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“Taylor”ing for Success
Ann Taylor Market Strategy
Santa Clara University MBA
March 10, 2010By Kathleen
Cronin
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Background 50 years: Evolved to become nationally recognized brand
Two businesses: Ann Taylor and LOFT
Designs clothes for well dressed woman, “ANN” Ann Taylor: Chic, professional
Loft: Casual needs of same customer segment
Generates $2B in annual revenue
50 Years Designing Clothes for Well Dressed Woman
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Why Strategic Change Required?Strategic Restructuring Program announced in Feb 2008
• Objective: Reduce costs and improving operating margins• Primary Focus: Enhance brand value and refine marketing campaigns • Totaled $140M in planned investment costs• Expected annualized savings of $125M
Harsh decline in Net Income in 2009• Economic conditions• Company cost structure issues• Failure of design team to meet customer trends• Too focused on expansion
Feb-
03
Aug-
03
Feb-
04
Aug-
04
Feb-
05
Aug-
05
Feb-
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Aug-
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Feb-
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Aug-
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Feb-
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Aug-
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-100,000
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
Stock Market Crash
Excludes $286 M goodwill impairment charge in Jan 09
Strategic Restructuring Program Announced
Restructuring Program Expansion 1
Restructuring Program Expansion 2
Kay Krill named as CEO
Ann Taylor Quarterly Net Income: 2003 - 2009
44
Specialty Women’s Retail Industry Five Force Analysis
MEDIUM / HIGH BUYER POWER
-Low switching costs
-Rewards program deters switching
-Trends easily imitable
-Low backward integration
MEDIUM THREAT OF NEW ENTRANTS
-Create subsidiaries to leverage distribution channels
-Word of mouth drives buying decisions
-No switching cost
-High capital requirements
- Import restrictions could drive manufacture in-house
Low Power of Suppliers
-Asian suppliers cheap; make small profit
-Low supplier concentration: multiple manufacturers make clothes
-Low threat to forward integrate
-Medium for Lack of substitutes
Medium Threat of Substitutes
-Changing lifestyles allow less time to shop
-Increasing usage of e-shopping
-Economic decline caused switch to discount stores
-V-P tradeoff: Low, but promotions will increase V-P
HIGH COMPETITIVE RIVALRY
-Multiple competitors
-Low industry growth
-Low exit barriers due to mfg
-Fairly transparent strategies
(latest trends)
Mature, Fragmented, Unattractive Market
Industry Sales in ‘09: $38B
1-Competitive Rivalry2-Buyer Power
3-New Entrants
4-Substitution Threat5-Supplier Power
High
Low
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Macro Economic Analysis
Global-Expanding internationally
-Asia, Middle East, Russia growing markets
-European market continues to lead w/ fashion
-International firms entering U.S.
Government/Regulatory-Reduced trade regulation
-Reduced cost benefit with offshore manufacturing
-Free Trade Agreement lowering tariffs
-Ship fabric without import duties
-Promotion of operations in certain regions (tax breaks)
Environmental-Push to “Go-Green” in supply chain, product offerings
-Eco-friendly causes transformation on customers
-Now part of brand image
-Develop brands specific to eco-friendly materials
-Causes better material selection
-Monitoring supplier qualification processes
Technological-Point of sale via use of bar code scanners
-Online marketplace allows for real-time transactions
-Social networking primary educational tool
-Hear of product launches, compare prices,
-New sites allow purchases at more of a discount
-Less brand loyalty with internet sales
Economic Factors Driving Increased Competition
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Customer Analysis: Market Penetration
Potential Market (All Females)
Total Available Market
282M
Avg Household Income$32K (25 or older)
144M (51%)
22M (16% of all females)Avg Income $26K (25 or older)
Defined as women with income >$35K Ages 25 & up
Total U.S. Population (in Millions)
Served Market11M (50% of TAM)
Defined as women ages 25-44Income $35K and up
