AIMING FOR THE HEIGHTS: ANN TAYLOR PLANS AGGRESSIVE LOFT ROLLOUT

Byline: David Moin

NEW YORK — The sign on the exterior says Ann Taylor Loft. One day it will just say Loft.
That could be a year or more away, even if the Loft has already carved out a fashion identity with its conservative and casual styles distinct from its more suited-up sister, the Ann Taylor division. But Loft still clings to the Ann Taylor logo like a security blanket. It’s always seen at the entrance to stores just above the bigger Loft logo.
“We’ve done extensive research and learned that having the Ann Taylor name is why the customer initially comes into the store. But it is not why she comes the next time,” said Katherine Krill, president of Loft, in an exclusive interview with WWD.
“We’re still building brand awareness,” added Catherine Sadler, chief marketing officer for Loft and Ann Taylor.
Even without as much consumer recognition as Ann Taylor, or such competitors as Chico’s FAS, Casual Corner or The Limited, Loft in the past year has emerged as one of the best-performing specialty chains in the country and the expansion vehicle for Ann Taylor Stores Corp. With its sharper identity, there’s less chance of falling into the same trap that Gap and other specialty operators have, where divisions cannibalize business from each other with too-similar merchandise offerings and fuzzy personalities.
Moreover, Loft is aggressively expanding at a time when other chains are pulling back, and if the plan goes smoothly and the right sites are picked, it could become a formidable retail force drawing a broad clientele. The 180-unit Loft will have 206 units by the end of this year, and wants to open 70 stores annually starting in 2003 until it hits a proposed ceiling of about 600 stores. Ann Taylor, with about 340 stores, sees a cap of 400 units.
This fall Loft will test an “A” mall location, the Prudential Center in Boston. Its only other “A” location is the Mall of America. Both of those malls already house Ann Taylor stores. Ann Taylor tends to sit in “A” malls, such as the Mall at Short Hills (N.J.), while Loft sits in “B” and “C” grade malls, like Livingston Mall, also in New Jersey. Loft stores average 5,500 square feet. Ann Taylor stores average 4,000 to 5,000 square feet.
“Eventually, we’ll have to commingle,” Krill said. While hitting more upscale locations presents risks, including higher occupancy costs, “The good news is Loft does well in urban locations, malls and lifestyle centers,” Krill said.
It took several years before Loft found itself. Launched in 1996 as an outlet business and converted to a regular-priced format in shopping malls in 1998, Loft specializes in relaxed business and dressy casual offerings. Ann Taylor has more fitted offerings and suits, prices that are 20 to 30 percent higher than Loft and more mature customers. The average household income of the Loft shopper is $80,000, compared with $100,000 for Ann Taylor. Loft customers are typically teachers, administrative workers, health care workers and married with kids, while Ann Taylor customers tend to be higher-paid professionals, such as lawyers and bankers.
“Their priorities are different,” from Ann Taylor customers, said Krill. “Value is critical. That’s not part of the Ann Taylor equation.” Ann Taylor shoppers would be inclined to shop Neiman Marcus and Saks Fifth Avenue, while Loft customers head to Macy’s or Filene’s. The divisions operate almost entirely separately, sharing only human resources, finance, logistics functions and information systems.
While the Loft offerings seem subdued, Krill insisted: “Don’t think we don’t take fashion influences. We do have some ruffles and drawstring sleeves. We interpret these in very subtle ways. Our client wants to be appropriately fashionable. She doesn’t want a bib of ruffles.”
Krill, who has worked at Loft since its inception and last year became its first president, describes the offerings as “feminine updated classics, combined with fashion, combined with value. No one else is doing the updated piece of it. We have really done a lot of client research. They told us they want relaxed business and dressy casual offerings.” She also worked for nine years at Talbots, and likes to think of Loft as the more fashionable of the two.
Tops represent the single-biggest category, at 40 percent of volume, with novelty items showing tipping or with cowl necks or stripes selling best this season. Prices are upper-moderate, with pants retailing from $39 to $59 and sweaters ranging from $29 to $49. Accessories and footwear, which are coordinated, have the most growth potential. They represent 7 percent of the total volume, and Krill wants to raise that to 10 percent. Shoes are priced from $49 to $59. Suits, dresses, some denim and petites are also sold.
For the past year, Loft has been raising its profile, with national advertising and accelerated store openings. Today, executives from the corporation will give a presentation to Wall Street analysts, updating progress on the divisions, which also include the 20 Ann Taylor Factory outlets. On Monday morning, Mayor Michael Bloomberg is scheduled to cut the ribbon to officially open the newest Loft, at 2 Broadway in lower Manhattan. Forty percent of the first week’s sales of the new store are being donated to the New York Police & Fire Widows’ & Children’s Benefit Fund.
Loft’s recent comparable-store sales gains are among the highest in the specialty store sector: a 4 percent gain last year and 11 percent this past March. April sales are expected to be flat, partly due to the earlier Easter, but Krill confidently stated: “We’ll make our April plan.”
“Loft is hitting its stride as the merchandising team fine-tunes assortments and product to better suit the needs of the younger, more relaxed clientele,” Mark Friedman, retail analyst at Merrill Lynch, wrote in a research report. He also cited good full-price selling at the corporation, adding: “We are maintaining our near-term ‘strong buy’ rating reflecting what we believe is a continuing turnaround story. We are maintaining our FY 2002 [ending in January ’03] and 2003 EPS estimates of $2.12 and $2.47, respectively.” Merrill was a manager of the most recent public offering of securities of this company within the last three years.
“The Loft really caters to the soccer mom and that casual lifestyle, and the woman just out of college looking for her first job,” observed Jennifer Black, analyst at Wells Fargo Securities. “Maybe she can’t afford Ann Taylor. The value-to- price relationship is very good, and it’s an easier place to shop than department stores, but still has some style and taste. The concept can definitely support a lot more stores than Ann Taylor. I would say at least double the number of stores. It caters to a much broader market.
“The stock has done fabulously,” Black added. “It’s been up a lot since 9/11. They talked guidance down, and now they are beating Wall Street estimates and have guided up.”
For the first quarter, the guidance is between 60 and 62 cents, up from the 50s, and second-quarter guidance has also been raised. On Wednesday, the stock closed at $46.01 near the 52-week high of $47.77 and well above the low of $21.10. A three-for-two stock split is expected next month.
Last year, income at the corporation fell by 44.4 percent to $29.1 million, or $1 a share, compared with earnings of $52.4 million in 2000, or $1.76. One-time charges related to inventory write-offs, the write-down of some Internet assets, and costs related to the rollout of Loft contributed to the loss. There’s also been an up-and-down performance at the Ann Taylor division, which still represents the bulk of the volume. Loft continues to outperform Ann Taylor and accounts for roughly one-third of group sales.
Total sales rose 5.4 percent to $1.3 billion from $1.23 billion. Comps for 2001 were off 6.1 percent, down 8.8 percent at Ann Taylor and up 4 percent at Loft. The company does not break out profits or sales by division, though Krill said Loft is profitable: “We’re doing very well right now.”

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