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The CASE Journal

Volume 5, Issue 2 (Spring 2009)

www.caseweb.org

Article Ref # TCJ 05-02-02im

ANN TAYLOR: SURVIVAL IN SPECIALTY

RETAIL

Instructors’ Manual

Pauline Assenza

Manhattanville College

Alan B. Eisner

Pace University

Jerome C. Kuperman

Minnesota State University Moorhead

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For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

Instructors’ Manual

Ann Taylor:

Survival in Specialty Retail

Pauline Assenza

Manhattanville College

Alan B. Eisner

Lubin School of Business, Pace University

Jerome C. Kuperman

Minnesota State University Moorhead

CASE USE AND OBJECTIVES

This teaching note provides:

• Suggestions for case use and objectives

models.

The Ann Taylor case is a candidate for a “comprehensive” case that can be used to illustrate

many facets of strategic management. AnnTaylor Stores Corporation (ANN) was a large

specialty retailer facing an extremely competitive environment. The slowing economic

challenges outlined in Ann Taylor make it possible to use the case to augment a discussion of

marketing strategy (Aaker, 2007).

This case is primarily intended for use with graduate or advanced undergraduate students in the

Ann Taylor can be used to compare and contrast Porter’s (1985) generic strategies and the

advantages and disadvantages of those strategies. One challenge facing ANN is how to balance

differentiation and focus among several different product lines, especially given ANN’s internal

TCJ05-02-02TN

For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

The CASE Journal Volume 5, Issue 2 (Spring 2009)

and value chain configuration (Porter, 1985), including the concept of core competence

(Prahalad & Hamel, 1990), is possible here.

terms of relatedness and potential synergies.

Ann Taylor provides an opportunity to discuss growth strategies (Ansoff, 1957), strategic

positioning (Porter, 1996) and the importance of a market orientation (Day, 1998) within the

context of a discussion of issues affecting brand strategy/brand extension decisions and the

(1996, 2007) concept of “trade-offs”.

The Ann Taylor Case can be used with popular strategy textbooks such as:

• Wheelan & Hunger’s Strategic Management and Business Policy

• David’s Strategic Management: Concepts

organizational structural decisions.

Further assigned reading is possible depending on the instructor’s specific objectives. See Table

1, below, and suggestions within this teaching note, with full citations in the References section.

Section 1: Review of Ann Taylor’s history

Section 2: Information on the overall apparel retail industry environment

Section 3: Challenges specific to growth and branding in specialty retail

Section 4: Information about ANN’s direct competitors

Section 5: ANN operational information

Section 6: ANN’s branding strategies

Section 8: Presentation of new corporate initiatives

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The CASE Journal Volume 5, Issue 2 (Spring 2009)

• Revisions to the product lines of different divisions

• Expansion of existing divisions

• Further diversification into new businesses

• Better maintenance of distinct brand identities across different divisions

• Executing a proposed restructuring plan

• Stabilizing the top management team

following set of questions:

• What should Krill have done to unleash what she believed was the firm’s “significant

untapped potential”?i

• Had Krill’s new strategies been well considered, given the ongoing challenges of AT and

initiatives?

In order to help students reach a more thoughtful and informed conclusion to any or all of the

above, we present the instructor with a variety of potential discussion prompts. These questions

should help move students through all of the required steps of a comprehensive strategic analysis

also be assigned as an additional assignment.

TCJ05-02-02TN

For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

The CASE Journal Volume 5, Issue 2 (Spring 2009)

Ann Taylor Stores Table 1. General Discussion Questions

General Discussion

Questions

Case

Sections

Textbook

Component

Strategic Theory

or Model

Additional Suggested

Reading/Exercise

1. Has ANN been

successful? Be sure to

provide support for your

response.

All Processes of strategic

analysis, formulation,

implementation, &

evaluation

Have students compute

ratio analyses. Refer to the

Ratio Analysis, TN Exhibits

A & B.

2. Identify key changes in

the general environment.

How will these trends affect

retailers in general and

ANN in particular?

Sections 2-

External

environmental

analysis

General environment

(PEST): political-

legal, economic,

sociocultural/

demographic,

technological

Have students reflect on

their own recent shopping

experiences, or interview

others who are frequent

shoppers for specialty

goods.

3. What industry is ANN

in?

Section 2 External

analysis

Industry

segmentation,

competitive scope

Have students list all the

different types of retail

environments.

4. Using Porter’s Five

Forces model, identify the

key issues in the

competitive environment

that affect ANN and its

rivals. Identify and evaluate

the competitive forces that

shape the industry structure.

