978-0078029295 Case Ann_Taylor Part 3

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

Human resource

management (effective

recruitment, incentive &

retention mechanisms)

Ann has had high turnover among the senior management

team. However, it isn’t clear that human resource

management is more or less difficult at ANN compared to

other specialty retail companies.

General Administration

(effective planning systems

to establish goals &

strategies, access to capital,

effective top management

communication,

information systems,

relationships with diverse

stakeholders)

Not enough is really given in the case to comment, although

CEO Krill appeared to have the longevity with ANN and

therefore the credibility to create effective planning systems

to establish goals & strategies, and manage relationships with

diverse stakeholders. One area of concern is the degree to

which Krill communicates effectively with top management.

Although turnover at the VP ranks appears common in retail

(see in Case Exhibit 8 that executives rotate among

competing firms, and rarely come from outside specialty

retail), Krill seemed to have had difficulty communicating

who should do what, especially with Laura Weil.

idea of “unique bundles of activities/resources” as the basis of sustainable competitive

advantage. This analysis may highlight the difficulties facing ANN. Possible responses are listed

below:

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Resource/Activity Is it

Valuable?

(V)

Is it

rare?

(R)

Is it

difficult to

imitate? (I)

Is it difficult

to find a

substitute

(alternative)?

(N)

Value Chain:

Inbound logistics Yes No No No

Operations Yes No Maybe No

Outbound logistics No No No No

Marketing and sales Yes No Maybe No

Service Yes No No No

Procurement Yes No No No

Technology development Yes No Maybe No

Human resource management Yes No No No

General administration Yes No No No

RBV:

Financial Yes No No No

Physical Yes No No No

Technological Yes No No No

Organizational No No No No

Human Yes No Maybe No

Innovation & creativity No No No No

Reputation Yes No Maybe Yes

easily characterized as rare or non-substitutable. With high labor mobility and non-exclusive

systems, it is hard to see any capability as being rare. The question about imitability is interesting

and we really don’t have enough in the case to draw any conclusions with certainty. The table

identified five areas that are most likely to be harder to imitate – areas where ANN could gain

Similar to the discussion on the general environment, all students will be able to identify ANN’s

resources and the company’s capabilities that are relevant to the company’s ability to compete.

Average students will have at best a sense of what separates a resource from a capability and will

usually not have memorized either the categorization typology for resources or the value chain

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

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

human resource policies and processes that provide training and incentives to front line workers

to ensure a strong customer service orientation. It appears that ANN is aware of the need for

these activities to be well executed.

continually upgrading the resource base to enable broadening of the product range, possibly

through related diversification. Grant also points out that the time frame is a factor – ANN

operates in a seasonal environment, an aspect important to note. Prahalad and Hamel (1990) echo

Grant’s emphasis on capabilities in their suggestion that “core competencies”, or “the collective

make after doing these additional readings.

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?

Students might note that there is a lot of information in the case about branding and the

continuous changes in consumer fashion preferences. If the class discussion hasn’t already

established the fact that ANN is very representative of the specialty retailer category, this

representativeness can be reinforced here. The instructor can specifically cite as an example of

the specialty retailing branding dilemma the quote from a participant at the National Retail

Federation (NRF) 2007 convention in section 3 of the case: “Brand building, acquisition, and

tiering is hotter than ever in retail and consumer products – so much so they may be contributing

to shorter life spans for some brands and perhaps diluting the value of all. In any event, the

massive proliferation of brands in recent years – some out of thin air, others even reborn from the

grave – brings with it a minefield of potential dangers.” AT and LOFT are just examples of this

phenomena of brand-building more generally seen in the other examples of specialty retailers

found in the case. However, in implementing this strategy, there is, as noted in the quote, always

the risk of creating shorter life spans for some brands and/or diluting their value.

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

Although this case is not specifically about marketing, there is some cross-fertilization.

Interested instructors might want to check out the writings of David Aaker and Kevin Lane

Keller (1990) on brand management and the risk of brand extensions to augment the case

regarding the marketing piece. Specifically, Aaker & Keller point out:

The brand extension decision is strategically critical to an organization. Though an

extension is a way to exploit perhaps the most important asset owned by a business, it

also risks decreasing the value of that asset. The wrong extension could create damaging

associations that may be expensive, or even impossible, to change [here the authors

reference Ries & Trout’s 1981 book on Positioning]. Further, the decision usually

involves an important strategic growth thrust. If the judgment is wrong, substantial time

and resources are lost and other market opportunities may be missed. (p. 27-28)

LOFT was a separate business unit, a brand extension borrowing clout from the original. Even if

AT was struggling at the time of the case, its historical reputation would help propel LOFT

along. The difficulty is to acknowledge the life cycle and re-vision the Ann Taylor brand: define

and position it first, and then position LOFT in relationship to AT in such a way that both are

able to compete in their respective target markets without undue cannibalization. It appears by

the end of the case that Krill was aware of (and moving with regard to?) this challenge.

