“Taylor”ing for Success
Ann Taylor Market Strategy
Santa Clara University MBA
March 10, 2010
By
Kathleen
Cronin
1
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
2
2
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
Ann Taylor Quarterly Net Income: 2003 - 2009
60 000
40 000
Kay Krill
named as CEO
20 000
Strategic Restructuring
Program Announced
Restructuring Program
Expansion 1
0
-20 000
-40 000
-60 000
-80 000
-100 000
Excludes $286 M goodwill impairment charge in Jan 09
Stock Market
Crash
Restructuring
Program
Expansion 2
3
Specialty Women’s Retail Industry Five
Force Analysis
Industry Sales in ‘09: $38B
MEDIUM / HIGH BUYER POWER
-Low switching costs
-Rewards program deters switching
-Trends easily imitable
-Low backward integration
HIGH COMPETITIVE RIVALRY
-Multiple competitors
High
-Low industry growth
-Low exit barriers due to mfg
-Fairly transparent strategies
(latest trends)
Low
1-Competitive
Rivalry
2-Buyer Power
3-New Entrants
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
4-Substitution
Threat
5-Supplier Power
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
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
Mature, Fragmented, Unattractive4 Market
4
Macro Economic Analysis
Global
Government/Regulatory
-Expanding internationally
-Asia, Middle East, Russia growing markets
-European market continues to lead w/ fashion
-International firms entering U.S.
-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
Technological
-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
-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
5
Customer Analysis: Market Penetration
Total U.S. Population (in Millions)
282M
Potential Market (All Females)
Avg Household Income
$32K (25 or older)
144M (51%)
Avg Income
$26K (25 or older)
Age Breakout
>65 = 13.5%
55-64 = 9.4%
35-54 = 29.6%
25-34 = 13.5%
15-24 = 13.5%
<15 = 20.5%
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%
Total Available Market
22M (16% of all females)
Defined as women
with income >$35K
Ages 25 & up
Age Breakout
55&above = 20%
45-54 = 31%
35-44 = 29%
25-34= 20%
Served Market
11M (50% of TAM)
Defined as women ages 25-44
Income $35K and up
135M
ANN Targets 50% of U.S. Market
6
Customer Segmentation of Women’s Apparel Industry
SEGMENT
DEMOGRAPHIC
BENEFIT SOUGHT
(Key Values)
1
Fashion
Forward,
Chic
Primary Age Group: 15-36
“Hip Singles”
Always up to date on latest trends
Frequent shoppers
Often accessorize w/ outfit
Shops for clothes at primarily specialty retail stores
Embrace new trends, extension of personality
Educated about new fashion
Become knowledgeable before purchase
Top preferred product offerings:
 Style, proper fit, style, discounts offered
Spend significant portion of income on clothes
2
Modern,
Updated
Classic
Primary Age Group: 25-44
“Professional career woman”
Simplicity but occasional wardrobe update
Sometimes accessorize w/ outfit – this increasing
Shops 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 staples
Prefer non-iron pieces and ability to wash versus
Spends discretionary income on clothes
Reside in middle; Stay with moderate updates
Less likely to jump on anything trendy
3
Traditional,
Conservative
Primary Age Group: 35+
“Suburban Mother” or “Conservative Retiree”
Sticks to basics
Rarely accessorizes w/ outfit
Occasional shopper
Desire to save money on clothes
Top preferred product offerings:
Proper fit, versatility, price, location, & durability
Does not follow latest trends
Little desire to stand out or make statement
Looks for all-in-one store at good price
Looks for one clothing that works everywhere
Target Segment: Modern / Updated Classic
7
Market Share of Top 15 Competitors
Total Market Value: $107B
Values in %
Ann Taylor Stores
0,7
Macy’s (US)
1,0
Ann Taylor
LOFT
1,8 1,1
Gap -Women - US
Other Women’s Retail
6,4
22,8
Banana Republic - Women - US
0,1
2,7
Macy's - Women
0,3
1,4
1,1
1,0
Anne Klein
Nordstrom - Women
1,9
1,0
1,2
5,0
J. Crew - women
Talbots - US
New York and Co
Coldwater Creek
4,7
Charming Shoppes
Saks
1,5
Dress barn
0,8
Kohls - women
TJ Maxx - women - US
Other Department Stores
43,5
Chicos FAS
Cato Group
Other - Department stores
Other - Retail stores
Very Saturated Market
8
Video: THE NEW ANN
Classic. Versatile. Fresh.