How much opportunity

exists for industry players?

Sections 3-

External

analysis

Porter’s Five Forces

analysis

Read: Porter, 1980,

Competitive Strategy;

Porter, 2008, The five

forces that shape strategy.

Assign: visit to the Internet

to update current financial

data – see TN Handout A &

5. Does the industry

structure make one generic

competitive strategy more

attractive and attainable for

ANN than another?

Sections 1,

2-6

Business level

strategy

Porter’s generic

strategies:

differentiation, cost-

leadership, focus

Porter, 1985, Competitive

Advantage

6. To what degree do

ANN’S internal resources

and capabilities provide an

advantage not available to

potential or current rivals?

On which of these resources

and capabilities should

ANN concentrate?

Sections 1,

5-8

Internal

environment of

the firm

Internal resources &

capabilities, resource-

based view of the

firm, VRIN,

intangible resources,

value chain, possible

core competencies

Barney, 1991, Firm

resources & sustained

competitive advantage;

Grant, 1991, Resource-

based theory of competitive

advantage; Prahalad &

Hamel, 1990, Core

competence; O’Riordan,

2006, VRIO framework

7. Assess the branding

strategy that created AT and

LOFT. Can ANN increase

sales and improve financial

results in all its brands and

formats at the same time?

Sections 1,

3-4, 6

Strategic

formulation

Life-cycle theory,

branding, brand

extensions and

possible

cannibalization

Aaker & Keller, 1990,

Consumer evaluations of

brand extensions; Mason &

Milne, 1994, An approach

for identifying

cannibalization within

product line extensions

8. Assess the level of

relatedness in ANN’s

strategic decisions. Does

ANN have a corporate

strategy?

Sections 1-

Corporate level

strategy

diversification, value

proposition

Aaker, 2007, Strategic

Market Management

9. Assess ANN’s growth

strategy moving forward.

What do you think Krill

should do?

Sections 1-

Strategic

Implementation

& Evaluation

Strategic fit,

positioning, trade-

offs, market

orientation, product-

market growth

matrix, managerial

conceit

Read: Ansoff, 1957,

Strategies for

diversification; Porter,

1996, What is strategy?;

Day, 1998, What does it

mean to be market-driven?;

Porter, 2007, Porter’s Big

Ideas. Assign: Earnings

Conference Call, May 08

TCJ05-02-02TN

For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

The CASE Journal Volume 5, Issue 2 (Spring 2009)

CASE SYNOPSIS

The Ann Taylor Case provides information about both Ann Taylor Stores Corporation (ANN)

and the overall retail environment. The case depicts ANN, a women’s specialty clothing retailer

that had been successful in creating a complete product line that appealed to its target

demographic of socially upscale professional women, but that in 2008 faced increasing

competition and a challenging economic environment. ANN had experienced significant growth.

However, success had been very uneven between the original Ann Taylor Stores (AT) division

that sold updated classics and the company’s newer Ann Taylor LOFT division that carried

lower priced casual merchandise. Specifically, sales data (see Case Exhibit 1) shows that in both

2004 and 2005 LOFT sales grew by over 12 percent, while the flagship AT Stores had a sales

decline of almost three percent. However, from 2006 to 2008, differences between the two

divisions were minimal, with AT doing slightly better than LOFT. Going into 2008, ANN sales

growth had declined in each of the two primary divisions, with only Ann Taylor Factory and

Internet sales increasing.

ANN was not the only retailer suffering in a poor economic climate (see Case Exhibit 7). The

news reports quoted at the beginning of the case confirm that the entire retail industry was facing

an unpredictable environment. Retail businesses were encouraged to take a close look at

operations to see what changes might have to be made. ANN’s current CEO, Kay Krill, was

already doing so. She had already begun to implement a variety of initiatives and was

considering several more.

To generate growth, Krill had identified several distinct areas of opportunity. She continued her

ongoing efforts to revitalize the flagship Ann Taylor (AT) store brand, while not dampening

LOFT’s recent growth. In addition, ANN had recently launched a beauty business as a

department within the AT and LOFT stores, was testing a maternity section in selected LOFT

stores, had expanded the high end fashion offerings in AT as a separate Collections line,

announced the opening of LOFT Outlet stores to complement Ann Taylor Factory, and was

considering a new concept store specifically targeting the “older” segment of women ages 55-64.

