their entire point-of-sale

system to a handheld tablet carried around the store by sales personnel. Others have sent

mailings to consumers with scan codes that allow smartphone owners to view and download the

latest deals without having to clip a single coupon. This strategy is proving very effective for

stores that are geared toward the younger crowd because naturally they are up with the cutting

edge technology. How does this fair with consumers that frequent ANN? Unfortunately this

strategy may prove difficult for ANN because of their target market. ANN generally tailors to

women aged 25 to 55, which can be both positive and negative when it comes to technology.

For the female business executive just beginning a career, the technological boom will be

welcomed and allow her to shop quickly and conveniently after a busy day at the office. For

women that fall into the 40-55 age range, technology may not be as important as it is to the

younger crowd possibly causing ANN to lose out on modern strategy. Today, ANN has even

expanded their age range to include the 55-64 year old female, which makes using technology to

reach them even harder. All in all, these new technological products will allow certain retailers

to excel while others do not. They will cause retailers to really change their approach on

marketing their products and what to consider when implementing these new systems.

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Another key factor affecting the general environment today is price. Many consumers are

looking for the best value or deal when shopping, especially when it comes to clothing. The

introduction of factory or outlet stores has proved vital to many upscale retailers like Ann Taylor,

Gucci, Brooks Brothers and many others. ANN, especially, saw a very significant increase in

gross profit with the introduction of Ann Taylor Factory stores in 1998. With many retailers

following suit, ANN then turned attention to the wealthier side of the market. They did this by

introducing product lines that were often 40 percent more expensive in attempts to appeal to

“more affluent working women who weren’t feeling pinched in the pocketbook”. ANN always

shared the belief that there will always be a client who has an appetite for more upscale and

expensive products. These changes have affected retailers by causing some to restructure their

pricing strategy. This is caused by rival companies offering the same type of product at a better

value. Price will always affect sales and the person with the most power when it comes to price

is the consumer.

Ann Taylor within the IndustryThere are three types of categories that the clothing industry can be broken into. The first

is discount mass merchandisers. Their purpose is to offer clothing at a low price. Examples of

discount mass merchandisers are TJ Maxx, Marshalls, and Kohl’s. The second category of the

clothing industry is Multi-tier department stores, who strive to offer a large variety of goods to

consumers of all ages. Examples for this category include Macy’s, J.C. Penney’s, and Sears.

The last category is specialty retail stores. Specialty retail is a “retail business with a narrow but

deep product line likely to appeal to a selective group of buyers” (Houghton Mifflin Harcourt

Publishing Company). Examples of specialty retail stores would be Chico’s, Talbots, Coldwater

Creek, and Ann Taylor. In the case of Ann Taylor, their selective group of buyers is tailored to

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“busy socially upscale women”. Their focus was to appeal to women who were more inclined to

make expensive wardrobe purchases that fit all aspects of their life. Kay Krill, Chief Executive

Officer of Ann Taylor said “We understand that a woman expresses herself through what she

wears- at work, at home and at play… To meet her needs, we design pieces for her life and her

changing roles to help her look and feel confident and beautiful.” (ANN INC.) Ann Taylor’s

staples, the “classic basic black dress” and the “woman’s power suit” were taken and developed

into many beautiful variations that got put in their collections.

Analysis of Ann Taylor Companies using Porter’s Five ForcesThreat of New Entrants

There are three main competitors in the market for Ann Taylor, they include, Chico’s,

Coldwater Creek and Talbots. The threat of entry into their market segment is relatively low

compared to others simply because of the nature of the products offered. These four retailers

offer high end business executive and casual wear for women aged 25-55. Department stores

and other large retailers cannot offer goods such as these, which allows these four competitors to

safely capture a large majority of their target market. With such high prices and quality of

goods, a new entrant would need almost an entirely new spin on the female business executive to

make any sort of impact.

Bargaining Power of Suppliers

This area may be tricky for the four players in the Ann Taylor market because each

retailer confides in a select number of designers. Since these designers usually offer high end

and high fashion clothing, there will be little resistance from the retailers they are selling to. The

retailers also make more profit on the marked up clothing, so paying the higher price only gives

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them a higher profit. The supplier and retailer relationship in this market almost goes hand-in-

hand.

Threat of Substitute Products/ServicesSince there is a limited market for high end business and casual women’s attire, there is

also a limited threat of substitute products. Ann Taylor as well as Talbots both offer a head-to-

toe wardrobe package for women’s suits and casual wear that large retailers (JC Penny, Macy’s,

Marshall’s, etc.) simply cannot compare to. Though these packages are high priced, the retailers

and consumers have an understanding in the value of the goods being offered. There are few

substitutes that can offer the same value as all four retailers in this market.

