Strategic Management and Organizational Change

Strategic Management and Organizational Change

Over the last several years, the retail industry has undergone a tremendous amount of changes. Where, the sales and the stocks prices of many retailers would continue to climb higher, with each positive earnings report. Then, the financial crisis began and the industry would face a severe slow down that would challenge, the most solvent of retailers. This is vastly different from an industry that first began out of mom and pop style stores, between the 1930s to the 1950s. Then, over the years, these companies would grow into large multinational enterprises, with stores around the globe. However, the overall focus on increasing the earnings of the company became more challenging. This is because the profit margins became tighter, as the competition became more intense and the tastes of consumers could quickly changes. This forced many companies to engage in ambitious plans of: diversify into new markets. Where, a number of different strategies would be utilized including: e-commerce, reaching out to different classes of consumers (low end / high end retail) and through aggressive cost cutting. (The Retail Apparel Industry 2009) One such company that is facing a similar kind of situation is: Ann Taylor. This retailer has started from humble beginnings in 1954 and has become one the premiere high end retailers. Where, the company was started from: a single storefront in New Haven, Connecticut and grew into a publically traded corporation by 1991. This is significant, because it highlights how the overall growth of Ann Taylor mirrored much of what was taking place from the 1960's into the 1990's. Where, the rapid growth of large retail locations at various malls and other areas would quickly become the norm. However, because the competition was so intense and the company was exposed to changes in the economic cycle, meant that strategies would have to be utilized to diversify the company's core business model. This would lead to the development of the catalogue store, the fragrance retailer and retail shoe stores in 1994. Over the next year, this strategy would lead to a number of unexpected challenges for the company, as the catalogue retailer would be forced to close in 1995. At which point, the company opened Ann Taylor Loft. This was a specialized retail outlet that would cater to: the young, price conscious and professional consumers. In general, the ideal target market was the demographics of: young professionals and the recent college / high school graduates. This is important, because the shift to the Loft store concept; would highlight how Ann Taylor was attempting to diversify its business model. At first, these stores would have trouble adapting to the competitive retail markets. This would cause the company to test and experiment with the concept by placing Loft stores at various discount outlets and malls. Over the course of time, this strategy was successful, as these stores were able to create a core image and brand name of the various products it sold to consumers. At which point, the store would be aggressively expanded in 1998 and it would be placed in middle class as well as upper middle class communities. The results were, that the Loft stores would reach out to the targeted demographic, by offering prices that are 30% below what they sell for at traditional locations. This would help Kay Krill, to rise from the position of Executive Vice President in 1999 to become the CEO of the company by 2006. (Ann Taylor Background 2009) Given financial challenges from the recession, new strategies must be utilized to help the company grow into the future and take advantage of the different opportunities presented. To achieve this objective requires: examining if Krill's strategies are financially prudent (given the economic environment), evaluating alternative strategies for creating growth and examining if Ann Taylor should focus on their existing businesses or diversify into other areas. Together, these different elements will provide the greatest insights, as to how the company can adapt to the changes that are taking place in the retail industry.

Using appropriate theoretical frameworks evaluate whether Krill's new strategies are well considered given the ongoing challenges of AT and LOFT and the difficult specialty retail environment in 2008?

The strategy that Krill used was one that involved cost cutting, restructuring and focusing on expanding the brands within the different stores. As the economy was slowing, Krill was able to see that the Ann Taylor was facing a number of different challenges. This forced her to announce in 2007, that the company would undergo an aggressive restructuring. Where, she would: begin closing unprofitable stores, eliminate the stock buyback program, reduce executive compensation / salaries, slow the number of stores that the company was opening and reduce the company's amount of debt. This would help Ann Taylor to focus on aggressively building its Loft store chains. Where, they would offer lower prices and have always delivered, to the company, higher profit margins. Then, when you combine the cost cutting measures, it would help the company to experience more stability in earnings, while the industry was going through a severe slow down. (Future Plans and Initiatives 2009)

The restructuring effort would help management to focus, on how the company can remain profitable when the economy was first slowing down. Where, Krill would announce that the company would undergo a major restructuring, while other retailers were unsure about what to do. This is significant, because it would allow executives to focus on strategies, to prevent earnings from going into a free fall. At which point, they could help the company identify areas where costs could be reduced. Once the economy began to feel the full effects of the financial crisis and recession, these strategies would help to protect the company's earnings from a sharp contraction in consumer spending. (Future Plans and Initiatives 2009)

Within the different retail stores, Krill would engage in strategy of aggressively expanding the overall amount products that were high margin items. This is important, because it would allow management to find those products that could help the company's sales to grow despite the onset of a recession. A good example of this can be seen by looking no further than when the company decided to expand aggressively into fragrances and beauty supplies. Despite the beginning a major recession that was taking shape in late 2007, the company started to aggressively market these product during the Christmas holiday season. The results were, that the sales of these items would help to generate $15 million in sales, despite the fact that the economy was in a recession. As both items, were priced low enough that most people could afford them, while being able to generate repeat traffic at the same time. This is significant, because it shows how taking Krill's strategy and identifying new products that can increase earnings; were successful in helping to mitigate the negative effects of the recession. (Future Plans and Initiatives 2009)

When you examine if Krill's strategies were financially prudent, it is clear that they were effective at helping protect the company from the implosion in retail sales that would occur in 2008. As the combination of the different elements, would help to focus management on ways of ensuring that earnings were somewhat stable. While this strategy was not completely full proof, it did help to provide the company with earning stability between 2007 and 2008. Evidence of this can be seen by looking no further than, the total growth rate of the company that was taking place between 2004 and 2008. Where, sales were $1.58 billion in 2004, by 2008 the amount of sales had increased to $2.39 billion. The below table chart illustrate the growth in retail sales between 2004 and 2008. (Exhibits 2009)

(Exhibits 2009)

Yet, when you look further beneath these numbers, it is clear that the retail sales of the various segments have been consistent, with the acceptation of the core Ann Taylor retail stores. With the overall amount retail sales; remaining stable from one year to the next (in three out of four divisions of the company). Evidence of this could be seen with the sales at Ann Taylor Loft stores, with them increasing from: $588 million in 2004 to $1.174 billion in 2008. The below table illustrates the overall retail sales growth of the company between 2004 and 2008.