The case provides examples within the context of the larger retailing industry to show that

ANN’s strategy was consistent with growth initiatives pursued by many of its fellow specialty

retailers. ANN’s proposed focus on the older, upscale segment put it most directly in competition

with three firms: Chicos FAS, Coldwater Creek, and Talbots.

As early as 2005, Krill had begun to implement several measures focused on the improvement of

existing operations. While ANN had been growing its store base around the country, it had also

been focused on maintaining and upgrading those stores starting with 43 store enhancements.

ANN had also recognized the need to improve its margins, and recent ANN initiatives had

focused on improving supply chain speed, flexibility, and efficiency. New inventory

management strategies were focused at reducing the levels of inventory per square foot, reducing

the amount of merchandise markdowns required at the store level, and, hopefully, helping to

improve profitability.

TCJ05-02-02TN

For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

The CASE Journal Volume 5, Issue 2 (Spring 2009)

However, these investments came under review in 2008 after the downturn in sales. CEO Krill

announced a restructuring plan to focus on the evolution of ANN’s brands and channels,

reduction of the firm’s overall cost structure, and continued pursuit of growth. The reduction of

cost structure included layoffs of headquarters staff and reconfiguration of executive

performance compensation bonuses. Some analysts questioned the wisdom of Krill’s ongoing

involvement in day-to-day operations and wondered if the turnover in upper management since

2006 might be a problem. It is clear that Krill was firmly committed to long-term growth.

However, the basic question of the case is whether she was doing what she should do to unleash

what she believed was the firm’s “significant untapped potential”.

Note on the research method used to prepare this case: The Ann Taylor Case was written using

library research and public source material. The authors appreciate feedback from ANN’s

director of communications Beth Warner in July 2007. Ms. Warner specifically commented that

there was no apparent cause and effect relationship between AT sales decline and the growth of

LOFT. However, no major member of ANN’s management would comment on record.

TEACHING PLANS

As a General Discussion Business Case: The instructor can simply allow students to speculate

and discuss what they think is right/wrong with the company, their assessment of the company’s

decisions, and their predictions regarding the company’s future. A general discussion approach

could be based on a simple SWOT analysis.

One approach to help move students through this process is to put them in groups and ask the

groups to assess what went right and what went wrong with the AnnTaylor Stores Corporation

relative to the competitive retailing environment as detailed in the case. In smaller classes, the

instructor might have the students put a summary of the team’s discussion on the board. This

group work will allow students to see where they agree and where they disagree and, in all

likelihood, foster further discussion. The instructor’s role in this scenario is to guide students

through the discussion such that they begin to realize that there are key tensions or issues in this

case that must be addressed before conclusions can be drawn. Students can then see that their

conclusions rely on certain assumptions regarding the organization’s internal and external

environments.

Of particular concern is to help students understand that they cannot analyze business strategy

decisions without first defining the competitive environment in which the firm exists. As a

critical first step, students have to think about how they define the industry in this analysis. With

whom does Ann Taylor compete is an essential question for students to consider. Sections 1-4 of

the case are especially applicable to this aspect of students’ analyses. Discussion Questions 1, 2

and 3 are appropriate for this level of discussion.

As an Advanced Case: It is assumed that students at this point in the class have been exposed to

the various frameworks associated with different types of analyses. The instructor should feel

comfortable being more directive in guiding the discussion and asking students to incorporate

various types of analyses including General Environment and Five Forces analyses, VRIN

analysis, generic business strategy analysis, and a corporate strategy relatedness analysis, using

TCJ05-02-02TN

For use in conjunction with Strategic Management 13E, Pearce & Robinson. Expiry date 2015.

The CASE Journal Volume 5, Issue 2 (Spring 2009)

discussion questions 4 – 6 and 8. Question 7 provides the opportunity to include a discussion of

marketing strategy.

To focus students’ reading and study, instructors can pose questions such as those provided

below in the section “Analysis of General Discussion Questions”. Questions such as these are

meant to provide structured guidance to allow students to apply the various models that they see

in the textbooks to the specific context of this case. In the Ann Taylor case, we believe that

students should be especially encouraged to think about the complex relationship that exists

between the external environment and the internal environment. In particular, encourage students

to consider the extent to which specialty retailers such as Ann Taylor seem to be such complex

enterprises with constantly changing strategies as a natural response to a particularly turbulent

and uncertain external environment.