Bargaining Power of BuyersThere is somewhat of an understanding by the consumer when it comes to high end

goods that what you are paying for is not only the value, but the name. Ann Taylor, Talbots,

Chico’s and Coldwater Creek are all sophisticated, high-end brands that women are proud to

wear. So, in turn, these retailers have the opportunity to charge more for the clothing because

consumers will pay to wear designer clothing. The entire market can be summed up by ANN’s

strategy that “more affluent working women who weren’t feeling pinched in the pocketbook”

will buy their clothing. There is no need to bargain for their clothing and if the consumer feels

that need, they can easily travel to an Ann Taylor or Loft factory store to spend less on the same

name. The only sacrifice being made may be that the clothing offered there is from a previous

collection that is no longer offered, but there is still value in it.

Rivalry Among Existing Competitors

Though the four retailers- Ann Taylor, Talbots, Chico’s and Coldwater Creek- all

compete in the same market segment; it is evident that each store offers a unique spin on the

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upscale casual women’s clothing line. For example, Coldwater Creek offers casual “outdoorsy”

and contemporary clothing whereas Talbots focuses more on the high society and classic

clothing. So, in other words, while the four retailers are competitors, each store offers clothing

that is very different from the other. The only similarities are the price asked for the goods and

the age groups that these companies target. Each retailer in the industry has relatively the same

opportunity as the others, depending on which fashion style is in at the time.

Ann Taylor and Competitive StrategyFor Ann, since they’re in the specialty retail sector, it makes sense that they would

choose a focus strategy with a differentiation base to separate them from competition. In

discount mass merchandise it would be important to have a low cost strategy. Multi-tier

department stores could feasibly go with either strategy: differentiation or low cost. But with

specialty retail, people want quality clothing, so the consumer is willing to pay a little more for

that quality. Therefore, choosing differentiation would be the most beneficial strategy for

specialty retailers. Not only does Ann aim at differentiation, they also utilize the focus strategy.

The focus strategy is where the company “attempts to attend to the needs of a particular market

segment” (Strategic Management p. 197). Ann Taylor structures their apparel around the needs

of their client base. “For more than half a century, we have evolved with the needs of real

women who live full, active lives.” (ANN INC.) They anticipate that busy women sometimes

need to go from one event to another. Therefore, they make their clothing versatile enough to

accommodate a woman’s active lifestyle. This focus on the needs of the client makes consumers

feel that the stylists at Ann really “get” women. This is what sets Ann apart in the industry and

helps to differentiate their brand in the highly competitive specialty retail market. To further

help set the company apart, Ann also incorporated petite sections in all her stores to

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accommodate the needs of smaller women who still wanted to have a professional, upscale style,

as well as, at one point, having an altogether separate store concept, Ann Taylor Petites.

Ann Taylor Stores Internal ResourcesANN has a strong and nationally-recognized brand name. Having such a well-recognized

brand name would be considered a strategic advantage. A stronger brand can help a company set

a higher price and gross margin than a brand that does not have such a well-recognized name.

ANN has more than one branch of the company, which enables them to meet the needs of

different types of individuals. If you’re in need of a young look, the LOFT department is best

suited for you. If you need an older look, the Ann Taylor brand is the one you want.

Concentrating on the constant change of preference in women’s attire is very important and

something that ANN should focus on. Keeping a positive, well-known brand name is important

in helping the business be successful as well as helping with the retention their clients, so they do

not lose them to their competitors.

Ann Taylor Stores Branding StrategyThe brand, Ann Taylor, appeals to the working class woman. Ann Taylor offers

professional clothing to more upscale clients. Ann Taylor also offers a line of clothing, branded

as LOFT, that appeals to women who are seeking a more casual style. Both Ann Taylor and

LOFT offer their clothing lines with stores open in 46 states, in Puerto Rico as well as attract

customers internationally via the Internet. LOFT and Ann Taylor offer products that use the

same manufacturing factories and distributing facilities, which saves costs and limits overhead,

while opening more factories and distributing facilities to support both brands. Since LOFT and

Ann Taylor sell to similar customers, their customers buy items from both brands- Ann Taylor

and LOFT. Often times, this results in LOFT stealing sales from Ann Taylor due to the fact that

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consumers can buy less expensive and more casual clothing at LOFT, while, generally, Ann

Taylor offers a more expensive line of professional type clothing. The Top executives at ANN

need to differentiate their LOFT and Ann Taylor products to create at brand gap between the

two. A quote from C. Curan, “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”. It seems that LOFT is obtaining most of the borderline sales due to

the fact that they offer a cheaper price for their items. To continue to expand both LOFT and

