978-1259278211 Case 10 Solution Manual Part 2

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CASE UPDATE – ANN acquired by Ascena:

Given the overall turmoil in the specialty retail industry, and ANNs struggles, it was not

surprising that in May, 2015 Ascena Retail Group purchased ANN for about $2.16 billion.

According to one analyst, “The takeover unites the Ann Taylor and Loft brands with Ascena’s

Ascena Retail Group, Inc. (NASDAQ – ASNA) is a leading specialty retailer offering clothing,

shoes, and accessories for missy and plus-size women under the Ann Taylor, LOFT, Lou &

Grey, Lane Bryant, Cacique, maurices, dressbarn, and Catherine’s brands, and for tween

The following is a quote from the article:

Ascena has built an empire through acquisition of brands that sell clothing to real American

women – those on a budget, and who might not wear size eight. [Ascena Chief Executive David

Jaffe has built] Ascena into a holding company that handles back-end operations like sourcing

and distribution for a growing stable of brands. He has focused on chains in underserved but

[According to one story,] Ann Taylor brings the company a venerable line popular with suburban

moms and career women, while Loft sells more casual sportswear. But it is also a bet on a

segment of retailing that has been among the most troubled. A number of women’s clothing

Perhaps he is right? See story at http://www.wsj.com/articles/ann-inc-agrees-to-sell-itself-for-2-

2-billion-1431949557

NOTE: THE TEACHING NOTE DOES NOT REFLECT THIS RECENT NEWS. Instructors

1. What internal resources and assets did ANN have that gave it a competitive advantage?

Referencing Chapter 3: Assessing the Internal Environment of the Firm

If one firm wants to outperform others by a wide margin over a long period of time, it’s

important to figure out how this could be done. The answer may lie in how that firm arranges its

Remember, value-chain analysis is a strategic analysis of an organization that uses value-creating

activities. Value is the amount that buyers are willing to pay for what a firm provides them and is

measured by total revenue, a reflection of the price a firm’s product commands, and the quantity

Every activity should add value. Take a look at Exhibit 3.1 to see the value chain activities.

The case, of course, is obviously focused on ANN. However, it may be fruitful for the instructor

Value chain activity How does a specialty retailer create value for the

customer? What challenges did ANN have in its value

chain?

Primary:

Inbound logistics

(distribution facilities,

material control systems,

warehouse layouts)

Certainly, it is always important to maintain stock of

necessary items both in the warehouses and the stores. It also

helps to do that efficiently. Still, beyond meeting minimal

requirements, this area would not appear to be critical.

Operations (efficient work

flow design, quality control

High-end specialty stores have limited space & merchandise.

The shopping experience in the store is critical to the

Outbound logistics

(consolidation of goods,

efficient scheduling,

Specialty retailers have one logistics location, appropriately

noted as inbound. They do not have finished goods

warehoused like manufacturers do. Outbound logistics is

Marketing and Sales

(motivated sales people,

innovative advertising &

This area seems to be absolutely critical for a specialty

retailer. There is no room for error in identifying the market

and effectively promoting to it. ANN uses multichannel

Service (ability to solicit

customer feedback &

Throughout the modern economy, all companies in all

industries are increasingly recognizing the value of this

Secondary (or support):

Procurement (win-win

relationships with suppliers,

reduced dependence on

Relying on international partners for international production

reduces dependence on centralized structure. Department

stores must do more of this activity as they not only purchase

Technology development

(state of the art hardware &

software, innovative culture

& qualified personnel)

All retailers invest in IT upgrades and innovations, especially

regarding the Internet, logistics, inventory and store

management. However, this area is not as critical for ANN as

it might be for others with a cost leadership strategy. Given

Human resource

management (effective

Ann has had high turnover in the past among the senior

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

General Administration

(effective planning systems

CEO Krill appeared to have the longevity with ANN and

therefore the credibility to create effective planning systems

Primary Activities

In terms of primary activities, the key to ANN’s ability to differentiate itself in the market

seemed to reside in its operations and marketing. As was critical for any specialty retailer, ANN

Support Activities

With regards to support activities, a competitive advantage can be achieved by developing a

strong general administration that is built around visionary leadership and a culture that pushes