POSSIBLE ADDITIONAL ASSIGNED READING: A good source for introduction of these

topics in addition to Aaker & Keller (1990) is the article by Charlotte H. Mason & George R.

Milne, 1994, “An approach for identifying cannibalization within product line extensions and

There may be evidence on both sides of the cannibalization argument: regarding the two

different “personas” developed for “Ann” and for the LOFT client (see Section 6 in the case), it’s

possible these personas are overlapping. At the very least, the modern woman may be both

personas, shopping at both stores, and spending her clothes budget at either one as the need and

As ANN continues to pursue growth, innovating new concepts always runs the risk of

cannibalizing existing concepts. This cannibalization risk may be also exist with Krill’s proposed

“new concept” targeting the “older women” boomers, as it did with the launch of Ann Taylor

LOFT into the existing Ann Taylor (AT) shopping environment. When introducing multiple

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

margins. If the investment in the new concept does not add financial growth, then this investment

[Profit(A) + Profit (B)]/[Investment(A) + Investment((B)] is this + or > Profit (A)/I(A)? In other

words, is the Profit (or profitability) derived from A + B greater than the Profit of A or B alone?iii

Moving on in the discussion, there is the more general concern raised in the quote about life

life cycle.

Perhaps similar to the example of Chico’s, AT may have reached some level of maturity a while

back while LOFT appeared to be still in a growth phase. With the results in 2006, LOFT may be

showing signs of maturity given the potentially shorter life spans (see Case Exhibit 1). But,

the AT brand.

All students will see the clearly indicated difference in performance between the brands and

those who read the case with any diligence will see that even though the brands were created to

loyalty and more finely honed marketing campaigns. Again, better students will see that the push

for brand extensions is linked to being a specialty retailer. Specific to firm performance, better

students will be able to see the connection to the industry life cycle model and will be able to see

how brands can move from growth to maturity and back again.

• Ann Taylor (AT) Collections – high quality special occasion AT designer clothing,

40% more expensive than AT

• Ann Taylor (AT) – chic, sophisticated professional and special occasion wear

• Ann Taylor Factory – sophisticated offerings direct from AT designer, discounted 25-

30% cheaper than AT

• LOFT – casual fashion, 25-30% cheaper than AT

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• LOFT Factory – casual pieces direct from LOFT designer, discounted 25-30%

cheaper than LOFT

• Ann Taylor Beauty – fragrance, body and bath products branded as Ann Taylor, sold

at both AT and LOFT

in the minds of consumers.

Regarding an answer to the question “can ANN increase sales and improve financial results in all

its brands and formats at the same time?”, as previously noted, it might not matter as long as

overall revenue is up, and all brands are profitable. One interesting piece of data to note is that

AT could not.

Having clearly established some understanding of the risks associated with brand building in the

earlier conversation, students can explore how these ideas can be extended beyond the specialty

affect the “master” brand name reputation.

As students see in the example of AT and LOFT, brand extensions sometimes run the risk of

creating cannibalization between brands as target market overlaps can occur. Both AT and LOFT

were focused on women’s clothing. However, other examples of brand extensions noted in the

The list of ANN assets shows a possible problem of cannibalization between all the women’s

clothing business lines. However, the risk with something like Ann Taylor (AT) Collections

would arguably be much less than it would be between AT and LOFT as the target markets of

the businesses seemed to be further apart: Collections was created to appeal to the luxury

occur would actually diminish the Ann Taylor brand name.

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

Discussing the risk of brand building and brand extension in different industries can be difficult

for all students. Better students are generally more curious students with a greater awareness of

current events and more knowledge of a variety of different industry examples. With prodding,

8. Assess the level of relatedness in ANN’s strategic decisions. Does ANN have a corporate

strategy?

According to Dess, Lumpkin & Eisner, Strategic Management, corporate level strategy addresses

two related issues: a) what businesses a corporation should compete in and b) how those

businesses should be managed to create the maximum synergy, i.e. can the business units be

more valuable working together than they would be if they were apart? Limited Brands was one

example of a firm that decided to sell off some of its brands (Abercrombie & Fitch being the

major divestiture), and keep Victoria’s Secret, presumably because of heavy resource

requirements and a lack of relatedness between Victoria’s Secret and the discarded businesses.

Another example was Gap and its relationship to Forth and Towne.

As noted in question #3, it is critical to be clear on industry definition. In the context of ANN,

the two options discussed were to define the industry in the broader context of retailing as

clothing or as women’s clothing. If the industry is clothing retailing, then all of ANN’s prior as

well as proposed strategies would be considered business level strategies, as ANN is not

changing the business in which it competes, i.e., the business defined here as women’s clothing.

However, as suggested earlier, it makes sense to define the industry more specifically as

women’s clothing. In this context, the analysis changes as many of ANN’s growth strategies can

be considered corporate level strategy.

In the context of women’s clothing, ANN’s early decisions to enter stand-alone shoes, make-up,

and children’s clothing represent corporate strategy decisions to horizontally diversify (unrelated

diversification) into completely different businesses. The fact that ANN had pulled back from all

previously presented.

