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New CEO Kay Krill vows to define AnnTaylor brands

By Dakota Smith

With three different presidents over the past five years, AnnTaylor Stores Corp. has enjoyed precious little consistency in the executive suite. And to judge by the company’s performance this past year, the same could be said of the brand itself.

In the past 18 months, sales at both the namesake division and the 10-year-old, moderately priced Ann Taylor Loft division have seesawed, with neither one being able to generate steady results.

“Last year Ann Taylor Loft did phenomenally well, but this year they are having troubles,” said Marie Driscoll, senior associate director at Standard & Poor’s in New York City. “And Ann Taylor fell apart last year, and now they’re doing better.”

In September same-store sales at Loft were down 8.5 percent, versus a 10.2 percent gain for the comparable month last year. Ann Taylor’s sales, meanwhile, jumped 4 percent, reversing a 5.1 percent decrease a year ago.

To even out the two, newly named CEO Kay Krill has said she will restore momentum to Loft while repositioning the Ann Taylor division. The company plans to open about 50 Loft stores next year, says Giovanni Scotti, vice president of real estate at AnnTaylor Stores, on top of the 73 it planned to open by year-end.

“The growth pace for Loft is definitely aggressive,” said Scotti. Eventually, Loft could be operating as many as 600 stores, he says, up from its current 384.

The largest Loft store will open at the tony Mall at Short Hills (N.J.) this coming year. At 7,000 square feet, this store will be 40 percent bigger than the typical Loft (5,000 square feet). Loft is changing its look, too. The company unveiled the prototype at Cherry Hill (N.J.) Mall in June. The stores, which are to roll out in the new year, have neutral wood floors and more-comfortable fitting rooms, executives said during a second-quarter earnings conference call in August.

As for the Ann Taylor units, 100 of those will be remodeled over the next year and a half to conform to the latest Ann Taylor prototype, currently seen at the Mall at Short Hills. The store size will remained unchanged at 5,100 square feet, but these newest ones will have cream-colored walls, light-colored wood floors and more mannequins.

But only 10 Ann Taylor stores will open next year, same as this year, Scotti says. Currently, there are 361 Ann Taylor stores. Next year a handful will close or move to more desirable locations (in some cases, just across the street), according to Scotti, who declined to specify exactly how many. The company closed five Ann Taylor stores last year.

Going for the Krill
Analysts say they are optimistic about the company, particularly following Krill’s appointment as CEO two months ago (she has been president since November of last year) and the recruitment of Laura Weil, formerly CFO and executive vice president of American Eagle Outfitters, as COO in August.

Krill was instrumental in Loft’s transformation from the outlet store it was at its 1995 launching to the successful mall retailer it became just a few years later. Positioned as a younger, moderate-price counterpart to Ann Taylor, Loft apparel goes for about 30 percent less than the merchandise at the namesake division. (Loft’s 2005 fall line offered a bolero-style sweater for $69.99, for example, while Ann Taylor’s fall season selection included a cashmere turtleneck sweater for $118.

By last year Loft was outselling its elder sibling. The division posted $827 million in sales last year, up more than 30 percent from the year before. By contrast, Ann Taylor’s $855 million in sales was down from the previous year’s $868 million. Additionally, on a same-store sales basis, Loft was up 12.8 percent last year, on top of a 9.4 percent increase the year before, while Ann Taylor was down 2.7 percent, versus an increase of 3.2 percent the previous year.

And yet by the middle of this year, Loft was no longer the company darling. Sales had slowed, while the changes at Ann Taylor were building momentum on that side.

Krill told analysts late in the summer that the company was suffering from excess inventory at both divisions, but that the problem had since been corrected. She also noted some missteps in the selection of Loft inventory in regards to both style and color choices.

Who’s shopping where
Driscoll, however, contends that Loft’s biggest problem is simply that it cannot be expected to keep growing at roughly 20 percent a year, year after year. She says she believes that management is getting more realistic about Loft’s limits. The company must also put a stop to the cannibalization of the Loft brand by traditional Ann Taylor customers, a problem Krill has pointed out before.

“They try and position the brand as very distinct, but I see the same customers shopping at both stores,” said Driscoll. “I see a woman buying her work clothes at Ann Taylor and buying her play clothes at Loft.”

Management never intended for the Loft brand to attract the more affluent, longtime Ann Taylor customer base, Driscoll says. Instead, the hope was that Loft would draw new customers through a distinct clothing line. But the two divisions’ lines may not be distinct enough after all, she says. “If you take sales from an existing line, then you are only competing with yourself,” Driscoll said.

The challenge for AnnTaylor Corp. is to create two entirely different brands, Driscoll says, pointing to Gap Inc., owner of Gap, Banana Republic, Old Navy and Forth & Towne, as a company that has successfully positioned its competing brands. Certainly, there are customers who frequent all four stores, but the brands have nonetheless remained unquestionably distinct.

AnnTaylor Stores is out to accomplish that differentiation by, first of all, identifying anew the typical Ann Taylor customer. In an interview with The Wall Street Journal, Krill described the Ann Taylor woman as a “very busy, sophisticated and polished” 36-year-old professional, married with two children and yearly household income of $150,000. The Loft customer, by comparison, though about the same age and also a wife and mother, reports lower household income, about $75,000 to $100,000 a year. In addition, she leans toward a more “casual chic” look, as opposed to the more restrained fashions of the Ann Taylor woman.

With an eye on that Ann Taylor customer, the store now offers more-classic looks, following the introduction of last year’s disastrous fall line of clothing to commemorate Ann Taylor’s 50th anniversary. That line, which offered higher-priced, trendier fashions, as well as selected items from past Ann Taylor collections, failed to click with consumers. The company also marked prices down for fall 2005, selling such items as wool sweaters for $58, down from $79 last year. Additionally, the company sold jackets and pants at 10 to 20 percent less and offered jackets for $199 to $219, down from between $229 and $249. These prices may be bringing back customers who had balked previously, says Candace Corlett, the principal at WSL Strategic Retail, a consulting firm in New York City.

“The customer sees a certain value price point, and to try and move beyond that is difficult,” said Corlett. “Unless you are delivering something extraordinary, like a fur trim or an extraordinary detail on a suit, you are chipping away the contract you have with your client.”

Waxing ‘wardrobable’
Additionally, Krill said in August that Ann Taylor has returned to stocking inventory that is more “wardrobable” — meaning a suit jacket that can be worn with different pairs of pants, for instance.

Neely Tamminga, senior research analyst and vice president at Minneapolis-based Piper Jaffray, affirms that Ann Taylor needs to return to its roots: clothes that are interchangeable.

“They have great foot traffic and real estate,” Tamminga said. “They just need to convert customers once they are in the store.” And though Ann Taylor is up against the likes of women’s retailer Talbots and department store Nordstrom, Tamminga says she believes “there is room for everyone.”

Like other analysts, Tamminga sees all of that turnover among AnnTaylor managers and executives as the company’s overriding problem. “The reality is that whenever you have changes in management, there is going to be a disruption,” she said.

S&P’s Driscoll agrees. What with having a new president seemingly every 18 months, the company has had little time to implement any real change until now, she says, but the leadership of Krill and Weil will yield great benefits.

“I think Kay Krill has a lot of respect from the brand, because she grew Loft from nothing,” said Driscoll. “And now she’s running the whole show.”

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