Ann Taylor Stores Corporation

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Ann Taylor Stores Corporation

142 West 57th Street
New York, New York 10019
U.S.A.
(212) 541-3300
Fax: (212) 541-3379

Public Company
Incorporated: 1988
Employees: 3,099
Sales: $658 million
Stock Exchanges: New York
SICs: 5621 Women’s Clothing Stores; 6719 Holding Companies Not Elsewhere Classified

Through its wholly owned subsidiary, Ann Taylor Inc., Ann Taylor Stores Corporation is a retailer of women’s apparel, with stores in major downtown city locations and shopping malls across the United States. Over 90 percent of the retailer’s merchandise consists of its proprietary Ann Taylor brand of clothing, shoes, accessories, and even a perfume. Noted for its classic, tailored designs for career women, Ann Taylor strives to provide what it referred to as “a head to toe concept of dressing with an edited assortment of tasteful, fashion-updated classic apparel and accessories in a one-stop shopping environment.” Having faced several challenges in the early 1990s, in the form of falling sales and management shakeups, the company was regaining its poise in 1995.

The original Ann Taylor store was founded in New Haven, Connecticut, in 1954, by Robert Liebskind. Interestingly, there was never an actual Ann Taylor; the name was simply selected to characterize the target customer. The company’s line of classic clothing became popular and eventually new shops were opened primarily in such eastern college towns as New Haven, Providence, Boston, Cambridge, and Georgetown. In 1977, Liebskind sold his stores to Garfinckel, Brooks Brothers, Miller & Rhodes Corporation (known as Garfinckels). Under new management, Ann Taylor stores began to spread rapidly during the late 1970s.

During this time, Ann Taylor began showcasing the work of Perry Ellis, who designed clothing for the Ann Taylor label, and also had exclusive contracts with Marimeko and other cutting-edge, upscale designers. The stores eventually began to offer European fashions, as management found that loyal Ann Taylor customers were generally willing to spend a little more for unique, less conservative styles but still less likely to pay the prices or risk the fashion statements available in designer boutiques. Moreover, by refraining from carrying a wide variety of designer labels and brands offered by department stores, Ann Taylor had less competition and thus more pricing flexibility; the company could also produce fast reactions to fashion trends and regional needs.

The value of Ann Taylor’s name as a brand increased steadily, and the stores became increasingly popular. The flagship store for the company, on 57th Street in Manhattan, featured a chic restaurant on the third floor. The Ann Taylor customer during this time was characterized as a new breed of well-dressed career women who favored classic fabrics in fashionable designs. Describing a 1978 Ann Taylor catalog, one writer for Working Woman magazine noted that the catalog showed “a duo of well-dressed working women ganging up on a would-be mugger, hitting him with their Ann Taylor purses. The message: The Ann Taylor woman might wear silk and cashmere, but watch out—she’s taken karate.”

In 1981, Ann Taylor, as part of Garfinckels, was acquired by Allied Stores Corporation and quickly became the most profitable among the group of Allied retailers, outperforming even Brooks Brothers and Bonwit Teller. Allied subsequently unloaded unprofitable subsidiaries and further polished its core stores’ image of upscale, high-profile specialty and department stores. In 1983, Sally Frame Kasaks, who had started in the fashion industry as a salesperson, was named president of the company, and she served in that capacity until 1985, when she left to join Talbots, and, eventually, Abercrombie & Fitch.

A new president and CEO, Mark Shulman, faced new challenges. A Canadian financier, Robert Campeau, was attracted by Allied’s cache of healthy, upscale stores with recognizable names. In 1986, his Campeau Corporation made an overture to acquire Allied but was rebuffed. Campeau was tiny compared to Allied; it had 1985 revenues of $153 million, while Allied reported $4.1 billion for the same year. Nevertheless, in the leveraged buyout-crazed 1980s, it wasn’t hard for Campeau to get financial backing. After securing $3 billion in credit, Campeau launched a hostile takeover of Allied. The final price for the deal was more than $5 billion by some estimates, and Campeau had to sell off many of Allied’s units in order to pay for the purchase, retaining only the best performers, like Brooks Brothers and Ann Taylor. By the end of 1987, more than $1 billion of Allied’s holdings had been sold off, and Campeau was able to pay down some of its debts.

Though it was ahead of schedule on debt payments, Campeau was still feeling the effects of the transaction, earning only $44 million in the first three quarters of 1987. Moreover, its interest payments for that same time period were $244 million. Thus, some analysts were surprised when Campeau quickly set its sights on Federated Department Stores, Inc., a giant holding company of department stores then three times the size of Allied. With more than $4 billion in fresh loans, Campeau initiated a similar takeover, again increasing the initial per share offer, until the final cost for Federated reached $6.6 billion.

Campeau sold off Brooks Brothers to a British Department store to get cash for its debts and for Federated stock. Although Campeau vowed he would not sell Ann Taylor, the retailer was put on the block by June 1988, when Campeau claimed that Ann Taylor’s spot in specialty retailing no longer complemented Campeau’s department store holdings. At the time, Ann Taylor had 100 stores nationwide and accounted for eight percent of Allied’s $3.96 billion in sales in 1988. Taylor was the last of Allied’s specialty stores. Proceeds from the sale would go towards Allied’s bank debt, as well as for Federated stock.