ADDITIONAL READING ON MARKETING STRATEGY: Further discussion can include

more marketing strategy, especially how to serve customer needs in a changing environment,

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referencing Aaker, 2007, especially his discussion of the “value proposition”: the perceived

benefit to the customer in terms of the functional, emotional, social and self-expressive

components of the product or service. (See Aaker, Strategic Market Management, 8th edition,

chapter 1.)

 Start a new chain of stores targeting the older women’s segment 55-64

 Open a LOFT Factory store

 Continue to explore the LOFT maternity wear concept

 Expand a separate department within AT for the expensive Collection line to compete

with luxury brands like Prada and Gucci

The beauty business seems to be an unrelated diversification, like the shoes business was

previously. There appears to be no clear reason for a beauty business, except Krill’s desire to do

it in an attempt to gain market share in this area. However, the presence of these beauty products

as a separate department within the LOFT and AT stores provides for synergies between the

This analysis can become tricky. AT and LOFT are the most prominent divisions in the case and

thus the most interesting in terms of analyzing the relationship between them. Many students

may see the relationship between these two divisions as a corporate level diversification strategy.

As both AT and LOFT had clearly different business strategies (both had a focus strategy, but

having handled this role at LOFT herself since 2007. See also Exhibit 8: Summary of Personnel

Changes.) At the end of the case, Krill was seeking to create more synergy between the

businesses through better coordination of activities, indeed she herself seemed to be directing

these efforts.

business level competitive advantage.

A comparison can be made to other industries and it might be help students to gain some

perspective through such a comparison. Parallels can be made to restaurant chains that own more

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than one restaurant like Darden Restaurants, the owner of Red Lobster, Olive Garden, and

LongHorn Steakhouse. We would also recommend the beverage industry as an appropriate

analogy. Coca-Cola Co. makes many types of beverages including water, soda, juice, tea, etc.

The situations are similar — or the same — as a specialty retailer like ANN having many types

Average students sometimes have trouble recognizing the difference between the corporate and

business levels. However, earlier discussion should have already begun to make the distinction

clear in the case of ANN. So, the difference between students should be somewhat minimized at

this point. However, the complication presented in this case is difficult for all students. As

not seem like corporate strategy.

9. Assess ANN’s growth strategy moving forward. What do you think Krill should do?

Determining whether ANN’s growth strategy makes sense requires students to integrate all of the

preceding discussions about the nature of the external environment with an awareness of ANN’s

resources and capabilities in the internal environment.

POSSIBLE ADDITIONAL ASSIGNED READING: Depending on the text the instructor is

using, it might be necessary to assign additional reading in order to fully investigate the issues

underlying this question. These readings might include Ansoff, 1957; Porter, 1996; Porter, 2007;

Day, 1998. (See the reference list.)

Some strategy texts introduce Ansoff’s (1957) Product Market Growth Matrix as a way of

assessing growth strategies. In this case, for ANN, the four choices might be:

• Market Penetration – ANN could use current products to further penetrate the current

market and gain more market share by emphasizing efficiencies and innovation in

distribution, pricing and promotionby, for instance, beefing up the online shopping

channel;

• Market Development – ANN could use current products to enter a new segment of the

market by fine tuning or identifying a previously underserved segment, as LOFT Factory

is proposing to do;

doing with the beauty line.

The question remains whether ANN has the resources and capabilities to succeed at any of these

strategies, given all the initiatives Krill has proposed to pursue at the same time. One certain

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constraint appears to be human resources. Case Exhibit 8 shows the lack of stability in upper

management, and the number of newcomers to the corporation. Given the apparent lack of

seasoned talent at the top, what would ANN do if something happened to Krill? Another

constraint may be the need for more warehousing space, given that the single facility in

Porter, in his 1996 article “What is strategy?”, makes a plea for strategic positioning, identifying

unique activities, and, most importantly for ANN, making trade-offs. Porter also points out the

need for central coordination of activities, and the alignment of functional managers. In his 2007

interview in Fast Company, Porter says:

One can argue that ANN does not seem able to set limits. Only one specialty retailer in the case,

Limited Brands, appears to have taken Porter’s advice to heart, divesting itself of brands that had

the potential for good performance (Abercrombie & Fitch, Lane Bryant), and paring down to

focus resources on key brands Victoria’s Secret and Bath & Body Works (see Case Section 3).

Porter (2007) also has strong words regarding the CEO’s role:

If people in the organization don’t understand how a company is supposed to be different,

how it creates value compared to its rivals, then how can they possibly make all of the

In the case, Section 7, there’s a telling quote from Krill saying that she has to spend her time “on

many things”, one of which is to get both the AT and LOFT divisions moving forward

simultaneously. The implication is that she is heavily involved in the operational details. The

degree of Krill’s involvement in day-to-day decisions might get even worse when the company

Regarding the customer, Porter (2007) says, “strategy is about the basic value you’re trying to

deliver to customers, and about which customers you’re trying to serve” (p. 7). Continuing this

argument, George Day, in his 1998 article “What does it mean to be market driven?”,

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