Ascena Retail Group (ASNA)

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EXECUTIVE SUMMARY

Asna is a clothing company mostly catering to women at all ages. It was founded by Roslyn S. Jaffe in Stamford, Ct in 1962. They started off with the Dress Barn Brand, and over the years acquired other well-known brands such as Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Maurices, Dressbarn and Catherine's brands, and Justice brand. Their products include: dresses, tops, accessories, etc. ASNA strives to be the leading retailer when it comes to women fashion, they strive to be environmentally conscious and making an impact in the communities they work with. They have a total of 4,800 stores in the US, Canada, and Puerto Rico. In 2017, ASNA enacted a business strategy that will reduce their store count, eliminate executive positions, and create more support infrastructure for their brands. Finance reports included are reported from Ebsco Host and IBIS World which highlights their revenue in the last three years from 2015 to 2017. In general the swot analysis indicates that ASNA is doing well in terms of attracting a wide consumer preference but failed to capture overseas markets. ASNA is part of the women clothing industry. This industry is very competitive and very easy to enter. To succeed in this industry predicting consumer preference is essential. The clothing industry is not heavily regulated, but some laws are in place for this industry. The demand for clothing is expected to increase in the next few years due to higher income. But there is a shift in consumer’s preference and how they shop that has caused many well-known companies to restructure their business entirely. This industry might be affected by changes in policy regarding trade and currency. Starting in 2015 this business went through lawsuits and purchases that caused huge debt for the company. This company is reported to have issues such as a huge DE Ratio, low stock prices, and decline in revenue due to competitors. To deal with these issues, proposed solutions include closing down stores that were not profitable, and focus heavily on anchoring themselves in key fashion areas in order to lower their costs and decrease their huge debt, solution 2 was to focus on marketing one of their successful brands further through social media because its reported to be the brand that is making the most revenue for them according to their 10-report for 2017, and thirdly, in order to tap into potential revenue from overseas markets, a strong e-commerce friendly platform needs to be developed. a weighted matrix was used to figure out what solution should be proposed for the year 2019. based off the result solution 3 was chosen, and a cost and benefit analysis highlights how it will affect the company’s prospects as a result. And based off of this solution how it will potentially affect stakeholders as well.It is key that this company should focus on closing down underperforming stores in their portfolio, invest heavily

Hoang 2 in e-commerce, and focus on leading consumer preference and trends to guide the implementation of a successful product marketing strategy.

Company Discussion

Introduction According to Ascena Retail’s website, “Ascena retail group, inc. (NASDAQ: ASNA) is a leading national specialty retailer offering apparel, shoes, and accessories for women under the Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Maurices, Dressbarn and Catherines brands, and for tween girls under the Justice brand. ascena retail group, inc. operates ecommerce websites and over 4,800 stores throughout the United States, Canada and Puerto Rico”(ascenaretail.com). It was founded by Roslyn S. Jaffe, she opened the first Dress Barn store in Stamford CT, in 1962. (ascenaretail.com) ASNA is headquartered in Mahwah, New Jersey (Ebsco Host). As of July 29, 2017 ASNA has approximately 64,000 employees, 48,000 are part-time employees. Temporary employees are added during peak season (SEC). Ascena focuses mainly on women apparel and accessories, they started out with the Dress Barn brand, and over the years purchased other well-known brands to add to their portfolio, they mainly operate in the US and Canada.

Mission “One of ascena's core purposes is to provide all women and girls with fashion and inspiration for living confidently every day. Our commitment to women and girls is a driving force throughout Ascena and guides the business decisions we make every day”(ascenaretail.com). ASNA’s core purpose is to inspire and give women and girls confidence through the products they sell. The company makes decisions that will serve their target audience, which are women at all ages (EBSCOHOST).

Vision “In short, our aspiration is to be a leader in responsible fashion and impact our communities, while inspiring all women and girls to change the world” (ascenaretail.com). Customers are becoming more environmentally conscious, and some customers choose to avoid companies that don’t stand by such principles altogether. Being a clothing company, ASNA’s vision statement reflects that they want to send a clear message to consumers that they also value these beliefs through their actions.

Values

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“We are a family of brands that respects and serves women and girls.” They respect the people they cater to, which is women. They value being socially responsible when it comes to the environment and the people that work for them. (ascenaretail.com)

Current Business Strategy

“In the first quarter of Fiscal 2017, the Company initiated a transformation plan with the objective of supporting sustainable long-term growth and increasing shareholder value...The Company realized savings of approximately $65 million during Fiscal 2017...Activities associated with the Change for Growth program are currently expected to continue through fiscal 2019” (EDGAR).