Ann Taylor, they need to differentiate their products to make a more clear-cut difference to

ensure that brand cannibalization does not occur in the future. With work attire trending toward

a more casual feel, the LOFT line crosses over into the business world, an area whose sales

should go to Ann Taylor. Ann Taylor needs to market their clothes separately from LOFT and

even space the Ann Taylor and LOFT stores farther apart to ensure that if customers are

shopping at Ann Taylor that they will buy their items there instead of walking down the street to

buy from LOFT. In 2005, ANN had begun to revamp their stores by upgrading 43 stores to a

“store of the future” look. By upgrading the store look, ANN was able to continue to grow by

generating more sales from their stores. With the increase of sales volume, both Ann Taylor and

LOFT needed to be supplied with more goods to keep up with the demand. The distribution

center, located in Louisville, which both LOFT and Ann Taylor share, was being stressed from

the high volume of sales. LOFT and Ann Taylor need to either separate distribution centers, so

that each LOFT and Ann Taylor have their own distribution center, or ANN opens up another

distribution center near the west coast to support the sales on the western half of American. The

second distribution center would enable the Louisville center to focus exclusively on supplying

the eastern half. By doing this it would lessen the stress on the current distribution set up.

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Ann Taylor’s Strategic and Corporate StrategyANN’s strategic decision is having an impact on profits between Ann Taylor and the

LOFT. Customers that had shopped at Ann Taylor are turning to the LOFT because of cheaper

products as well as it being targeted at the younger, more relaxed sector of professional women.

So, Ann Taylor is losing business to its own extension branch. Having the LOFT branch

increases the risk of losing business for Ann Taylor. The up side is that if customers are buying

at LOFT instead, at least profits are staying in the company. If they didn’t have the branch for

the younger more relaxed crowd, they would lose their business to the other companies

competing in their market. ANN tried adding the aforementioned new departments but they

were not very successful and therefore did not last. This took place when the economy was not

doing very well which made the opening of new departments into a difficult venture for the

company.

ANN’s corporate strategy is to improve the supply chain speed, flexibility and efficiency.

During their restructuring, new software was being used to help with the companies’ information

systems. ANN’s planning departments analyzed each store and figured out what their lack of

inventory turnover could have been from- poor design, changes in preferences, or that price

points were not correct. Stores were also being renovated and areas were being studied for new

store locations.

Ann Taylor’s Growth StrategyANN, as a company, has a strong name and an even stronger potential to flourish as a

brand. The case left off in the middle of an economic crisis where there was a big uncertainty on

the future for growth within the brand. Krill had just introduced the Celebrations line of upscale

clothing, a new maternity line, and the new cosmetics line. Unfortunately, only the Celebrations

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and maternity line still exist in some form today within their Ann Taylor main line. With their

two main entities (Ann Taylor and LOFT), the company had focused on tight inventory

management and the restructuring in order to promote long term growth and success. It seems

that Krill had learned that introducing new products in times of economic uncertainty does not

work. Instead of opening new departments, she needed to promote the brands that currently are

successful.

Keeping brand identity in mind, Krill needs to continue building the image and style of

Ann Taylor and LOFT. After posting a major net loss of $333,906,000 for fiscal year 2008, it

became clear that Krill needed to rethink her plans and expand on her restructuring. Although

most of this major net loss can be contributed to the economic climate, the company also needs

to take responsibility for this crippling loss. Such a major net loss hurts the company on many

levels including their overall image. A strong campaign to rebuild the company image is needed

to promote the untapped potential the company has. In addition to a strong image, the company

should cut back on the number of stores opened. Although the company has since built itself up

while posting a net income of $102,590,000 income in fiscal year 2012, underperforming stores

need to be reevaluated and even restructured in order to facilitate growth. Finally, the strongest

point to consider moving forward is the connection to their clients. Without a strong connection

to the client base, there is no hope for survival in the retail world. To the special consumer, it

does not matter if a certain style is “in” or certain colors are “hits” if it is not what they are

looking for in their product. ANN has realized this in recent years and is focusing more and

more on pleasing the client. However, in order to succeed and grow further, the company has to

stay on track with the current needs and wants of their upscale clientele.

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Conclusion ANN has continued to dominate the market for female professional and casual attire since

2004. From this the company has seen myriad changes to its strategic environment and

management systems. More specifically, Ann's total sales revenue has seen an increase from

year to year. This growth may even warrant the expansion of stores, distribution efforts and the

entire management system. In order to continue on this path, Ann must be able to fill the

marketing gaps in technology use for the older portion of their target market. With Ann's great

success also comes the danger of encountering problems such as overflow in distribution, lack of

product differentiation and increase in competition. Fortunately, Ann continues to outpace the

competition in terms of annual total revenue. With an ever growing competition and the desire

for increased market share, there is no need for Ann to ignore attempts to increase profitability.

Ann needs to align itself in a position to have continuous annual success within the women's

professional and casual clothing industries.

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