Challenges of Ann Taylor and Ann Taylor LOFT - Case Study Example

1. Introduction Ann Taylor Corporation has been a leading women specialty retailer founded in 1954 and deals with high-quality women’s apparel, shoes and accessories. It targets the busy, socially upscale women. Ann Taylor provides sophisticated, versatile and superior updated classics, and woman’s power suit with pearls to their client base that consists of fashion-conscious women between the ages of 25 to 55 (Ann Taylor 2011). Ann Taylor LOFT was launched in 1995 to appeal to women with a more relaxed lifestyle who appreciate a casual LOFT style and are cost conscious. Ann Taylor Loft line was introduced to keep the initial brand, Ann Taylor relevant by capitalizing the casual fashion age that emerged in the 90s (Ann Taylor LOFT 2011). In late 2005, under the leadership of Kay Krill, the then appointed president and CEO, ANN was challenged in rebuilding their preeminent brand for beautiful, well-designed and classy women dressing while maintaining their image and market share. Both Ann Taylor (AT) and Ann Taylor LOFT (LOFT) experienced a variety of renovations and expansions in attempts of keeping the entire company afloat. The biggest question for Krill was whether the appeal of elevating their brands could be sustained indefinitely in the risky and uncertain environment (Assenza, Eisner & Kuperman 2009). The economic decline in mid 2008 further posed considerable uncertainty, especially for retail businesses with some closing down. As one of the retailers, Ann Taylor was also threatened by the slowing consumer demand affecting its profitability. In her commitment to obtain the long term growth of the company even as the economy worsened, Krill was however faced with various business challenges. 2. Challenges of AT and LOFT during the difficult retail environment going into 2009. The business environment for the retailing industry was so unpredictable and thus causing various challenges to the retailers where ANN was one of them. The challenges that ANN faced include branding challenges, stiff competition among women specialty retailers, top management team turnover and the general economic downturn of 2008 which led to a reduction in the number of customers who purchased products from them. 2.1. Economic downturn of 2008. Challenges in the macroeconomic climate in the retail industry had profound effect on ANN and the retail industry as a whole. The declining economy led to unpredictable business environment and some of the retails stores even closed. As reported, there were 6000 retail stores that closed in 2008 showing a 25 % increase when compared to 2007 (Assenza, Eisner & Kuperman 2009). Further, there were estimated 12000 retail stores that could have been closed in 2009. 2.2. Branding challenges As a specialty retailer, ANN focuses only on one type of product but it offers it in different varieties. ANN was a specialty retailing store that engaged only in a specific line of women’s clothing. This single-product focus is associated with increased risks since any loss in sales cannot be recouped in another product area. The appropriate strategy for such specialty retailers is seeking new market segments that they can serve. According to Assenza, Eisner & Kuperman (2009), such a strategy can cause potential problems to branding and therefore Krill was forced to open up other distribution channels which offered the same items as Ann Taylor but at lower prices. This was a harmful move in maintaining the historic brand which targeted the upscale women who had little time. 2.3. Competition in women specialty retailing. It was difficult for ANN to establish a fashion identity due to increased competition from other apparel stores that made inroads to the existing customer base. Most retail niches showed a greatest growth in departmental stores that deal with apparel chains that serve women. The major women specialty retailers included Ann Taylor, Coldwater’s creek, Talbots and Chico’s FAS. These retailers had targeted older upscale shoppers. Despite the fact that Ann Taylor had a significant brand extension for younger professionals, all the other retailers pursued a shopping merchandize and environment that focused on older women over 35. This created a competition in the industry and specifically for ANN in winning the 35+ consumer space by Talbots and J.Jill apparel retailers. J.Jill offered casual fashion through the internet, multichannel mail order and in-store venues (Assenza, Eisner & Kuperman 2009). On the other hand, Talbots acquired a division that supposedly positioned it to be a leading apparel retailer for older women. Coldwater’s creek created a brand identity that appealed to the Northwest/Southwest lifestyle approach. Chico’s FAS specialized in creating a “strong brand equity” which had a staying power. To counter the competitiveness in the industry, Ann Taylor decided to create new chain stores that targeted “older-women” segment by believing that it was the most significantly underserved segment. However, this move was to overlook the risky market and Krill decided to implement it in the early 2009. Besides, they used internet channel that served as an effective marketing vehicle for both AT and LOFT brands. 2.4. Top management team turnover While trying to resolve the branding issues between the two divisions as a way of expanding the company, Krill was faced with top management team resignations. For instance, COO Laura Weil resigned from his job in the spring of 2006 and his responsibilities of merchandise planning; information systems; supply chain operations such as logistics, sourcing and distribution; construction and facilities; purchasing as well as finance, accounting and investor relations were left unattended (Assenza, Eisner & Kuperman 2009). Krill had decided not to replace the position on the organizational chart. Meanwhile, she assumed the leadership position in the process of looking for a new divisional president. This however, created pressure on Krill since she didn’t have a partner who could help in merchandising as well as making other creative decisions. Getting both the AT and LOFT divisions move ahead at the same time was a big challenge to Krill. The Chief Marketing Officer Ellaine Boltz and Chief Finance Officer James Smith both resigned in August 2007 and in July 2008, the Chief Supply Chain Officer Antony Romano also resigned. The departures left Krill in a difficult situation even though she had hired a new Chief Marketing Officer and Chief Finance Officer in late 2007. Previously, there had been also seven resignations in her upper management team which had been replaced over the two years. 