In the first quarter of 2017, ASNA changed its operating model by eliminating a number of executive positions and making organizational changes that created “premium fashion”, “value fashion”, “plus fashion”, and “kids fashion”. They also allocated brand support services such as human resource, real estate, non-merchandise procurement, and asset protection for the brands they own. Stores that were not profitable were either closed down or rent reduced. One of the company’s biggest focus is converting sales in the physical stores into e-commerce sales. They have acquired many brands including “Maurices”, “Dress Barn”, Lane Bryant”, “Catherines”, “Justice”, and most recently in 2015 “Loft” and “Ann Taylor”. They are still working on integrating the new business through the year 2018 and 2019. (EDGAR)

Stakeholders Stakeholders Stake

1. Employees 1. Job Security, Benefits 2. Communities 2. Loss jobs hurt the local economy 3. Competitors 3. Less competition does not create 4. Suppliers healthy competition, which hurt 5. Customers consumer’s bottom line 4. Lose a huge source of their revenue, which will hurt their industry and the people who work in it 5. Will have less choices to make and will not be able to benefit from product innovation due to less competitors

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Opposing Stakes: Similar Stakes:

Customers and Competitors have opposing The employees and the communities both stakes because Customers want to see an benefit from the company through the jobs increase in healthy competition because the and benefits it provides. Jobs lead to paying customer will benefit from competitive local tax and leisure spending. Which pricing and more options to spend their improves and maintains public infrastructure money. But competitors want to improve their that benefits the people living there. profits and it’s hard to do that in a competitive market with too many competitors.

Financial Overview

“The company reported revenues of (US Dollars) US$6,995.4 million for the fiscal year ended July 2016 (FY2016), an increase of 45.6% over FY2015. The operating profit of the company was US$94.6 million in FY2016, compared to an operating loss of US$234.9 million in FY2015. The net loss of the company was US$11.9 million in FY2016, compared to a net loss of US$236.8 million in FY2015”(EBSCO).

The data reported above is from a different database then the one discussed in the bottom paragraph. Having two separate analyses of the data presented can confirm the accuracy of the reported information.

According to Business Insight Global database, ASNA’s 3 year revenue is as followed: In 2015 they had a revenue of 4802.9 million. In 2016, they reported a revenue of 6995.4 million. In 2017, they reported a revenue of 6649.8 million. In 2016, revenue increased 45.64%, but in 2017, decreased by 4.94%. Their revenue is consistent with last years revenue, but overall their revenue dropped. 2015 was not their best performing year, but they made a good recovery in 2016. In 2017, the revenue dropped slightly.

ASNA’s 3 year profit is as follows: In 2015 they made a profit of 2669.2 million. In 2016 they made a profit of 3928.7 million . In 2017, they made a profit of 3859.6 million. Profits increased by 47.18% in 2016, but decreased by 1.75% in 2017. Once again 2015 reported low profit margins, but they were able to recover in 2016 (Business Insights: Global).

Financial History

ASNA used to be under the Dress Barn name. Due to the name change, ASNA’s oldest stock report is April 20, 2017, which reported the highest stock price of 4.10 and in April 19, 2018 a price of 2.27. Even though there isn’t much financial history on this company due to

Hoang 5 the name change, one thing is certain something must have taken place before the name changed that led to the decline in stock price. It is significant and a concern (yahoo finance).

Debt

The DE ratio for ASNA is 37.15 based off the financial data provided in the edgar database. (total liability 3050.5 million divided by total equity 821 million) If the ratio is under 1 that is a good sign, if the DE ratio is over one that is generally a bad sign. Based on the calculations generated from their finance history report for 2017, this company is in a bad state and has a huge debt. They are at large, funding the growth of their business through loans (Edgar).

Patents

Patents are not applicable.

Legal issues

“The Company paid approximately $51 million representing the agreed settlement amount into an escrow account on November 16, 2015. Formal notice of settlement was sent to the class members on December 1, 2015. The final approval hearing was held on May 20, 2016”.(Edgar)

In 2015 multiple litigations took place that could have affected the company’s performance that year. The issue was over pricing of a brand named “Justice”, which resulted in multiple class action lawsuits in different states. This resulted in the company paying $51 million dollars total to the class members.

