Strategy-QA273

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I. Current Assessment of LOFT

 
LOFT’s Strengths

 
● Drilling down into LOFT’s figures, the spin-off brand has consistently grown over the past two years due to their well-planned growth strategy. Net sales in fiscal 2013 increased by 4.2% over fiscal 2012, reaching nearly $1.3 billion. LOFT’s loyal following,
addicted to the retailer’s promotional sales of fashionable and quality merchandise at a great-perceived value, have expressed their love for the brand by continuing to purchase LOFT merchandise based on its classic aesthetic, functionality, and well-fitting attributes.For the fourth consecutive year, comparable sales reported an increase for the LOFT brand (ANN INC., “Press Release.” 3/14/14).
 
● LOFT’s core competency is their broad and well-rounded assortment, in addition to their casual wear-to-work styles that serves as an untapped market by other competitors in the specialty market.
 
○ LOFT competitors GAP and Express have similar price points to LOFT, yet possess more casual merchandise, while specialty retailers with more sophisticated work attire like J. Crew, Banana Republic, and Chico’s have a significantly higher price point.
 

● Their competitive advantage is sustainable because as the millennial customer (ages 18 to 34) spends $600 billion a year, it ensures that LOFT’s product offerings cater to the essentialness of what the millennial customer wants– the ability to conveniently purchase
everything they need at one place, like one-stop-shopping in a trendier manner (Arnold Karr, “Millennials Eager to Shop, Reluctant to Buy” WWD 4/24/14).
 
○ Having a designated older demographic (the “mommy market” of late 20-somethings to early 40-somethings) already captured, LOFT shows great potential to grab onto the millennial customer now through their trendier, casual clothing,with the ability to grow up with them as they need to start purchasing casual wear to work styles.
 
● For a brand to continue to grow during a time when American consumers aren’t spending their money, LOFT is succeeding. They have grasped their customer firmly and now need to run with them. With an increase in net sales, LOFT undoubtedly has the correct assortment and merchandise mix for their target customer, but in the coming years, they’ll need to expand in order to compete, diversify their product offerings, thus completing the lifestyle for the LOFT customer, and lastly remaining fresh in their customers’ eyes.

 

LOFT’s Areas of Opportunities
 
● As the Annual Report’s figures aren’t completely segregated by brand, the financial weaknesses will discuss Ann, Inc. in its entirety. The most critical financial issues for LOFT to immediately address are net sales, gross margin, and net profit margin. These
financial figures have either decreased from LOFT’s figures last year, are below the specialty industry norms, or are growing at slower rates than a comparable category.
 
Ann Inc.’s Financial Statement

 
* Figures in red illustrate areas that need improvement
 
● From fiscal 2011 to fiscal 2013, Ann Inc.’s annual net sales have been increasing, but at slower rates, from an 11.7% increase from FY10 to FY11, 7.4% from FY11 to FY12, and a 5.0% from FY12 to FY13. In comparison to the annual sales increase of the industry norms of the specialty market at 8.0%, this exhibits Ann Inc.’s loss of market share.
 
● From fiscal 2012 to fiscal 2013, Ann Inc. worked on tighter margins as their gross margin percentage decreased to 53.9% from 54.8%. Although this figure is higher than the industry norm of 45.9%, the depletion of Ann Inc.’s gross margin is negatively affecting their bottom line.
 

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● Ann Inc. projects fiscal 2014 total net sales to be $2.615 billion, reflecting a total company comparable sales increase in the low-single digits, but as Ann Inc.’s annual sales increase is typically offset by Ann Taylor’s figures,
we’ve projected an increase of 8.0% over fiscal 2013 to $1.37 billion. (ANN INC., “Press Release.” 3/14/14).
 
○ We’ve projected a net sales increase of 8.0% because as LOFT has been consistently growing, we forecast their sales to increase at a greater rate for fiscal 2014 as the retail industry starts picking back up and while LOFT focuses more on their marketing efforts to gain the millennial customer.
 
● For fiscal 2015, with the introduction of Elle for LOFT into the assortment, we plan for a 12.0% sales increase over fiscal 2014, reaching $1.54 billion in annual sales. This will contribute to Ann Inc.’s figures, assisting top line sales achieve their bottom line goals.
 
○ Ann Inc. should goal their gross margin and net profit to 55.0% and 4.5%,respectively, more relative to their figures in fiscal 2012.
 
● Top line figures for the company have been consistently growing, up 5.0% from fiscal 2012 to $2.49 billion dollars in fiscal 2013. Growing at a greater rate than net sales is cost of goods sold, which increased 7.18% for fiscal 2013. This factors into the company’s
gross margin, resulting in its humble increase of 3.15%, ultimately diminishing Ann,Inc.’s net income, thus exhibiting their loss in profits for fiscal 2013 from fiscal 2012 by 0.15%.
 

● Looking at the diminishing average unit retail for fiscal 2013, LOFT’s constant promotional strategy contributes negatively to this parameter. The more promotions LOFT executes, the more their AUR erodes, as it has from fiscal 2010 to fiscal 2012, according to Ann, Inc.’s 2012 Annual Report. Down $0.96 from fiscal 10 to fiscal 11 and down $0.43 from fiscal 2011 to fiscal 2012, LOFT’s AUR was $23.68, while their average units per transaction also decreased to 2.55 from 2.58.
 
● LOFT’s average dollars per transaction decreased from $1.82 from fiscal 2011 to fiscal 2012.
 
● For fiscal 2015, by setting a goal of reaching an average DPT of $63.00, an AUR of $24.70, and average UPT of 2.85, LOFT can see better bottom line results as a brand, thus contributing to Ann Inc.’s profit margin, as well.

 
● Creating a product line that provides a basic necessity for LOFT customers will undeniably help the business grow. Intimates are a season-less item, that rarely need to be permanently marked down, as understood from speaking with the store manager at the Flatiron Victoria’s Secret location. Victoria’s Secret only places hard markdowns on their items during their infamous Semi-Annual Sale biannually (Store Manager, Victoria’s Secret, Flatiron Location 4/1/14).
 
○ Throughout the year, they have promotions like “Spend $75.00, Get a Free VS Tote” to increase sales, but they rarely have to cut into their margins to achieve this.
 
○ 36% of millennial respondents in a WWD Millennial Trend Analysis Report stated that they only purchase items that they deem necessary (Arnold Karr,”Millennials Eager to Shop, Reluctant to Buy” WWD 4/24/14).
 
● Keeping the customer’s price sensitivity in mind, these figures express a need for items that are going to increase LOFT’s UPT without depleting their AUR by heavily promoting the merchandise for a lift in sales. Intimate apparel offers that opportunity for
LOFT as the price range of the competition’s intimate apparel ranges anywhere from $5.00 for a pair of cotton panty to $68.00 for a push-up bra, falling within the range of LOFT’s AUR for fiscal 2012, yet serves as impulse items that can easily be added to each
customer’s purchase at a lower price point for them with a higher margin for the company.
 
Product code: Strategy-QA273
 

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