3. Krill’s strategies on the on-going challenges of AT and LOFT. In solving the challenges that ANN faced, Krill had to consider the advice of looking into areas that it underperformed and seek ways in which it could change their operations and concentrate on the growth of the business. In her strategies, she aimed to restore the performance of AT and at the same time increase the sale of the LOFT products. She therefore, chose to restructure the organization by creating other new divisions, creating new top management positions; sought for new market segments; dealt with inventory turnover; introducing restructuring programs; creating a strong brand loyalty; and replacing the vacant positions caused by staff management turnovers. Given the current situations, the application of these strategies could enable the corporation to grow and earn greater profits that could enable it compete favourably. 3.1. Restructuring the organization Krill came up with Ann Taylor Factory, a company’s newest division whose merchandise was specifically designed to carry out the Ann Taylor Factory label. She strategically located them in outlet malls where the customers could easily find the Ann Taylor and other major label product bargains. She actually acknowledged the need to continually evolve and elevate their brands in ensuring that they remained compelling in their products, marketing as well as their in-store environment. Since it was quite uncertain that AT brand could sustain the historic appeal on the uncertain and risky specialty retail environment which required an accurate prediction of client fashion preferences, Krill had to evaluate the overall capacity as well as its growth prospects. She contemplated to revitalize the flagship of AT brand and thus launched a beauty business as a department within the LOFT and AT store. In addition, she expanded the high-end fashion offerings in AT as distinct collection lines while opening more LOFT outlet stores which could complement Ann Taylor Factory while considering the new market segment of older women between the ages 55 and 64. She felt that this growth strategy could lead to a long term growth in spite of the worsening of the economy (Assenza, Eisner & Kuperman 2009). In the restructuring process, there were new top management positions created. Krill appointed Weil to fill the position of Corporate Operation Officer (COO), and other staff for the Executive Vice President (EVP) of planning and allocation as well as EVP/ Chief Marketing Officer. The COO was to focus on information systems, inventory management and merchandise, and supply chain operations. The other positions were to provide various expertise that could allow both AT and LOFT to move ahead by focusing on merchandising and marketing through brand differentiation. The reconfiguration of the top management structure ensured that every area was covered. 3.2. Seek for new market segments To address the challenge of branding and lead better management of the proliferation brand, ANN created an organizational structure with each brand being dedicated to a brand president. The brand president was a unique person who could lay suitable strategies in ensuring for the expansion of the brand in the market. According to Michman & Mazze (2000), such a company can use a niche strategy in which it can select a market segment that is sufficient in size and that has a growth potential. Indeed, ANN used niche strategy which enabled ANN to be more profitable since their market segment was well known to satisfy the needs of their customers than those who sold casually to this niche. Ann Taylor carved out a niche strategy to make its image more fashionable than the competitors. It turned to be trendy and started charging less for its products under the category of LOFT brand. It thus returned to be a sign of belonging for upscale career women in the business world. Michman & Mazze (2000) notes that through niche strategy, a company is able to maximize efficiency by designing products and services that meet the customers’ needs. The creation of new chain store that target older women was a risk move despite the fact that ANN’s clothes were more fashionable due to stiff competition from other key players (Assenza, Eisner & Kuperman 2009). It could have been appropriate if ANN had brand extension through the divestiture of various brands. This could be done by seeking acquisitions that could rebuild it in representing the various lifestyles of all individuals of all ages. Such a reconfiguration could have greatly fostered the performance of ANN. 3.3. Dealing with inventory turnover ANN used a centralized distribution system where merchandise were sold initially at their original marked prices but after markdowns, the store planners had to redesign the merchandise and vary the prices for seasonal adaptations and changes in the client preference. They were focused on flexibility, efficiency and improving supply chain speed so as to create quicker inventory turns that would in turn lead to a quicker updating of the merchandize and create emphasis on full prices. In addition, the company used quick sourcing software and real estate expansion program which could enable it reach more clients by opening up new stores and expanding or relocating the existing flow (Assenza, Eisner & Kuperman 2009). However, this move was inappropriate due to emerging concerns of store expansion and remodelling. Since the company had a centralized center in Louisville, the increasing sales volume affected the company’s internal distribution system. It had a limited capacity to supply the numerous stores and therefore there was a need for its expansion. Secondly, with the economic weakness, the projected earning could not be able to cover the intended long-term lease obligations. 