1. “Taylor”ing for Success
Ann Taylor Market Strategy
Santa Clara University MBA
March 10, 2010 By
Kathleen Cronin

2. 50 Years Designing Clothes for Well Dressed Woman
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

3. 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:
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

4. 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)
Industry Sales in ‘09: $38B
High
1-Competitive Rivalry
2-Buyer Power
3-New Entrants
4-Substitution Threat
Low
5-Supplier Power
Mature, Fragmented, Unattractive Market

5. 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

6. 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 Market
11M (50% of TAM)
Defined as women ages 25-44
Income $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%
< = 20.5%
55&above = 20%
45-54 = 31%
35-44 = 29%
25-34= 20%
Income data from:
Potential market-those in total population who have interest in acquiring product
Available Market-those in potential market who have enough money to buy product
Qualified Available market-those in available market who legally permitted to buy product
Target market-segment of qualified available market that firm has decided to serve (served market)
Penetrated market-those in target market who have purchased the product (share of market)
(avg income of US)
avg income of $55K
Segmentation Variables
Demographics:
Median age of females: 29.3 yrs
67 million females age 15-64
Income level:
A/B Class (>$2579/mo) – 15.5% of population
C Class ($ /mo) – 52% of population
D/E Class (<$617/mo) – 32% of population
Location: urban, rural
86% urbanization in Brazil
ANN Targets 50% of U.S. Market

7. Customer Segmentation of Women’s Apparel Industry
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:
“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
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
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

8. Market Share of Top 15 Competitors
Total Market Value: $107B
Values in %
Ann Taylor Stores
Macy’s (US)
Other Women’s Retail
The women’s apparel industry is highly competitive with 2009 sales estimated at approximately $107.1 billion (Exhibit 2).
AnnTaylor competes with geographically diverse department stores, specialty stores, discount stores, and catalog and internet businesses that offer similar categories of merchandise (AnnTaylor, 10-K Filings, 2008). The variety of products available in a company’s store depends on the size of the store, and buying behavior of the customers in the location. Fifteen competitors were selected based on store location, distribution channels, targeted customer, product offerings, and price. It was important to choose primary competitors external to the Women’s Specialty Apparel Industry as well, like department stores, since a customer is likely to shop at multiple stores found in a similar location.
Other Department Stores
Very Saturated Market

9. Classic. Versatile. Fresh.
Video: THE NEW ANN
Classic. Versatile. Fresh.

10. Corporate Leadership New Leadership Since 2008 Kay Krill
President and CEO
Appointed Oct 2005
Michael Nicholson
Executive Vice President
CFO and Treasurer
Appointed Jul 2008
Barbara Eisenberg
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
Mary Kay O’Connor Wente
Senior Vice President
Director of Stores
Appointed Oct 2008
Lisa Axelson
Design
Paula Zusi
Chief Supply Chain Officer
Appointed Sept 2008
Michael Kingston
Chief Information Officer
Appointed May 2006
New Leadership Since 2008

11. Increased Organic Development
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

12. 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.
From the top fifteen competitors, six companies were selected as the primary competitors to Ann Taylor and LOFT and its associated outlet stores. These were selected based on average age range targeted (25-44 years), types of clothing (work and/or casual), sizes offered (petites, misses, plus sizes) and geographical location.
Ann Taylor
Possesses Premium brand equity uneasy to imitate
High marketing and promotional costs to achieve value advantage
Solid Sourcing operations
J.Crew, Macy’s, and Talbots are prime competitors for both Ann Taylor and LOFT. Ann Taylor’s primary competitors also include Banana Republic (under Gap, Inc), Anne Klein (under Jones Apparel), and Nordstrom. LOFT’s primary competitor also includes Gap (under Gap, Inc). The top competitors are likely to change as more international brands infiltrate the U.S. market, like Zara and Mango Inc.
Jones Apparel
Competitive Market Drives Need for Strategic Change

13. Sales Growth: Ann Taylor Vs. Competition
Over the past three years, the industry revenues declined from 1% in 2006 to -5.5% in Here you’ll see Sales growth graphs that highlight this downward trend. Among the worst performers has been Talbots, which saw its sales drop by almost 53% in Sales for AnnTaylor, Gap and Jones Apparel have each dropped around 9%. Clearly, the pace and quality of bottom line growth will be a key component moving forward.
Future Profitability Dependent on
Pace and Quality of Bottom Line Growth