U.S. Social Class Breakdown Upper Class $500K+): 1%Upper Middle (>$100K): 15%Lower Middle($35-$75K): 32%Working Class($16-30K): 32%Lower Class (<$16K): 14%
135M
Age Breakout>65 = 13.5%55-64 = 9.4%35-54 = 29.6%25-34 = 13.5%15-24 = 13.5%<15 = 20.5%
Age Breakout55&above = 20%45-54 = 31%35-44 = 29%25-34= 20%
ANN Targets 50% of U.S. Market
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Customer Segmentation of Women’s Apparel IndustrySEGMENT DEMOGRAPHIC BENEFIT SOUGHT
(Key Values)
1 Fashion Forward, Chic
Primary Age Group: 15-36“Hip Singles”Always up to date on latest trendsFrequent shoppersOften accessorize w/ outfitShops for clothes at primarily specialty retail stores
Embrace new trends, extension of personalityEducated about new fashion Become knowledgeable before purchaseTop preferred product offerings:
Style, proper fit, style, discounts offeredSpend significant portion of income on clothes
2 Modern, Updated Classic
Primary Age Group: 25-44“Professional career woman”Simplicity but occasional wardrobe updateSometimes accessorize w/ outfit – this increasingShops for clothes at mixture of specialty retail stores, department stores, discounted stores
Top preferred product offerings: Proper fit, style, price, ability to mix/match
Looks for versatile, modern clothing staplesPrefer non-iron pieces and ability to wash versus Spends discretionary income on clothesReside in middle; Stay with moderate updatesLess likely to jump on anything trendy
3 Traditional, Conservative
Primary Age Group: 35+“Suburban Mother” or “Conservative Retiree”Sticks to basicsRarely accessorizes w/ outfitOccasional shopper
Desire to save money on clothesTop preferred product offerings: Proper fit, versatility, price, location, & durabilityDoes not follow latest trendsLittle desire to stand out or make statementLooks for all-in-one store at good priceLooks for one clothing that works everywhere
Target Segment: Modern / Updated Classic
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Market Share of Top 15 Competitors
Very Saturated Market
0.7 1.0
1.8 1.1
6.4 0.1
2.7
0.3
1.41.11.0
1.91.01.2
5.0
4.7
1.50.8
43.5
22.8
Ann Taylor
LOFT
Gap -Women - US
Banana Republic - Women - US
Macy's - Women
Anne Klein
Nordstrom - Women
J. Crew - women
Talbots - US
New York and Co
Coldwater Creek
Charming Shoppes
Saks
Dress barn
Kohls - women
TJ Maxx - women - US
Chicos FAS
Cato Group
Other - Department stores
Other - Retail stores
Other Women’s Retail
Other Department Stores
Total Market Value: $107BValues in % Macy’s (US)
Ann Taylor Stores
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Video: THE NEW ANN
Classic. Versatile. Fresh.
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Corporate Leadership
Kay Krill
President and CEO
Appointed Oct 2005
Michael NicholsonExecutive Vice President
CFO and Treasurer
Appointed Jul 2008
Barbara EisenbergExecutive Vice President
General Counsel and Corp Sec
Appointed Mar 2005
Christine Beauchamp
President, Ann Taylor
Appointed Aug 2008
Gary Muto
President, LOFT
Appointed Nov 2008
Brian Lynch
President, Corporate Operations
Appointed Jul 2008
Mary Kay O’Connor WenteSenior Vice President
Director of Stores
Appointed Oct 2008
Lisa AxelsonSenior Vice President
Design
Appointed Oct 2008
Paula ZusiExecutive Vice President
Chief Supply Chain Officer
Appointed Sept 2008
Michael KingstonSenior Vice President
Chief Information Officer
Appointed May 2006
New Leadership Since 2008
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Corporate Timeline
Beauchamp becomes Ann
Taylor President LOFT Maternity pulled from stores, only online
Beauty line introduced
Plans for “Modern Boomers” division
began Strategic restructuring plan began
2005 2006 2007 2008 2009 2010
Kay Krill appointed
CEO
Celebrations line introduced
Axelson became SVP of Design
LOFT Outlet introduced
Collections line
introduced
LOFT Maternity
line introduced
Increased Organic Development
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Ann Taylor Competitive Advantage
Competitive Market Drives Need for Strategic Change
Jones Apparel
Ann Taylor is superior to other clothing lines because it provides the professional woman with a chic, sophisticated look using high quality materials for professional and special occasions.
Loft is superior to other clothing lines because it provides the professional woman with casual, fashionable and fun styles for professional and special occasions.