9
Corporate Leadership
Kay Krill
President and CEO
Appointed Oct 2005
Christine Beauchamp
Gary Muto
Brian Lynch
President, Ann Taylor
President, LOFT
President, Corporate Operations
Appointed Aug 2008
Appointed Nov 2008
Appointed Jul 2008
Paula Zusi
Executive Vice President
Chief Supply Chain Officer
Michael Nicholson
Executive Vice President
CFO and Treasurer
Barbara Eisenberg
Executive Vice President
General Counsel and Corp Sec
Appointed Sept 2008
Appointed Jul 2008
Appointed Mar 2005
Lisa Axelson
Senior Vice President
Design
Mary Kay O’Connor Wente
Senior Vice President
Director of Stores
Michael Kingston
Senior Vice President
Chief Information Officer
Appointed Oct 2008
Appointed Oct 2008
Appointed May 2006
New Leadership Since 2008
10
10
Corporate Timeline
Celebrations line
introduced
2005
2006
Kay Krill
appointed
CEO
LOFT
Maternity Collections
Axelson
line
line
LOFT Outlet became SVP
introduced introduced introduced of Design
2007
2008
Beauty line
introduced
Plans for “Modern
Boomers” division
began
2010
2009
Beauchamp
becomes Ann
Taylor President
Strategic
restructuring
plan began
LOFT Maternity
pulled from stores,
only online
Increased Organic Development
11
Ann Taylor Competitive Advantage
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.
Jones Apparel
Competitive Market Drives Need for Strategic Change
12
12
Sales Growth: Ann Taylor Vs. Competition
Future Profitability Dependent on
Pace and Quality of Bottom Line Growth
13
FCF Across Competitors: ’05 – ‘09
ANN Shows Poor Performance with Negative ROE
14
Distribution Channels
Provide modern styles that are
versatile across all occasions and needs
Corporate
Businesses
(Brands)
Distribution
Products
AnnTaylor
Stores
Corporation
31% of Revenue*
411 Stores
(US & Puerto Rico)
LOFT
50% of Revenue*
524 Stores
510 Stores
14 Stores
Ann Taylor
Chic, sophisticated
feminine clothing for
professional
320 Stores
& special
occasions
Ann
Taylor
Beauty
Total Employees: 18,400 employees
Total Stores: 935 stores
Lingerie
91 Stores
Ann Taylor
Factory
Professional
and Casual
Clothing
Accessories
Ann Taylor
Online
Sleepwear
*Based on 2008 revenue; 19% of revenue is “Other” category
LOFT
Wedding
Accessories
Ultimate casual, fashionable
& fun retail destination
LOFT
Outlet
Casual and
Professional
Clothing
LOFT
Online
Maternity
Distribution channels:



Malls, urban/suburban centers
Outlets centers
Online stores
Strong Distribution Channels
15
Social Media Fan Count
Ann Taylor Brands = 4%
1%
3%
Company
1%
Ann Taylor
Ann Taylor
13,000
Loft
Loft
38,000
Talbots
15,000
Macy's
374,000
Talbots
43%
30%
Macy's
Nordstrom
J. Crew
18%
4%
Fan Count
Gap
Nordstrom
56,000
J. Crew
219,000
Gap
537,000
Small Presence on Social Media
16
Recommendations: Short-Term
Improve Value Position with Customers
 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
17
Recommendations: Long-Term
Leverage Core Competencies and Resources
 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
18
BACKUP
19
Vertical Integration: ANN : Competitors
20
Value-Price-Cost Wedge
Ann Taylor : Competition
Relative V - P
Relative P - C
114
90
100
94
90
$290
100
$400
$375
106
114
108
$345
$310
$295
$280
97
90
115
83
120
Relative V - P
Relative P - C
47
48
$145
50
$105
46
47
60
50
57
LOFT
Macys
$125
$100
$100
42
54
J. Crew
Gap
Talbots
Average Value Minus Cost Position
21
21
Profitability Ratios
22
Activity Ratios
23
Liquidity Ratios / Z-Scores
24
Competitive Price Comparisons
25
Ann Taylor VRIO Analysis
26
Competitors’ VRIO Analysis
27
27
Competitors’ VRIO Analysis
28
28
Value Chain Analysis
PROCUREME
NT
1. Centralized non-merchandize procurement system
2. Centralized distribution center in Louisville
3. Diversified sourcing network with multiple suppliers
TECHNOLOG
Y
1. Marketworks, customer-database
2. Partnership with Cisco for inventory management system
3. ATLAS, in-store operational efficiency monitoring program
HUMAN
RESOURCE
MANAGEMENT
1. Leadership focused on operational
2.
Strong design team
efficiencies
3. Employee training
1. Over 900 store locations
INFRASTRUCTUR 2. Multiple retail channels - stores, online,
phone
E
1. Get finished clothes
from outsourced
manufacturing suppliers
and
store inethical
Louisville
2.
Enforce
guidelines
distribution
center
with suppliers
3. Procure nonmerchandize items
INBOUND
LOGISTICS
1. Design clothes
to meet market
2.
Drive in-store
trends
operational
3. Increase inventory
efficiency
turnover ratio
1. Customize inventory
carried in store
2. Breadth of line
3. Operated under
mutiple brands - Ann
Taylor, LOFT and
outlets
OPERATION
S
LEGEND:
Driver impact
OUTBOUND
LOGISTICS
Value driver impact
1. In-store customer service
2. Reduced shipping time
2. Multiple channels
3. Personalized
Personalized
3.
3. Young models such recommendations
recommendations and
4.
Credit Card
card
loyalty
as Heidi Klum to target 4.
database
driven
marketing
Credit
loyalty
program
younger customer base program
1. Multiple locations
MARKETIN
G & SALES
SERVICE
Cost
29
Boomer Implementation Timeline
30