Ann Taylor Survival in Specialty Retail

Question: Discuss on focus on value concepts that appeal to customers in the current market scenario? Answer: ANN operates LOFT as well as factory outlet stores which carry products priced lower than those offered by the Ann Taylor brand. Pricing at LOFT is significantly lower than its sister concept Ann Taylor, and it has significantly better value proposition. ANN made a conscious decision to continue to expand the LOFT concept given its broader appeal. The company opened 38 LOFT stores in FY2014. Ann Taylor Factory and LOFT outlet stores offer past season best sellers from the Ann Taylor and LOFT merchandise collections, respectively, and are extensions of those brands in the outlet environment. The company opened 14 new LOFT outlet stores and seven Ann Taylor factory stores in FY2014. Over the past several years, the outlet business fared comparatively well as consumers increasingly visited outlet stores seeking deeper value over traditional malls and strip centers. Consumer spending has been depressed due to the economic downturn and there has been an increase in the price sensitive customer base. The factory outlets and LOFT stores with presence in the value segment increase the potential customer base for the company. Additionally, ANN is better positioned to sustain competition from discounters and other value retailers without diluting its brand image. Reliance on third-party manufacturers ANN does not own or operate any manufacturing facilities and depends on independent third parties to manufacture its merchandise. Therefore, the continued success of the company's operations is tied to its timely receipt of quality merchandise from third-party manufacturers. If the manufacturer is unable to ship orders on time or meet the quality standards, it could cause delays in responding to consumer demands and negatively influence consumer confidence in the quality and value of the company's brands. Furthermore, ANN is susceptible to increases in sourcing costs from manufacturers which the company may not be able to pass on to the customer. All of these reasons could have a material adverse impact on the company's financial condition and its competitive market position. Dependence on a single distribution center and third party distribution in the US For majority of its merchandise, right from the receipt to its distribution to the stores in the US, ANN depends on a single distribution center located in Louisville, Kentucky. A portion of ANN's merchandise is distributed to the stores through third-party distribution centers located in City of Industry, California and Toronto, Canada. Merchandise sold on the company's websites www.anntaylor.com and www.loft.com is delivered by a third-party fulfillment vendor located in Bolingbrook, Illinois. Any interruption in the operations of the Louisville distribution center or of the distribution operations of these third parties could adversely impact ANN's ability to distribute merchandise to the stores. This could result in lower sales, loss of brand loyalty, increased costs and inventory issues which, in turn, could have a negative impact on the company's Consumer traits A number of industry players, including Chico's FAS Inc. and Ann Inc., specifically target affluent women through private-label brands with high prices. The success of these brands depends on the income levels of consumers and their willingness to spend more on clothing than is necessary. Underpinning an anticipated 2.0% increase in industry revenue in 2015, consumer confidence and per capita disposable income are both expected to rise in the coming year, indicating healthy retail conditions in the United States. Growth in a specialized stores industry requires a strong consumer economy. Women's clothing stores' reliance on wealthy customers is illustrated by consumers from lower income brackets spending less on women's apparel in 2013, while consumers earning $150,000 or more increased these expenditures. According to the Bureau of Labor Statistics (BLS), average annual expenditures on women's apparel decreased by 12.7% from 2011 to 2013, while total industry revenue increased an es timated 5.2% over the same period. Many consumers looking for clothing at lower prices will choose alternative retailers over specialized clothing stores. Another important success factor for industry stores is the ability to keep up with consumer trends within their target demographic and provide the styles that customers desire. Many of the industry's major players market their products to young to middle-aged women, making the number of consumers within these demographics an important figure. Declining mall traffic is an ongoing concern for retailers with these target markets, with a number of well-known brands in the industry recently dissolved or in crisis. Industry competition IBISWorld expects the number of industry enterprises to grow at an annualized rate of 2.8% over the five years to 2015, reaching an estimated 33,079 companies. Internal competition is high, with industry stores competing for sales through advertising, comparable pricing and limited-time promotions. Many industry players are small and run only one establishment, and 60.6% of stores have fewer than 10 employees. Since the recession, larger industry players and private equity firms have acquired small companies that did not fare well in times of declining sales and increased purchase costs. Competition from businesses outside the industry has also made survival difficult for smaller players, some of which cannot compete with low prices from discount retailers and used goods stores. Many consumers on a budget have less discretionary income to spend on fashion and base their choices on price. People and places According to the BLS, jobs within the retail sector provide employment for over 4.0 million people. In total, the Women's Clothing Stores industry is expected to employ 421,272 workers in 2015, with employment having grown at an average annual rate of 5.2% over the past five years. The BLS reports the median hourly wage to be $10.16 for retail salespersons. While these wages might seem to be a small expense in an industry with billion-dollar major players, IBISWorld estimates that they account for 14.4% of industry revenue. This is attributable to the many boutiques stores with fewer costs than larger operations, with wages taking up a large portion of a boutique's budget. The geographic spread of industry stores is concentrated in metropolitan areas, particularly within New York and California. Fashion hubs like New York City and Los Angeles provide specialized clothing stores the opportunity to network with designers, merchandisers and fellow retailers, and gain exposure in the industry. This networking can lead to changes and improvements in a store's supply chain, and enable the store to effectively follow trends within the industry. Consumers with higher incomes are also concentrated around these areas, supplying high-end operators with their preferred customer base. References: 1. Armstrong. M. A (2006)Human Resource Management Practice (10th edition) 2006, Kogan Page , London ISBN 0-7494-4631-5 2. Brassington, F. and Pettitt, S. (2006). Principles of Marketing. 4th Edition. Pearson. ISBN: 978-0273695592 3. Gupta, Sunil, Lehmann and Donald R.(2005) Managing Customers as Investments: The Strategic Value of Customers in the Long Run, pages 70-77 (Customer Retention section). Upper Saddle River, NJ: Pearson Education/Wharton School Publishing. ISBN 0-13-142895-0 4. 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