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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 adhere to 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. Be sure to include the SWOT analysis as shown in the Appendix of your paper (after the References page). Assignment Checklist: • 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. For additional Assignment details see Rubric below. ANN TAYLOR CASE Pauline Assenza Manhattanville College Alan B. Eisner Lubin School of Business, Pace University Jerome C. Kuperman Minnesota State University Moorhead • 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. o • 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 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. • 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 new 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 • 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 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 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 • 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. • 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 • 21 History Prior to the development of a retailing industry, the only option for upper-class 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 the 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. • 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 free-standing 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, 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: o • 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 • • 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 • 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., 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 Chico’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 ANN OPERATIONAL INFORMATION44 • 42 At the end of fiscal year 2007, ANN had 929 stores in 46 states, the District of Colum-bia and Puerto Rico, with flagship locations in New York, San Francisco, and Chicago. 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. • 45 Recent ANN initiatives had focused on improving supply chain speed, flexibility and efficiency. Reduced floor inventory levels combined with the use of new “quick-sourcing” 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 • 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
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