Recently Ann (NYSE:ANN) became the first women’s specialty retailer to join the Sustainable Apparel Coalition (SAC), an industry-wide group that provides an index to measure the environmental performance of apparel products.  Following the footsteps of retailers such as Target (NYSE:TGT), Wal-Mart (NYSE:WMT) and Nike (NYSE:NKE), Ann has joined the SAC to reduce the environmental impacts of its supply chain and in turn help it lower manufacturing costs. 
Sustainable Supply Chain Provides Cost Saving Potential
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The retailers use the SAC’s “Higg Index” to select the best materials, facilities, products and processes from a range of environment and product design options. This allows the retailers to come out with the best practice that helps reduce waste, toxic chemicals and greenhouse gases. 
It thus enables the supply chain to function more efficiently and helps reduce associated costs. For instance, packaging accounted for 22% of the waste in Nike’s supply chain.  To address this, Nike reduced packaging weight of its boxes and saved some cost on this front. 
What Does It Mean For Ann?
Ann has been focused on reducing its environmental impact even before its collaboration with SAC, evident from its “We Act Responsibly” strategy. Through this strategy, the retailer makes sure that its products are manufactured ethically without harming the environment.  With SAC, Ann will look to emphasize energy and water management due to their probable availability constraint in the future.  Given that energy efficiency helps reduce cost, Ann’s environment friendly products can help its margins as well. In a scenario where the retailer is able to improve margins of its Ann Taylor and LOFT segments by 0.5%-0.8% in 2014, there could be 5%-10% upside to our estimated stock price.
Our price estimate for ANN stands at $36, implying a premium of about 15% to the market price.Notes:
- ANN INC. Furthers Commitment to Environmental Sustainability, Becoming First Women’s Specialty Retailer to Join Sustainable Apparel Coalition, Ann Inc., Jan 9 2013 [↩] [↩]
- Ann Taylor, Loft Join Sustainable Apparel Coalition, Environmental Leader, Jan 10 2013 [↩]
- Nike, Walmart, Levi’s Launch Sustainable Apparel Index, Environment Leader, July 26 2012 [↩]
- The future of the supply chain: Nike, near-shoring and its new technology, The Loadstar, June 14 2012 [↩] [↩]
- Responsibly Ann [↩]