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“ Taylor”ing for Success Ann Taylor Market Strategy Santa Clara University MBA March 10, 2010

“ Taylor”ing for Success Ann Taylor Market Strategy Santa Clara University MBA March 10, 2010. By Kathleen Cronin. Background. 50 years: Evolved to become nationally recognized brand Two businesses: Ann Taylor and LOFT Designs clothes for well dressed woman, “ANN”

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“ Taylor”ing for Success Ann Taylor Market Strategy Santa Clara University MBA March 10, 2010

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

  2. 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. Strategic Restructuring Program Announced 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 Kay Krill named as CEO Why Strategic Change Required? Restructuring Program Expansion 1 Restructuring Program Expansion 2 Excludes $286 M goodwill impairment charge in Jan 09 Ann Taylor Quarterly Net Income: 2003 - 2009

  4. Specialty Women’s Retail Industry Five Force Analysis 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 Economic Factors Driving Increased Competition

  6. Customer Analysis: Market Penetration Total U.S. Population (in Millions) 282M Avg Household Income $32K (25 or older) Potential Market (All Females) 144M (51%) Total Available Market Avg Income $26K (25 or older) 22M (16% of all females) Defined as women with income >$35K Ages 25 & up Age Breakout >65 = 13.5% 55-64 = 9.4% 35-54 = 29.6% 25-34 = 13.5% 15-24 = 13.5% <15 = 20.5% Served Market 11M (50% of TAM) Age Breakout 55&above = 20% 45-54 = 31% 35-44 = 29% 25-34= 20% 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 ANN Targets 50% of U.S. Market

  7. Customer Segmentation of Women’s Apparel Industry 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 Other Department Stores Very Saturated Market

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

  10. Kay Krill President and CEO Appointed Oct 2005 Christine Beauchamp President, Ann Taylor Appointed Aug 2008 Gary Muto President, LOFT Appointed Nov 2008 Brian Lynch President, Corporate Operations Appointed Jul 2008 Paula Zusi Executive Vice President Chief Supply Chain Officer Appointed Sept 2008 Michael Nicholson Executive Vice President CFO and Treasurer Appointed Jul 2008 Barbara Eisenberg Executive Vice President General Counsel and Corp Sec Appointed Mar 2005 Lisa Axelson Senior Vice President Design Appointed Oct 2008 Mary Kay O’Connor Wente Senior Vice President Director of Stores Appointed Oct 2008 Michael Kingston Senior Vice President Chief Information Officer Appointed May 2006 Corporate Leadership New Leadership Since 2008

  11. LOFT Maternity line introduced Collections line introduced Axelson became SVP of Design Celebrations line introduced LOFT Outlet introduced 2005 2006 2010 2007 2008 2009 Beauty line introduced Beauchamp becomes Ann Taylor President Kay Krill appointed CEO LOFT Maternity pulled from stores, only online Plans for “Modern Boomers” division began Strategic restructuring plan began Corporate Timeline Increased Organic Development

  12. Ann Taylor Competitive Advantage Jones Apparel Competitive Market Drives Need for Strategic Change 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.

  13. Sales Growth: Ann Taylor Vs. Competition Future Profitability Dependent on Pace and Quality of Bottom Line Growth

  14. FCF Across Competitors: ’05 – ‘09 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 Businesses (Brands) Ann Taylor 50% of Revenue* 524 Stores Ultimate casual, fashionable & fun retail destination LOFT 320 Stores 91 Stores 510 Stores 14 Stores Distribution Ann Taylor Ann Taylor Factory Ann Taylor Online LOFT LOFT Outlet LOFT Online Products Beauty Lingerie Professional and Casual Clothing Accessories Sleepwear Wedding Casual and Professional Clothing Maternity Accessories *Based on 2008 revenue; 19% of revenue is “Other” category • Distribution channels: • Malls, urban/suburban centers • Outlets centers • Online stores Strong Distribution Channels

  16. Social Media Fan Count Ann Taylor Brands = 4% 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 Average Value Minus Cost Position

  22. Profitability Ratios

  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. 1. Centralized non-merchandize procurement system PROCUREMENT 2. Centralized distribution center in Louisville Value Chain Analysis 3. Diversified sourcing network with multiple suppliers 1. Marketworks, customer-database TECHNOLOGY 2. Partnership with Cisco for inventory management system 3. ATLAS, in-store operational efficiency monitoring program 1. Leadership focused on operational efficiencies HUMAN RESOURCE MANAGEMENT 2. Strong design team 3. Employee training 1. Over 900 store locations 2. Multiple retail channels - stores, online, phone INFRASTRUCTURE 1. Design clothes to meet market trends 1. In-store customer service 2. Reduced shipping time 3. Personalized recommendations 4. Credit Card loyalty program 1. Multiple locations 1. Customize inventory carried in store 1. Get finished clothes from outsourced manufacturing suppliers and store in Louisville distribution center 2. Reduced shipping time 2. Multiple channels 2. Drive in-store operational efficiency 3. Personalized recommendations and database driven marketing 2. Breadth of line 3. Young models such as Heidi Klum to target younger customer base 3. Operated under mutiple brands - Ann Taylor, LOFT and outlets 4. Credit card loyalty program 2. Enforce ethical guidelines with suppliers 3. Increase inventory turnover ratio 3. Procure non-merchandize items MARKETING & SALES INBOUND LOGISTICS OUTBOUND LOGISTICS SERVICE OPERATIONS LEGEND: Value driver impactCost Driver impact

  30. Boomer Implementation Timeline

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