14. FCF Across Competitors: ’05 – ‘09
Gap and Macy’s have a clear advantage over other competitors with close to $1B in FCF. Macy’s is planning a localization initiative and focusing on reinventing the brand by making the store more relevant to the younger demography. Gap, on the other hand has recently announced plans to launch retail operations in China and open its e-commerce platform in the European continent. Nordstrom and Talbots have had negative FCF’s in the recent years as they struggle to re-position their brands with customers.
Although AnnTaylor has a positive FCF, the company shows a negative ROE demonstrating a poor performance.
ANN Shows Poor Performance with Negative ROE

15. Distribution Channels
AnnTaylor Stores Corporation
(US & Puerto Rico)
Corporate
Provide modern styles that are
versatile across all occasions and needs
Total Employees: 18,400 employees
Total Stores: 935 stores
31% of Revenue*
411 Stores
Chic, sophisticated
feminine clothing for
professional
& special
occasions
LOFT
Outlet
LOFT Online
Maternity
Casual and Professional Clothing
50% of Revenue*
524 Stores
Ultimate casual, fashionable
& fun retail destination
510 Stores
14 Stores
Accessories
Businesses
(Brands)
Ann Taylor
320 Stores
91 Stores
Distribution
Ann
Taylor
Ann Taylor Factory
Ann Taylor Online
Products
Beauty
Lingerie
Professional
and Casual Clothing
Accessories
Sleepwear
Wedding
*Based on 2008 revenue; 19% of revenue is “Other” category
Distribution channels:
Malls, urban/suburban centers
Outlets centers
Online stores
Strong Distribution Channels

16. Small Presence on Social Media
Social Media Fan Count
Ann Taylor Brands = 4%
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
Small Presence on Social Media

17. 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

18. 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

19. BACKUP

20. Vertical Integration: ANN : Competitors

21. Value-Price-Cost Wedge Ann Taylor : Competition
$290
$105
Numbers inside the blue and red boxes are to indicate relative sizes of the V-P and P-C wedges with respect to Ann Taylor and LOFT. The numbers for Ann Taylor are normalized to 100 and those for LOFT are normalized to 50 just to indicate the relative sizes of the wedges.
Numbers next to each bar indicate the price point of the apparels that were used for comparison.
Average Value Minus Cost Position

22. Profitability Ratios
This is reflected in the overall industry's net profit margin of 2%. Amongst the competitors, Gap and Nordstrom have managed to keep losses in check.
Gap has seen a return to its 7% Net Profit margin, while Nordstrom comes as a close second with 5% in Net Profit margin. Most companies in the sector have been able to retain their Gross Margin with tight inventory management that is reflected in their COGS, but have been unsuccessful in reigning in SG&A expenses. As a result, all four companies show a negative Net Profit margin.

23. Activity Ratios

24. Liquidity Ratios / Z-Scores

25. Competitive Price Comparisons

26. Ann Taylor VRIO Analysis

27. Competitors’ VRIO Analysis

28. Competitors’ VRIO Analysis

29. HUMAN RESOURCE MANAGEMENT
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 store
2. Breadth of line
3. 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 service
2. Reduced shipping time
3. Personalized recommendations
4. Credit Card loyalty program
3. Personalized recommendations and database driven marketing
1. Over 900 store locations
2. Multiple retail channels - stores, online, phone
2. Enforce ethical guidelines with suppliers
3. Young models such as Heidi Klum to target younger customer base
3. Procure non-merchandize items
TECHNOLOGY
PROCUREMENT
1. Marketworks, customer-database
2. Partnership with Cisco for inventory management system
1. Leadership focused on operational efficiencies
2. Strong design team
3. ATLAS, in-store operational efficiency monitoring program
3. Employee training
1. Centralized non-merchandize procurement system
2. Centralized distribution center in Louisville
3. Diversified sourcing network with multiple suppliers
4. Credit card loyalty program

30. Boomer Implementation Timeline