Factory and Outlet Stores Increasingly Significant for AnnTaylor
AnnTaylor (NYSE:ANN) is a leading specialty retailer of women’s apparel, shoes and accessories in the US. The company’s discount stores, including Ann Taylor factory stores and LOFT Outlet stores, have become increasingly important for the company in recent years. AnnTaylor factory stores and LOFT Outlet stores constitute 16% and 15% of the $21 Trefis price estimate for AnnTaylor, respectively.
We expect revenue contribution of factory stores to AnnTaylor’s total revenues to increase going forward, with increasing sales at factory stores in comparison to full priced stores, particularly during the recessionary period.
Consumers are increasingly value conscious and the preference for discounted products presents a lucrative opportunity for the company to expand its factory store base.
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High Revenue per Square Foot for Factory Stores
The average revenue generated per square foot for Ann Taylor’s factory stores increased at double digit rates, rising from about $480 per square foot in 2005 to $760 in 2007 before the macroeconomic downturn of 2008-2009.
Revenue per square foot at factory stores even surpassed the $480 peak revenue per square foot for the firm’s full priced Ann Taylor stores in 2006.
The improvement in sales at factory stores was driven primarily by a rapid increase in the number of transactions and higher units per transaction at factory stores compared to AnnTaylor’s full priced stores.
Even during the economic downturn of 2008-2009, as AnnTaylor went through one of the worst phases of its business, both the Ann Taylor factory stores and LOFT Outlet stores fared much better than full priced stores. Ann Taylor full priced stores saw revenue per square foot decline to $280 compared to $560 for Ann Taylor factory stores.
Growth Potential in the Factory Channel for AnnTaylor
The factory store as a distribution channel has gained increasing popularity among retailers and consumers since being introduced in the 1970s. What began as a channel to clear old merchandise at discounted prices, by passing on cost savings to consumers, soon became a hit among value conscious consumers, increasing sales as well as popularity of the brands.
The channel emerged as the preferred destination for consumers during the economic recession of 2008-2009, as consumers cut back on discretionary spending. Even as the economic environment improves in the US, indicated by increased consumer spending over the past few months, we believe consumers will continue to remain value conscious.
AnnTaylor, with significant presence and experience in this channel, identifies this as a lucrative opportunity and is planning to expand its factory store base in the future. The company plans to open 20 new LOFT Outlet stores in 2010.
We believe factory stores will continue to perform well and estimate revenue per square foot of store space for LOFT Outlet stores will increase from $641 in 2010 to $1,135 by the end of the Trefis forecast period.