How Multichannel Retailing Is Pushing Ann Taylor’s Store Count Down

Women’s specialty retailer, Ann (NYSE:ANN), has been closing its mainline brand stores (Ann Taylor) in the U.S. for some time now, in an effort to consolidate its network and re-position itself for omni-channel retailing. Through Ann Taylor, the company focuses on affluent women buyers with professional attire, dresses, tops, shoes and accessories. Since the brand has a specific target customer group, it does not need a wide presence in the country as some casual apparel retailers with a broader target market do. This explains why its store count at 245 is significantly lower than that of retailers such as Abercrombie & Fitch (NYSE:ANF) and Aeropostale (NYSE:ARO).

From 349 in 2007, Ann Taylor’s store count declined to 245 in 2014, as the company closed more stores than it opened every year. The strategy behind these store closures was to have an optimum presence in the market with minimal self-cannibalization and maximum store productivity. As online sales of apparel and accessories saw robust growth, several retailers across the industry, including Ann, realized that the future of apparel retailing was e-commerce and there were very few incentives for opening new stores. However, the survival of the online channel as a separate entity came into question, as a lack of product variety over websites kept the channel’s growth under check.

Eventually, the industry began moving towards omni-channel retailing, where physical stores would serve as fulfillment centers in addition to serving the incoming foot traffic. Hence, a number of retailers in the industry started closing their under-performing stores and began adding new locations, keeping the requirements of omni-channel portfolio in mind. Ann Taylor has followed this trend proactively and we believe that it will continue to do so, at least in the near term, to build a solid foundation for its multichannel initiatives.

Our price estimate for ANN stands at $40, which is about 5% above the current market price.

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Why Ann Needs The Multichannel Model

The online channel has invariably not turned into a big business for retailers, given that historically it has operated as a separate segment. In stores, apparel and general merchandise retailers offer a wide variety of products, but their online channels feature a limited inventory that is stocked in their dedicated online fulfillment centers. However, now the industry is trying to integrate the inventory pool across online and in-store channels to offer the best of both and thereby boost overall revenue growth. Ann adopted this new  model in 2012, when it was not that popular in the industry.

According to a survey conducted by Retail Systems Research (RSR) in June 2013, around 84% of the retailers polled worldwide believed that creating a consistent customer experience across channels was very important. ^[1] Moreover, multichannel shoppers have a tendency to spend more than regular shoppers as they have access to a wider product range and additional discounts. Therefore, investing in omni-channel retailing is quite essential for U.S. retailers. An Edgell Knowledge Network survey in 2013 suggested that a majority of retailers in North America are planning to ramp up their consumer mobile initiatives. ^[2]

However, the current landscape of omni-channel retailing is not well developed in the U.S. According to eMarketer, retailers have been inefficient in coping with multichannel shoppers’ demands. The RSR survey found that less than one in five respondents reported full synchronization in the 13 most important aspects of omni-channel strategy. ^[1] Though omni-channel retailing is still at a nascent stage, it is very promising for specialty retailers such as Ann, whose business model is heavily lopsided.

Why Fewer Stores Makes More Sense For Omni-Channel

The prerequisite of omni-channel retailing is to have an optimum presence in the country, with stores that are evenly spread across states. When Ann began moving towards multichannel retailing, it was already consolidating its store network as an effort to improve store productivity. Growing Internet penetration, proliferation of smart phones and tablets, and safer online transactions encouraged buyers to shop online instead of stores. This resulted in a significant decline in foot traffic, which made the vast store network of apparel retailers appear redundant. Retailers such as Ann soon came to terms with the fact that the shift in consumers’ shopping preference was a permanent one, and hence they began closing their under-performing stores. Simultaneously, Ann started working on strategies to acquire a sizable share of the growing web traffic across the industry, which pushed it towards omni-channel retailing.

Omni-channel retailing refers to leveraging the store network to offer a wider variety of products over the Internet and giving buyers the flexibility in purchasing. For instance, retailers now try to list their entire store inventory on websites, giving buyers an expansive range to choose from, with the option of shortlisting clothes online and trying them in store. Those who do not want to pay online have the option of buying online and picking at store. Customers who shop in store are offered free WiFi and additional discount coupons and codes, which encourages them to shop at the retailer’s website and mobile app. Though Ann has not mentioned its multichannel initiatives explicitly, we believe that it is progressing well on the aforementioned fronts. The company has said in the past that it has seen tremendous success for its mobile devices with a robust increase in conversion rates.

It is almost clear that Ann Taylor and others’ store networks are now performing more of a support role for their online channel. Hence, rather than increasing their store count, it makes more sense to have stores at the right locations that can not only serve the foot traffic, but can also help improve the online delivery efficiency. Having a higher number of stores will definitely bring in incremental revenues, but operating expenses associated with them will increase at a faster pace, thanks to low foot traffic and self-cannibalization. Therefore, we believe that the company will continue to close Ann Taylor stores in the U.S. in the near term, which will be partially offset by new locations in international markets such as Canada and Mexico.

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More Trefis Research

1. Retailers Lag Behind Consumers’ Omnichannel Desires, eMarketer, Dec 18 2013 [↩] [↩]
2. Omnichannel Is The Key For the 2013 Holiday Shopping Season, eMarketer, Sep 10 2013 [↩]