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Next Ann Taylor Stores Chief Likely to Come From Within

Industry odds are in favor of an insider to be tapped to run the troubled Ann Taylor Stores — and soon, possibly Loft division president Kay Krill.

NEW YORK — Industry odds are on Ann Taylor Stores Corp. picking an insider to run the Ann Taylor Stores division — and soon. That’s because outsiders just don’t seem to work out there, no search firm has been retained and there’s a sense of urgency at the troubled chain.

This story first appeared in the February 10, 2003 issue of WWD.  Subscribe Today.

According to sources, Kay Krill, president of the smoother-running Loft division, could be reassigned to oversee both divisions, continuing to report to J. Patrick Spainhour, chairman and chief executive officer of the $1.4 billion corporation. The company doesn’t want to lose her at Loft, considering that chain has been on a growth track, but they need a strong merchant at Ann Taylor Stores as well.

Melissa La Bau could also get bumped up, as the top executive at Ann Taylor Stores, reporting to Krill. She’s currently executive vice president of retail operations.

“If Pat presses Kay, she may do it, but she’s been reluctant,” said one retail source. On the other hand, “Melissa has really been wanting it.”

Spainhour assumed the helm at the 350-unit Ann Taylor Stores after Kim Roy was forced out last month as president. It’s not the first time he’s taken direct charge of a division, reviving the old debate about whether a financial executive should be at the helm of a fashion retailer. Spainhour reportedly keeps a tight rein on his merchants.

But for anyone running Ann Taylor Stores, it’s a tough assignment. The division has been floundering for years because of a management exodus and changing merchandise directions resulting in a loss of its core career customer. In Ann Taylor’s defense, the career market has been weakened by America’s casualization and the brand name still has some cache.

In addition, the stock has been on a roller-coaster ride, anywhere from a low of $6 in 1996 to a high of $40 in 1999, with a string of peaks and valleys. Shares of Ann Taylor are flirting near the 52-week low of $17.84, reached Jan. 27, and took a beating Jan. 23 when Roy resigned, plunging $1.51, or 8 percent to close at $18.70. The shares perked up a bit following raised fourth-quarter expectations and improved margin reports, but on Friday, they dropped 32 cents, or 1.6 percent to close at $19.21 on the New York Stock Exchange.

Equally tumultuous was Roy’s tenure at Ann Taylor, described as grueling by market sources, particularly after a successful stint at Liz Claiborne, where she rose up the ranks and was being groomed for bigger jobs by Claiborne ceo Paul Charron. The experience of her predecessor at Ann Taylor, Patricia DeRosa, wasn’t much better.

Actually, there’s been a steady stream of departures over the last few seasons, including Melissa Wallace, former head of human resources, now vice president of human resources for Party City, and Cathy Rano, formerly senior vice president of design development, now vice president of boys 8-20 product development at Federated Department Stores.

“With Kim Roy, you have to ask whether she had complete control and jurisdiction over all pieces of merchandising and production. She didn’t,” observed Elaine Hughes of E.A. Hughes & Associates executive search.

According to reports, Roy and Wallace took heat for choosing a search firm on at least one occasion, and had that decision reversed, and Roy particularly felt hamstrung on the production side. “She was used to the Claiborne culture, where on a divisional level you were accountable for all pieces of the division, sales, merchandise and production,” said Hughes.

Hughes also noted: “Most presidents that go into a troubled business and have to turn product around, given the lead time required to design, produce and deliver new product, are given at least two years. Kim Roy was not there two years.”

Another market source said, “Kim can be tough, demanding, and action oriented. Those aren’t criticisms,” but it didn’t play well under Spainhour.

There are other stories emanating from Ann Taylor about executives there feeling powerless and unhappy. Reportedly, Melissa Wallace for human resources, who was recruited by Roy from Claiborne, wanted to make changes. “She saw a lot of fat,” said another source. “There were over 30 people in HR, which is not in keeping with today’s leaner environment. Anyone who tried to drive change, particularly when it involves people, runs up against a wall. Spainhour is very committed to getting a consensus,” before decisions are made. “People got frustrated with that.”

At the 183-unit Loft, however, Kay Krill has a team that’s been in place longer than Ann Taylor, where most of the turnover has occurred, so communications and relationships are established.

Yet even at Ann Taylor, it’s not all bleak. According to Jennifer Black, retail analyst at Wells Fargo, weak comps were offset by strong margins and preliminary spring product looks good. “It is well-suited to the company’s core customers,” she wrote in a research report. “The merchandise cuts are classic, and the spring line incorporates the pencil skirt, which we believe could be a popular item.” Ann Taylor is known for selling classics, with some updating, suits and coordinated looks.

For the corporation, she added: “We believe that Ann Taylor has the opportunity to outperform in FY ‘04. As FY ‘04 advances, Ann Taylor will be progressively facing more favorable comparisons. We are currently modeling for a very conservative low-single-digit comp for the full fiscal year. In our opinion, Ann Taylor’s stock is undervalued. Ann Taylor’s stock is currently trading at only 9.8x our FY04 EPS estimate, versus our peer group’s average of 14.4x. We are reiterating our buy rating on the shares of Ann Taylor.”

In January, Ann Taylor reported a 10.3 percent comp decrease, consisting of a 9.6 percent decrease at the Ann Taylor Stores and a 12.2 percent decrease at Loft. Cold weather, intense competition that was more promotional and “broken merchandise assortments” as Black described them, contributed to the decline. For the nine months of 2002, the company reported sales of $1.03 billion and net income of $64 million.

As far as a new president for the Ann Taylor Stores division, Black said: “We would not be surprised if the company is currently in or wrapping up negotiations with a potential candidate.”