3.4. Restructuring programs The new restructuring programs were aimed at reducing extra costs by closing down the underperforming stores, downsizing both the corporate and divisional staff by eliminating an approximate of 260 positions, reducing executing compensation businesses, eliminating pay increase and consolidate their purchasing activities under a central procurement store to leverage sales. Gilson & Altman (2000) argues that execution of a restructuring strategy would financially impact on the company as well as creating value to the products offered. They however caution companies to use a type of restructuring that can enable it to appropriately deal with specific challenges. The restructuring used by Ann Taylor was successful since it still served the specific needs of their customers and addressed the underlying challenges that faced the company in serving the unpredictable business environment. They anticipated opening up fewer stores with an enthusiasm of aggressively investing on factory channel expansion for both Ann Taylor Factory Store and the new Ann Taylor LOFT store. They had precisely delivered a strong gross margin and therefore considered as an important growth driver for the company regardless of the general economic softness. However, the elimination of pay increase and other incentives could lead to staff turnover and thus igniting the organizational problems. Krill also introduced the collections line (celebrations bridal and special class apparel line) which offered 40% more expensive than the regular AT merchandize so as to grab the affluent working class women. These products were built around the dresses and suits created under Ann Taylor’s reputation. Beauty products were also launched in the LOFT division so as to increase the percentage share in the beauty products market. 3.5. Creating a strong brand identity ANN maintained its historic Ann Taylor brand which was loyally flowing. Later Ann Taylor brand was extended to give rise of separate store concepts such as Ann Taylor (AT), Ann Taylor LOFT, Ann Taylor’s Studio Shoes, Ann Taylor Petites and Ann Taylor Factory. Besides, ANN had also experimented children’s clothes and makeup lines as well as maternity section. However, consideration was to be taken on the existing brand since the same items were offered at lower prices in LOFT than in AT. More customers could go shopping at LOFT for items they had previously bought at AT (Assenza, Eisner & Kuperman 2009). According to Floor (2006), a strong brand identity is created through a clear differentiating positioning consistent communications and distinct personality. In competing favourably in the retailing industry, Krill decided to move the LOFT stores into a third division, Ann Taylor Factory in various regional malls and shopping centres that offered the customers with clothes that were still offered in the AT line with prices about 25%less of the high-end Ann Taylor Stores. Meanwhile, the LOFT line offered more casual, but business tailored female attires that were about 30%less expensive than those offered in the AT division store. According to (Assenza, Eisner & Kuperman 2009), the move led to LOFT reaching $1 billion in sales and thus reaffirming the necessity of maintaining a strong interconnection with the clients and their evolving wardrobe needs. However, she tried to improve the overall profitability by promoting both brands. Her continued plans for expansion and reduction of the overall cost structure were to enable the business go through the cycles of uncertainty in the business environment by differentiating them from other retailers for the overall success of the company. 3.6. Management staff turnover replacements Buxton 1998 argues that most of the management turnover occurs due to personal reasons. In their study, Denis, Denis, & Sarin (1997) realized that management turnover greatly impacts the overall performance of a company. In dealing with the top management staff turnover, Krill balanced both divisions in order to maintain performance while looking for suitable individuals to replace the vacant positions. She later replaced all the vacant positions and both AT and LOFT started working as usual. 4. Conclusion Under the leadership of Kay Krill, Ann Taylor Corporation was faced with numerous challenges during the economic decline of 2008. Ann Taylor faced stiff competition from other apparel retailers such as Coldwater’s creek, Chico’s FAS AND Talbots who were all targeting the fewer customers who purchased their items. The overall challenges included economic downturn, branding challenge, competition and top management turnover. The strategies that Krill used as a president of AT and LOFT were appropriate in moving the company out of the difficult retail environment of 2008 and 2009. The challenge of competition in the unpredictable environment was solved by restructuring the organization, proper management of the marketing and supply chains, creating a strong brand identity, and proper management of the staff turnover. 5. References Ann Taylor 2011, Ann Taylor Ltd. Retrieved on 16th May from http://www.anntaylor.com/home.jsp Ann Taylor LOFT 2011, Ann Taylor LOFT Retrieved on 16th May from http://www.anntaylorloft.com/home.jsp Assenza P., Eisner BE. & Kuperman JC 2009, Anne Taylor: Survival in Specialty Retail. The Case Journal 5 (2). Buxton T 1998, Britain's economic performance, Routledge, California. Denis, DJ., Denis, DK & Sarin A 1997, Ownership structure and top executive turnover. Journal of Financial Economics. Floor K2006, Branding a store: How to build successful retail brands in a changing marketplace, Kogan Page Publishers, London Michman, RD & Mazze EM 2006, The affluent consumer: marketing and selling the luxury lifestyle, Greenwood Publishing Group, New York. Plunkett JW 2008, Plunkett's apparel and textiles industry almanac, Plunkett Research, Ltd., New York Read More