What’s Driving Ann Taylor’s Store Count?

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ANN: ANN logo
ANN
ANN

Through its upscale brand Ann Taylor, women’s specialty retailer Ann (NYSE:ANN) offers a wide range of women’s professional attire, dresses, casual separates, tops, weekendwear, shoes and accessories. Unlike its bigger counterparts such as Gap Inc (NYSE:GPS) and Abercrombie & Fitch (NYSE:ANF), Ann Taylor is conservative in advertising and promotions. It’s a relatively expensive brand and has a much sleeker product line as compared to other specialty retailers. Ann Taylor has a specific target market of affluent female buyers in the age group of 25-50 years, which justifies its small presence (in terms of stores) in the U.S.

From 2008 to 2010, Ann Taylor’s store count declined consistently from 320 to 266 as the company underwent significant restructuring to survive the challenging environment during the economic downturn. With gradual economic recovery and expansion of new concept Ann Taylor stores, the figure went up to 280 in 2011. Over the next two years, the store count declined once again as Ann persisted with its restructuring strategy and ended up closing more stores than it opened.

While Ann Taylor’s average store count has been wayward in the recent past, we expect it to rise gradually going forward, driven by the expansion of new concept stores and a Canadian expansion. However, the retailer’s store consolidation strategy will remain a drag on the brand’s store count increase. We estimate Ann Taylor’s average store count to increase from 272 in 2013 to 287 over the next five-six years.

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Our price estimate for ANN stands at $38.88, which is inline with the current market price.

See our complete analysis for ANN

Growth Of Concept and Capital Light Stores

Ann Taylor’s store count increase in 2011 was primarily attributable to expansion of its new concept stores, that were intended to deliver 50% higher productivity than the rest of the chain. [1] The company introduced another format known as capital-light in early 2012 that was designed to have a more feminine appeal, offer a large variety of merchandise in a smaller space and reflect the brand’s modern aesthetics. These stores also provided style assistance to customers with in-store staff trained to give fashion recommendations. Ann Taylor ended 2011 with 44 such stores and further added the concept strategy to another 130 stores during the next five quarters. [2] While most of these stores were remodeled versions of the existing stores, Ann opened a few new stores as well. By the end of Q1 2014, about 90% of the brand’s store fleet reflected its new concepts, which means that the company will soon run out of stores to remodel. [3] Subsequently, it will start opening new stores encouraged by the fact that capital-light concept has been very successful in drawing customer attention.

Slow Expansion in Canada

In 2012, Ann Taylor ventured outside the U.S. for the first time as it opened its first store in Toronto, Canada. [4] Due to similarities in tastes and preferences of Canadian and American buyers, Canada has been the first destination choice for retailers looking to expand outside the U.S. Although the retail landscape in Canada is highly developed and cross-border shopping is a widely accepted practice, Ann Taylor should be encouraged by the fact that upscale women’s brand Victoria’s Secret has found tremendous acceptance in the country. Being an upscale brand itself, Ann Taylor should not have much trouble in attracting customers, though the company should be cautious of aggressive expansion. The biggest and most affordable U.S. brands also operate only a few stores in the market due to small target audience. Ann Taylor is serving a niche market, and hence, its expansion in Canada is likely to be slow. Since the launch of its first store in the country in 2012, Ann has opened just 10 stores (Ann Taylor and LOFT combined), and plans to open only a handful this year as well. [3]

Store Consolidation

Closing under-performing Ann Taylor stores to rightsize the brand’s store fleet and improve overall store productivity is one of Ann’s near term priorities. This trend was highly visible in 2012, when the company closed 16 Ann Taylor stores and opened just 11. In 2013, the trend persisted as the retailer added only seven Ann Taylor stores and closed 14 of them. While Ann has closed more brand stores than it has opened in the last two years, we expect the trend to reverse going forward owing to the aforementioned factors. However, store consolidation will continue to put pressure on Ann Taylor’s store growth, at least in the near term.

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Notes:
  1. Ann’s Q4 fiscal 2011 earnings transcript, Mar 9 2012 []
  2. Ann’s Q1 fiscal 2013 earnings transcript, Jun 6 2013 []
  3. Ann’s Q1 fiscal 2014 earnings transcript, May 30 2014 [] []
  4. Ann Taylor Brings Classic Womenswear to Canada with First Store Outside U.S., Huffington Post, Oct 5 2012 []