In addition, see the concept of the resource-based view of the firm, and the three key types of

resources: tangible resources, intangible resources, and organizational capabilities. A firm’s

strengths and capabilities – no matter how unique or impressive – do NOT necessarily lead to a

An important issue to focus on here is the importance of intangible resources like innovation and

reputation. Especially in mature brands, sustaining reputation is essential. Look at resources that

Tangible Resources:

Financial: ANN appeared to have sufficient assets available to handle cash flow needs going into

2015. The company had no debt, and appeared to have enough cash on hand to deal with any

Physical: ANN evidenced a consistent strategy of real estate expansion based on continual

assessment of future needs and active refurbishing program. The active refurbishing activities

Technological: One asset here might be ANN’s recognition of the need for adequate supply

chain and inventory management systems, both hardware and software (not in the case, but

Organizational: Krill’s emphasis on the need for focus on the customer may have created an

organization more capable of delivering performance. However, the reporting structure may have

Intangible Resources:

Human: Krill’s focus on restructuring may have been able to revitalize the relationships between

Innovation and creativity: Unfocused in the past, this area still needed development. One

Reputation: This dimension was ANN’s most significant strength. The company’s brand was

Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to

substitute (VRIN) can help a firm sustain a competitive advantage. See Exhibit 3.6. Applying the

VRIN concept, probably ANN’s most valuable activities would be operations (possibly

Referencing Chapter 4: Recognizing a Firm’s Intellectual Assets

See the concepts of intellectual capital and human capital, both of which are intangible assets

that a company such as ANN needs to have in order to compete successfully. Intellectual capital

is a measure of the value of a firm’s intangible assets, its reputation, employee loyalty and

Organizational Capabilities:

Specific Competencies or Skills: ANN was certainly successful at designing and implementing

focus (i.e., niche) strategies for specific target markets – first with AT and then with LOFT. ANN

Capacity to combine resources: Although ANN did have some activities and resources that

could have been assets, the intangible assets represented by human capital might have been

2. How did ANN compete?

Referencing Chapter 5: Business-Level Strategy

In order to achieve a sustainable competitive advantage, ANN had to assess its ability to contend

with other specialty retailers. In the women’s retail clothing industry, by default ANN was using

a focus strategy, targeting the older professional woman. But how else did ANN compete? The

question of how to compete in a given business to attain competitive advantage requires an

assessment of the types of competitive strategies, including the three generic strategies:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The

Cost Leadership: This strategy relies on successful procurement activities. ANN focused on

working with Asian suppliers that can produce and distribute most efficiently with very high

economies of scale. This strategy also requires the retailer to be particularly efficient in its supply

Differentiation: This strategy relies on dynamic leadership with a strong fashion sense and

marketing skills. It is critical to identify the target market and sell effectively to the buyers in that

Referencing Chapter 6: Corporate-Level Strategy

Corporate strategy focuses discussion on the questions of what businesses a corporation should

compete in, and how the businesses should be managed so they can create “synergy” – creating

Diversification is the process of firms expanding their operations by entering new businesses. In

related diversification, a firm enters a different business in which it can benefit from leveraging

●Mergers and acquisitions

●Strategic alliances

Whatever the choice, it should create value for all stakeholders – employees, suppliers,

In retail, it appears that firms need to continually assess the degree to which previous

acquisitions or internal development in related businesses, such as brand extensions like Ann

Taylor LOFT, can actually destroy synergy. In the case, Limited Brands was one example of a

Companies can achieve synergy through diversification in two ways:

Through related businesses (horizontal relationships)

●Sharing tangible resources

Or through unrelated businesses (hierarchical relationships)

●Value creation derives from corporate office

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 pursue unrelated diversification

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

Related diversification seeks to add value through synergy, though leveraging the competencies

and activities that exist in business units that have some meaningful relationships. Core

competencies reflect the collective learning in organizations—how to coordinate diverse

Sharing activities means that value chain elements are shared across business units, so that two

An argument can be made that the brand extension into Ann Taylor LOFT was a related

diversification, sharing activities and leveraging core competencies – and both AT and LOFT had

clearly different business strategies (both had a focus strategy, but focused on different segments

of the market). The fact that the ANN’s organizational chart had originally separated these

At the end of the case, Krill was seeking to create more synergy between the businesses through

better coordination of activities, using multiple channels, and, even though she had consolidated