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Sales Growth: Ann Taylor Vs. Competition
Future Profitability Dependent on Pace and Quality of Bottom Line Growth
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FCF Across Competitors: ’05 – ‘09
ANN Shows Poor Performance with Negative ROE
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Distribution Channels
Total Employees: 18,400 employees
Total Stores: 935 stores
AnnTaylor Stores
Corporation(US & Puerto Rico)
Ann Taylor
Corporate
Businesses(Brands)
Distribution
Products WeddingProfessional and Casual Clothing
Accessories
31% of Revenue*411 StoresChic, sophisticatedfeminine clothing forprofessional & special occasions
320 Stores 91 Stores
*Based on 2008 revenue; 19% of revenue is “Other” category
Provide modern styles that are versatile across all occasions and needs
Ann Taylor Online
Beauty SleepwearLingerie
AnnTaylor
Ann Taylor Factory
LOFTOutlet
LOFT
LOFT
LOFT Online
MaternityCasual and Professional
Clothing
50% of Revenue*524 StoresUltimate casual, fashionable & fun retail destination
510 Stores 14 Stores
Accessories
Strong Distribution Channels
Distribution channels: Malls, urban/suburban centers Outlets centers Online stores
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Social Media Fan Count
Small Presence on Social Media
1%
3%
1%
30%
4%
17%
43%
Ann Taylor
Loft
Talbots
Macy's
Nordstrom
J. Crew
Gap
Company Fan Count
Ann Taylor 13,000
Loft 38,000
Talbots 15,000
Macy's 374,000
Nordstrom 56,000
J. Crew 219,000
Gap 537,000
Ann Taylor Brands = 4%
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Recommendations: Short-Term
Better communicate refreshed brand image• Improve social networking site• Offer frequent promotions• Increase online advertising• Offer in-store networking/product launch events
Build customer relationships • Track customer engagement• Continue to use MarketWorks to track trends• Refine use of ATLAS system
Sustain cost parity • Invest in Radio Frequency Identification (RFID)• Improve operational efficiencies with inventory
Improve Value Position with Customers
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Recommendations: Long-Term
Partner with supply chain management firm• Provides company with new process knowledge• Diversifies sourcing risk• Identify higher quality materials
Expand store size and accessories market• Follows trend of outfit diversification• Allows for larger variety of accessories• Creates destination to find more of their wardrobe
Broaden customer segment into Boomer Market• Fast growing market with high discretionary income• Leverage resources to achieve expansion
Leverage Core Competencies and Resources
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BACKUP
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Vertical Integration: ANN : Competitors
2121
Value-Price-Cost Wedge Ann Taylor : Competition
100 114
94 106
108 12083
100 90
90114
115 9097
Relative P - C
Cost
$280
$375$400
$295 $310$345
$290
Average Value Minus Cost Position
LOFT Macys J. Crew Gap Talbots
50 57
47
54
4250 46
47
6048
Relative P - C Cost
$100
$145
$100$125
$105
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Profitability Ratios
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Liquidity Ratios / Z-Scores
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Competitive Price Comparisons
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Ann Taylor VRIO Analysis
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Competitors’ VRIO Analysis
2828
Competitors’ VRIO Analysis
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Value Chain Analysis
INBOUND LOGISTICS
OPERATIONS
OUTBOUND LOGISTICS
MARKETING & SALES
SERVICE
LEGEND: Value driver impact Cost Driver impact
INFRASTRUCTURE
HUMAN RESOURCE
MANAGEMENT
1. Get finished clothes from outsourced manufacturing suppliers and store in Louisville distribution center
1. Design clothes to meet market trends
1. Customize inventory carried in store2. Breadth of line3. Operated under mutiple brands - Ann Taylor, LOFT and outlets
2. Drive in-store operational efficiency 3. Increase inventory turnover ratio
1. Multiple locations
2. Multiple channels
1. In-store customer service2. Reduced shipping time3. Personalized recommendations4. Credit Card loyalty program
2. Reduced shipping time3. Personalized recommendations and database driven marketing
1. Over 900 store locations2. Multiple retail channels - stores, online, phone
2. Enforce ethical guidelines with suppliers
3. Young models such as Heidi Klum to target younger customer base3. Procure non-
merchandize items
TECHNOLOGY
PROCUREMENT
1. Marketworks, customer-database2. Partnership with Cisco for inventory management system
1. Leadership focused on operational efficiencies2. Strong design team
3. ATLAS, in-store operational efficiency monitoring program
3. Employee training
1. Centralized non-merchandize procurement system2. Centralized distribution center in Louisville3. Diversified sourcing network with multiple suppliers
4. Credit card loyalty program
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Boomer Implementation Timeline