SWOT

Strength: “Strong omni-channel presence”, “Strategic brand positioning to cater to separate customer groups.” (EBSCO HOST).

One of ASNA’s focus is to develop their e-commerce websites. Customers are shifting more and more towards purchasing goods online. By developing a strong presence online, ASNA can increase their sales potential. Having an online presence also opens doors for sales outside of the US, which accounts for the majority of ASNA’s revenue.

Secondly, ASNA owns multiple well known brands that target different age groups. This is positive for the company’s growth, since there is opportunity to capture different markets rather than just capturing one market

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Weakness: “Excessive dependence on the US for revenues.” (EBSCO HOST). ASNA fails to capture any revenue in foreign markets. The majority of their revenue is from sales in the US. This widely hinders growth for the company as a whole. Even with multiple brands, if there is no strong brand recognition, the products will not sell. Compared with their competitors, they are behind.

Opportunities: “Growing online retail sales in the US.” (EBSCO HOST). ASNA started their online e-commerce store for each of their brands they currently owned. This has led to a steady rise in percentage of revenue earned from these e-commerce sites each year. With further sophisticated development in the online platform, the customer experience can be enhanced when shopping, which will lead to increased sales and brand recognition internationally.

“Increasing demand for private label products in the US” (EBSCO HOST).

ASNA also owns brands that capture the market who wants to own private labels, but with a limited budget. They excel at being the medium between fast fashion and high priced national brands. Sales are increasing each year for private labels, this put ASNA in a excellent position to capture that market.

“Growing market for plus-size apparel for women in the US”(EBSCO HOST).

There is also a growing market for plus-size women. Through ASNA’s Lane Bryant and Catherine brand. They are able to capture a good portion of the market, this is a good opportunity to build a connection with those customers to build brand loyalty and digress competition in the future.

Threats: “Intense competition” (EBSCO HOST). Retail is a competitive environment in general since it is very easy to enter the market through partnerships with vendors. ASNA competes with well-known companies such as Nordstroms, Target, JCPenney, T.J.Maxx, etc. These companies have substantially greater resources than ASNA. This could lead to “pricing pressure”, in turn reducing company’s profit margins.

“Increasing labor costs in the US ''(EBSCO HOST).

Another issue is labor cost. Labor cost affects service and retail industry immensely because it accounts for a lot of the upfront cost. The labor cost is always a constant cost per

Hoang 7 hour against the unpredictable climate of the service and retail industry landscape. Labor costs have been rising steadily every year, this could hurt the company’s profit margins.

Industry Discussion

Industry Introduction

ASNA is part of the Women’s Clothing Industry. “This industry is composed of establishments that specialize in women’s wear, including misses’, juniors’, plus-size and maternity clothing. Operators in this industry undertake sales and administrative activities, such as customer service, advertising and cash handling. Some stores also offer basic alteration services on-site”(IBIS World). This industry’s focus is marketing to women. They focus on selling to mostly juniors, women, plus-size women, and sometimes maternity. Due to the nature of this industry, a lot of the operation consists of customer service, advertising, and cash handling. The geographic spread of this industry is mostly concentrated in fashion centric areas such as New York, California, Texas, Florida, Georgia, Illinois, Pennsylvania, North Conneticutt and Los Angeles, but in smaller concentrations, The products that are offered in this industry is a combination of tops, bottoms, underwear, outerwear, dresses, and other apparel and accessories. Tops account for an estimated 31.1% of revenue, followed by 20.7% for bottoms, 20% for apparel and accessories, 15.3% for dresses, 9% for outerwear, and lastly 3.9% for underwear. Operators diversify their product offerings in order to stay competitive. In general, this industry benefits when the consumer conditions are favorable. There needs to be a high disposable income to drive the need for non-essential items. If the economy is doing well, there will be an increase in consumer spending. Customers are willing to buy a brand if they perceive it to be valuable. But at large, this industry’s customers are mostly in the highest income quintile bracket. “This [high income] segment of consumers accounts for the largest proportion of the market at an estimated 37.2% in 2017. Many of the consumers within this bracket are 35 and up, which is the intended age group for customers of the industry’s major players” (IBIS World).

