As Ann Taylor emerges from its midlife crisis, the 58-year-old women's clothing chain is counting on a makeover to pull it out of the doldrums.
Parent Ann Inc. has a plan to replace its aging fleet of large Ann Taylor stores with smaller, more contemporary outposts that make women feel as if they have walked into their dream closet. Like many retailers these days, Ann wants to boost profits by selling the same amount of merchandise in less-expensive spaces decorated to make shoppers feel at home.
The New York-based retailer last week introduced its prototype format to Chicago, opening a slimmed-down store that is half the size of its former Magnificent Mile flagship just a few steps away. Since unveiling the first prototype in 2010 in Atlanta, the chain has rolled out 52 such stores nationwide, out of about 280 full-price Ann Taylor stores.
"They had this vision of an Ann Taylor working career woman that wasn't in step with American working women," said Candace Corlett, president of WSL Strategic Retail, a consumer shopping behavior research firm in New York. "It was boring basics in an era when people want to mix it up and accessorize."
Anne Elwell is the kind of shopper Ann Taylor wants to win over.
The 42-year-old working mother of two bypassed the women's clothing store for almost a decade as the corporate culture turned casual, and Ann Taylor, maker of the quintessential interview suit, was left adrift in a sea of khaki.
But a recent trip to Ann Taylor's prototype in Durham, N.C., which opened in November, convinced Elwell that a dramatic change was under way. The store was clean, bright and modern. A row of mannequins - decked in electric blue blouses accented with orange metallic scarves - prompted Elwell to consider fashion combinations she wouldn't have thought of on her own. Shoes and handbags, instead of stacked in one bay, were sprinkled throughout the store near the skirts and tops they complemented.
"Their stuff has gotten cuter," said Elwell, a real estate agent living in Winston-Salem, N.C. "It (is) less about the two-piece matching suit (and) more mix and match stuff. I have two little girls at home that I need to get ready for school each morning, so I don't have a lot of time for myself. I feel like a lot of their solutions are easy to throw on, and I know it's going to look good."
The so-called new-concept stores have shown promising early results.
The reformatted, smaller stores are ringing up more sales and generating more profit from a 30 percent to 40 percent smaller footprint, said Kay Krill, president and CEO of Ann Inc., in an earnings conference call in November.
Krill also said during the call that the company is "excited about the longer term opportunity to maximize sales and profitability across the chain as we continue to roll out the new format over the next few years."
Meanwhile, the Ann Taylor division is still struggling to find its fashion footing.
Three years ago the company brought in former Club Monaco and Gap executive Lisa Axelson as head of design to give Ann Taylor a new look. She got rid of the boring beige jackets and livened up the collections, creating asymmetrical jackets with a bit of stretch and wearable jersey wrap dresses.
Helped by a corporate restructuring that closed scores of unprofitable stores, Ann Taylor's results started to improve. Sales at Ann Taylor stores open at least one year, a key metric of retail health, rose 19 percent in fiscal 2010 after a 30 percent decline in fiscal 2009 and falling 20 percent in fiscal 2008.
As part of its image upgrade, the retailer has been rotating a string of actresses through its ad campaigns, including Katie Holmes, Demi Moore and, this spring, Kate Hudson. The celebrities are also touted in the store and on the website with a list of their favorite fashion items. Ann Taylor also scored a coup earlier this year when first lady Michelle Obama was photographed wearing a coral Ann Taylor blazer.
But the turnaround has been uneven.
The parent company warned Feb. 2 that weak fourth-quarter performance at the Ann Taylor stores, where same-store sales slipped 11 percent, means the company will miss its fourth-quarter earnings target when it reports financial results Friday.
On the same day, the company announced that Brian Lynch, an eight-year veteran who ran Ann Inc.'s outlet and e-commerce businesses, would replace Christine Beauchamp as brand president of the Ann Taylor division. Beauchamp, who held the post since 2008, left the company.
The poor holiday results reflect too many unplanned markdowns, said Anna Andreeva, analyst at FBR Capital Markets in New York. Ann Taylor stocked too many sweaters and too many suits at too-high prices, Andreeva said.
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Analysts point to the stellar growth of the company's younger and more casual Loft division as another problem for the legacy Ann Taylor stores. Loft stores may have cannibalized sales as traditional Ann Taylor shoppers sought more relaxed, lower-priced merchandise, particularly during the recession, analysts said.
Launched as Ann Taylor Loft in 1996, the younger division, now called simply Loft, surpassed revenue at Ann Taylor stores for the first time in 2005. Now Loft accounts for more than half of parent Ann Inc.'s total sales, compared with about 20 percent at Ann Taylor. The remainder of total company sales are generated at the outlet stores and e-commerce divisions.
Loft continues to outperform Ann Taylor, posting a same-store sales gain of 11 percent in the fourth quarter. Loft accounts for more than 500 of Ann Inc.'s 900-plus stores.
Even with Ann Taylor's diminished role at the company, Ann Inc.'s stock price rises and falls in large part on the performance of the legacy stores, putting extra pressure on the division to right itself. Shares have fallen almost 2 percent to $25.24 so far this year.
"It's harder for women to find the time to go shopping and harder to find that perfect fit that makes you feel good and stylish, but not too far out there," said Jennifer Ganshirt, managing partner at market research firm Frank About Women. "I think there is an opening for that brand who nails it, who can interpret trends as classic with a twist."
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