It wasn’t hard to find a buyer for Ann Taylor. Joseph E. Brooks, formerly the chief executive officer of Lord & Taylor, led a group of investors that included Merrill Lynch Capital Partners, Inc. and some of Ann Taylor’s management. The price paid was $430 million, which, to some observers, seemed a tad high for a company that, like many companies in the women’s apparel industry, had recently reported flat earnings. In fact, although Ann Taylor had more than 36 percent annual growth in both earnings and sales between 1983 and 1987, its earnings seemed to have peaked in 1986. But expectations soared now that Brooks was in charge.

Brooks was noted for making Lord & Taylor over into an upscale store offering classic merchandise. Under his leadership, Lord & Taylor had expanded from 19 to 46 units and sales had quadrupled. Brooks moved quickly at Ann Taylor, bringing in a new management team, some of whom had been with him at Lord & Taylor, including his son, Thomas H.K. Brooks, who was named Ann Taylor’s president. Faced with staggering interest payments and a tricky debt-to-equity load, the company focused on rapid expansion and cost-cutting tactics.

By 1991, Ann Taylor had spread as far from its East Coast roots as Jackson, Mississippi, and now boasted 58 new outlets and a total of 176 stores. With new stores helping to boost sales, Brooks felt confident enough to make bids for Saks Fifth Avenue and Bloomingdale’s. However, he was outbid for Saks, and the $1 billion he offered for Bloomingdale’s failed to tempt its owners, Federated Stores. With the debt load still pressuring Ann Taylor to perform, the company’s buyout bosses proposed a public offering of Ann Taylor stock. The industry was limping and a stock offering seemed a good way to raise equity enough to tide Ann Taylor over the rough spots. Despite the fact that Ann Taylor was not faring well in same-store sales, the indication of a retail store’s ability to increase stock, the offering went well. Seven million shares were sold at $26 per share, providing the cash flow necessary to continue planned expansions.

However, the offering also increased Ann Taylor’s burden to perform well in sales and earnings growth, and it was in the face of such pressures that some decisions were made that would eventually prove detrimental to the company. The new management decided that the typical Ann Taylor customer of 1990 was not as affluent as its earlier clientele had been, and, in an effort to broaden its appeal and cut expenses, the company began using fabrics of lesser quality for the first time.

Management also opted to end Ann Taylor’s long and profitable relationship with Joan & David shoes, a product that had accounted for roughly 14 percent of Ann Taylor’s sales for 30 years, and had a fine reputation of its own, pulling many customers into Ann Taylor stores. Ann Taylor began offering its own line of shoes instead, at about half the price. Early reviews of these shoes bordered on snide, and earnings and revenues became weak. Stock collapsed and some stockholders sued, alleging misrepresentation of the facts by the prospectus that accompanied the public offering.

Then, in December 1991, Joseph E. Brooks abruptly announced his retirement from his position as chairman. His son, Thomas Brooks had quit the presidency just as suddenly a few weeks earlier as had Gerald H. Blum, the company’s vice-chairman. With their company suddenly being run by a committee, stockholders and investors became anxious. The company had lost about two-thirds of its market value since going public in 1991 and was daily losing its most loyal customers. That year, Ann Taylor lost $15.8 million on sales of $438 million.

In February of 1992, Ann Taylor wooed former president Sally Frame Kasaks back. Her first action, like Brooks’s, was to install a solid management team. Kasaks chose a largely female management staff, comprised of seasoned veterans of the specialty retail trade. Kasaks then worked to reestablish Ann Taylor’s reputation for high-quality clothing, getting rid of the cheap synthetic fabrics and overseeing a new autumn line of clothes that borrowed heavily from popular and costly designs of Donna Karan and Ralph Lauren. Four months after Kasaks rejoined Ann Taylor, the company’s same-store sales were up ten percent.

After reassuring the customer of the quality of Ann Taylor merchandise, Kasaks sought a strategy for keeping prices reasonable. Toward that end, she explored several manufacturing options, finally reaching an agreement with Cygne Designs for the joint manufacture of apparel. A private-label company with factory contracts mainly overseas, Cygne worked with Ann Taylor to produce items made to specification more cheaply and quickly. As a result, what few designer labels the Ann Taylor stores stocked nearly disappeared, and lines of casual and weekend clothes were added, as were lines of petite sizes and whole new lines meant to attract younger women.

Sales at stores opened in 1993 grew an impressive 13.6 percent by March of 1994, and the Merrill Lynch Capital Partners and other affiliates still holding 52 percent of Ann Taylor’s stock prepared to make another public offering. During the first six months of 1994, same-store sales grew 10.6 percent, while other popular specialty stores, such as The Gap and Nordstrom’s, were reporting gains of less than half that amount.

By early 1995, Ann Taylor’s prices had been cut ten to 15 percent across the board. A new fragrance line had been introduced, five free-standing shoe and accessory stores had been opened, and a mail-order catalog had been launched. Moreover, the company was progressing with its plan for aggressive expansion, calling for 15 new stores in 1995 and the further expansion of existing stores. With formerly loyal customers returning to Ann Taylor, the company’s sales and earnings were increasing considerably in the mid-1990s. Quoted in a 1993 issue of Working Woman, Kasaks asserted that “the best way to satisfy Wall Street is to satisfy the customer.”