ANALYSIS OF GENERAL DISCUSSION QUESTIONS

NOTE TO INSTRUCTOR: Here is a list of the suggested general discussion questions. You

can decide which questions to assign, and also which additional readings or exercises to include

to augment each discussion. Bear in mind that the first three questions are best for a general

business case discussion, and may not require that students read the entire case. Refer back to

Table 1 to identify any additional readings and/or exercises so they can be assigned in advance.

1. Has ANN been successful? Be sure to provide support for your response.

general and ANN in particular?

3. What industry is ANN in?

4. Using Porter’s Five Forces model, identify the key issues in the competitive environment

that affect ANN and its rivals. Identify and evaluate the competitive forces that shape the

industry structure. How much opportunity exists for industry players?

attainable for ANN than another?

6. To what degree do ANN’S internal resources and capabilities provide an advantage not

should ANN concentrate?

strategy?

1. Has ANN been successful? Be sure to provide support for your response.

Here the instructor could have students form teams to argue whether ANN was successful or a

company in a state of constant struggle. A table with headings “Success Indicators”, “Problems”,

“Ongoing Challenges” would help focus the discussion on why firms need to engage in some

form of strategic management. We would expect students to generally note a turbulent history

with constant change and seemingly a never ending series of crises.

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OPTIONAL EXERCISE: Instructors can assign a financial ratio analysis at this point, to

encourage students to use data to illustrate their arguments here. The results of various ratio

analyses, and the method used to compute these, is available at the end of this teaching note as

Exhibits A & B. Students can also be encouraged to take a look at a current financial analysis

using the Internet, perhaps Yahoo! Finance at http://finance.yahoo.com/q?s=ANN, to see how

the industry is faring (also see the Competitor Comparison Handout A at the end of this teaching

note.)

As seen in Section 1 of the case, almost every year since Ann Taylor went public the company

has made some type of significant change. These changes have been of two primary types. First,

there is ANN’s constant movement into and out of a variety of businesses. Examples include

their failed attempts at selling cosmetics and fragrances as well as the failed attempts to open

Ann Taylor’s Studio Shoes and Ann Taylor Petites. Second, there is the top management team

appears to characterize the industry.

Finally, as another sign of turbulence, if not actual change, students might note the highlighted

tension between AT and LOFT as a sign of potentially unhealthy or dangerous internal

competition. This tension seems to have caused concern about stability and a lack of consistency

On the other hand, many students will want to point to ANN’s bottom line and conclude that the

company has been very successful. The case notes a 1996 loss due to a fashion misstep. Beyond

that, there is only evidence of growth and financial success, at least up until 2007. Following the

1996 difficulties noted in Case Section 1, the stock price moved up without any major

5). Thus, overall, students can validly conclude that ANN has in fact been very successful. The

downturn in 2007, going into 2008, is caused by macro-economic forces and is not specific to

ANN. Students can take a look at a current financial analysis, perhaps using Yahoo! Finance at

http://finance.yahoo.com/q?s=ANN, to see how the industry is faring (also see the Competitor

The contrast between a company that is growing and financially profitable and a company that

has many business transitions and top management team changes may be the most interesting

aspects of ANN’s situation. Most students will find it difficult to see how a company that seems

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so internally “unstable” can also be so successful. One key point lies in the recognition that the

external environment is fraught with uncertainty for specialty retailers and they experience

change as normal. Indeed, ANN’s situation may be the norm. In the general environment, socio-

cultural fashion tastes change significantly every year. The competitive environment is difficult

teaching note).

The case notes several examples of other retailers’ struggles as they respond to their unstable

external environment. Section 3 of the case points out that most specialty retailers create brand

divisions to meet specific market segment demands, even though this strategy can be risky.

In Section 7 of the case all students should readily identify the significant turnover in ANN’s top

management. Average students will conclude that the management turnover is a sign of internal

weakness and will not push their analysis further. Better students will delve into the financials

and thus be able to see that there is a lot of success even while there is high turnover. Similarly,

Average students will draw conclusions based on one or two pieces of evidence. Better than

average students will note the conflicting evidence and suggest that, in spite of the turnover, the

company has achieved considerable success for its shareholders. The more advanced and cynical

students might note that the increase in EPS (Earnings Per Share) in spite of the drop in income

Plans and Initiatives. This information is also available if students are encouraged to look at a

current financial analysis, such as the one provided as Exhibit A at the end of this teaching note,

or via the Internet at Yahoo!Finance, for instance.)

• ANN has no long-term debt, however the company might have problems funding new

activities given its decline in short-term liquidity measures such as Current Ratio, Quick

Ratio, and Working Capital per Share.

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