Shopping Centers Today

AUG 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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alone. Indeed, its "shared services model" is unique, experts say, even among such multibrand chains as Wil- liams-Sonoma, which counts Pottery Barn among its spinoffs, or Gap, parent of Old Navy and Banana Republic. As- cena's retail brands share a single supply chain, distribution channels, and infor- mation technology platform, among other back-office functions, which helps reap efficiency and cost savings, and this, says Chen, is "part of Ascena's DNA." The shared-services model and Ann's SG&A [selling, general and administra- tive] optimization program (which the company hopes will reap some $35 mil- lion in annualized savings by 2016) "will free up the [Ann] businesses to focus on what they do best, which is merchandise execution, running stores, fashion and design," Chen said. But these gains could take longer to realize than expected. "As evidenced by Ascena's past acquisitions, there is always the potential for challenges and delays to reach the cost-savings target over the expected time frame," wrote Dana Telsey, CEO of Telsey Advisory Group, in a research note. Her predic- tion is that the union's targeted syner- gies will not be realized for about three years yet. Chen concurs: Lane Bryant, acquired in 2012, is a year behind in reaching its profitability target, he ob- serves in a research note of his own. At the time of the announcement, Ascena President and CEO David Jaffe says the merger combines complemen- tary organizations and management teams. The Ann brands grant Ascena its first foothold in the higher-end women's apparel business plus access to a new crop of shoppers. "They get two dominant women's brands that are cur- rently generating higher margins than Ascena's," Kloppenburg noted. That may come as little surprise. Ann Taylor and Loft offer upper- moderate career wear and upper-moderate casual wear, respectively, with higher-priced fare than Ascena's affordable missy brands Dressbarn (career wear), Maurices (sportswear), Lane Bryant (plus-size ap- parel) and Justice (tween). Ascena has not disclosed the role of Ann's management team in the pair- up, but analysts speculate that the As- cena brands will tap Ann's merchandis- ing expertise and online strengths. "In career wear, Ann Taylor dominates," Kloppenburg said. This trend and product-development expertise could trickle down to the Ascena base, par- ticularly at Dressbarn and Lane Bryant, which have been underperforming. Still, Ann's business has been dampened in view of the growing ranks of Millennials with eclectic tastes and the rise of online shopping. For the fis- cal first quarter (ended in May), Ann's total same-store sales fell by 1.5 percent from the year-ago period. Ann Tay- lor in particular has taken a hit from a shift away from formal work wear toward casual fashions. "The apparel industry at large is being impacted by an overall increase and acceptability of casualization in all forms, both socially and in work settings," according to a Mintel report published in May. "One key area of significant growth is 'athlei- surewear' — or fitness clothing that is being worn progressively more for ca- sual purposes. Women are driving this trend because they more frequently wear informal clothing like yoga pants and leggings." While Ann Taylor is making strides in broadening its appeal with new shoppers "and driving growth through a more balanced assortment … [it] has some work to do to claw market share from its competitors," wrote Telsey in a research note. Ann introduced a supply-chain ini- tiative last November to "improve our production speed and flexibility and increase product sell-through," Ann CEO Katherine Krill said during an earnings call in March. This is no doubt a move to counter the encroachment of fast-fashion retail- ers like H&M and off-price chains such as T.J.Maxx, the hottest segment of the apparel market. These tend to replen- ish the clothing mix fairly quickly, so there is always something new in their stores, and they have accordingly man- aged to siphon off market share. Greg Maloney, president and CEO of JLL, which counts about 50 Ascena and Ann stores in its retail portfolio, is upbeat about the merger. He describes it as an opportunity to refresh and optimize the store bases of the brands and to grow their busi- nesses. "It opens up negotiations," he said. "You're merging and acquiring to get bigger and better." When these deals occur, he said, "the leasing peo- ple get excited. It's an opportunity to enhance our properties." These mergers spark conversa- tions, he says, and JLL is anticipating a conversation with Ascena to run along these lines: "'What do our next five years look like to capture more market share?'" SCT "The apparel industry at large is being impacted by an overall increase and acceptability of casualization, both socially and in work settings." 32 S C T / A u g u s t 2 0 1 5 r e T a i l i n g T o d a y

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