Retail Sales of Ann Taylor by Division between 2004 and 2008

Division

2004

2005

2006

2007

2008

AT Loft

$.588

$.826

$.991

$1.114

$1.117

Internet / Fac.

$.131

$.172

$.207

$.283

$.355

Ann Taylor

$.867

$.854

$.873

$.912

$.866

All figures are in the billions of dollars (Exhibits 2009)

When you look at the different divisions of the company, it is clear that the strategies worked to provide three out of four of the different divisions with earnings stability. While, the volatile Ann Taylor division would experience: earnings unpredictability. What of all this shows is that the strategies that were utilized by Krill; were effective at addressing the underlying challenges facing the company. As the combination of the different pieces, would allow three out of the four business segments to be able to see earning growth between 2007 and 2008, when the economy was severely contracting. (Exhibits 2009)

Using appropriate theoretical frameworks evaluate alternative options to create growth?

An alternative option that company could use to achieve growth would be: to acquire a weaker competitor. One way to do this is: to evaluate the underlying levels of debt and examine how a particular retailer could help the company expand its brand into a particular market. While at the same time, taking the image and line products that they have become known for and making it a part of Ann Taylor product line. This is important, because if the company can aggressively expand, by purchasing a weaker competitor. They will be able to take advantage of the different demographics and segments of consumers. Over the long-term, this could help to give Ann Taylor enough exposure in other markets that it will help their overall bottom line earnings increase.

A second option that Ann Taylor could use to create growth would be: to create key alliances with competitors and other retailers, in areas that the company may not be focused on. Over the last several years a variety of companies have been aggressively concentrating on offering their products to large demographics of customers. Given the fact that Ann Taylor is seeking to expand into these markets, means that they could form strategic alliances with select retailers, who could help increase sales and the overall exposure of the brand, to a new market of consumers. For example, many of the different retail outlets will work with large discounts stores, to sell their various products at the different locations. This causes the overall amount of sales to increase (even though the profit margins are lower) and it helps the company be able to gain access to key markets, without having to worry about unusual amounts of risk. For example, Ann Taylor could form strategic alliances with retailers such as Target or Wal-Mart. Where, these two different companies can be able to sell a variety of products at discount outlets for a similar prices that the company is charging at it factory outlets. Over the course of time, this would help the total amount of sales to increase, as Ann Taylor would be indirectly marketing to this key audience through the partnership that they formed. While at the same time, reducing the underlying amounts of risk, as much as possible.

Should Ann Taylor have focused on improving its current business, or on developing new initiatives? What would be your recommendations?

Ann Taylor should do both. The reason why is because these two elements will play a critical role in helping to determine, how the company will be able to adapt to the changes that are taking place. Where, the underlying business model of the company will depend on managers and executives focusing on improving the balance sheet as well as other factors. Once they begin to concentrate in these areas, is when they will able to find ways to reduce the underlying amounts of debt. Over the course of time, this will help to improve the operating efficiency of the organization, by ensuring that the different financial issues are dealt with so that the company can be able to grow into the future. Once this occurs, is when a company can be able to adapt to the different changes that are taking place in the economy or industry. This is significant, because it shows how the managers, must be prepared to deal with various operational aspects of the business issues. While at the same time, continuing to address the current and future needs of the business.

Developing new initiatives could include everything ranging from: introducing new product lines to examining new business strategies that could be utilized by the company. Given the fact that the economy is in a recession, this means that executives must be prudent about what kinds of product lines they are introducing to their retail stores. Where, they would want to emphasis those products that could invite repeat sales and introduce new product lines, which could bring a new demographic of customer to different retail locations. In the case of Ann Taylor, this is important because they offer a wide selection one particular product, yet they do not provide consumers with a large variety of different products to choose from. If consumer tastes begin to change or some kind of shift occurs in the business cycle, it could mean that the company could be left holding large amounts of inventory that it may not be able to sell. To protect against these sudden shocks, managers / executives must identify those products that could help adjust for changes in demand. Where, the introduction of a particular product will help the company be able to offset the slowdown that was taking place in other product lines. This is important, because it shows how the all retailers must be able to account for changes that can take place in consumer tastes and changes in the economic cycle. As a result, utilizing this kind of strategy will help to mitigate these negative effects as much as possible.

Examining new business strategies is when you are looking at various technique or ideas that could help to improve, the overall profitability of the company. Where, managers / executives will look for key distinctions that they can use to improve their relationship with the customer, while helping to improve the image of the brand. For example, to improve the image of the various segments, Ann Taylor could reach out to their existing customers and new customers, by offering a free fashion newsletter. Inside, they could provide: insights about fashion, discuss the latest trends, offer advice and highlight what the company is doing; to be able to keep up with the underlying trends that are taking place. Over the course of time, this kind of strategy would allow Ann Taylor to reach out to new demographics of consumers, through their newsletter. At the same time, they can be able to stay in the minds of customers and discuss some of the different ways that the company is keeping up with the changes. This is important, because it will allow Ann Taylor to be able to reach out to a variety of audiences and it will help to improve the image of the brand. The costs of undertaking such activities is fairly small, while the long-term effects could help to increase retail sales across the entire company.