Trends: “[The women’s clothing] industry revenue [before 2017] is expected to fall at an annualized rate of 1.9% to $41.8 billion over the five years to 2017, including an expected decline of 1.1% in 2017” (IBISWorld). According to the revenue reported by IBIS World for the years leading up to 2017, this industry has been in a decline due to competition from superstore retailers and declining mall traffic. On a

Hoang 8 positive note, rising disposable income is expected to boost customer spending towards high end specialty stores. The trend that is predicted from now to 2022, “[Women’s clothing] industry revenue is expected to decline at an annualized rate of 0.7% to total $40.4 billion, including a 1.0% decline in 2018 alone”(IBISWorld) Competition is expected to rise over the next couple of years as more non-traditional players enter the market. Internet sales are expected to capture a bigger piece of the market. Stores that were originally physical stores exclusively, have responded restructuring their business to having a stronger online presence. It is predicted that if a store offers something that is a specialty or niche they will grow rapidly. The rise in mobile technology is also expected to keep this trend(e-commerce) relevant in the coming future (IBIS World).

Market share: The competitive nature of this industry is due to it being highly fragmented. No company owns more than 5% of the market except for the Ascena Retail Group. Overall this market is relatively easy to enter. Non-traditional companies are beginning to enter the market such as giant discount retailers. A lot of small business online are entering the market, selling clothes at below average prices. To enter this market not alot of capital is needed, most of these companies have manufacturing in another country, but most of their sales take place in the US. The key thing to succeed in this industry internally against other competitors is better branding, being in key locations, strong marketing, and strong customer service. The highest operation cost in this industry is Labor and Marketing. A barrier that might make it difficult to enter the market is affording a good location in a high traffic area. Profit widely varies in this industry. Usually selling generic brands will yield lower profit returns than selling high-end brands. Profit is expected to decline leading up to 2022 according to IBS world. “Purchases are estimated to account for 56.7% of industry revenue in 2017.” Purchase cost has been able to be lower than what it's supposed to be due to cheaper oversea production cost. But cotton price and other fibers will highly influence the purchase cost. Wages are estimated to account for 13.6% of industry revenue. This industry heavily relies on hiring part-time employees to operate its business. But over the last five years, according to IBIS world “Over the past five years more operators have implemented technology such as inventory tracking systems and POS (point of sale) systems which reduce the need for lower-skilled employees.” “rent and utilities expenses account for a total of 12.2% of industry revenue in 2017.” Most of these companies do not own the building, the majority of them lease. Electricity is a big cost. And lastly, marketing cost. “In 2017, marketing expenditures are expected to make up 1.8% of industry revenue.” Operators put a lot of money behind marketing in order to retain customers such as print ads, campaigns, tv ads. Customers preference has shifted towards fast fashion and online clothing e-commerce. Premium brands and specialty brands have been able to establish themselves in the years leading

Hoang 9 up to 2017. Low priced retailers are failing. Over the next few years this industry will go through intense price competition and according to IBISWorld a lot of “external competition” will create mixed results for this industry. External retailers are defined as “The Family Clothing Stores industry (IBISWorld report 44814); the Sporting Goods Stores industry (45111); the Lingerie, Swimwear and Bridal Stores industry (44819); and the Used Goods Stores industry (45331). Family clothing stores are a particular threat to women’s clothing retailers.” (IBIS World). IBIS World reports that this industry will have mixed performances. Due to the diversity in operators, profits can vary greatly among competitors. Discount retailers and online platforms are taking a huge share of the market. Low priced point retailers such as Charlotte Russe have been suffering. These low priced point companies are forced to either reduce their store-count in order to stay competitive or completely exit the market altogether. It is predicted that if a store offers something that is a specialty or niche they will grow rapidly (IBISWorld).

PESTLE Analysis

Political Issues

Reported by IBIS World the US dollar value influences this industry on a small scale. “Industry participants are affected by changes in the US dollar's value only marginally, as most changes are adjusted at the manufacturing and wholesale levels.” (IBIS World) Due to the fact that this industry relies heavily on outsourcing internationally, if the US currency price is not stable this could have a adverse effect. Outsourcing would be less attractive since the US dollar’s buying power will be less, leading to higher labor cost in exchange for products. “Tariffs applied to manufacturers and wholesalers ultimately affect the prices paid by women's clothing retailers.”(Ibis World) According to the Washington Post, the Interest rates are expected to rise through the year, this will negatively affect the demand for women’s clothing. A high interest rate deters discretionary spending. “investors are also on edge about the anticipated uptick of the Federal Reserve’s key interest rate — which could hamper strong economic growth”(Heath).

Economic Issues

“Industry stores do not engage in international trade, although the majority of women's apparel is sourced internationally...However, significant shocks to commodity prices can determine women's clothing stores' merchandise prices.” Although this industry doesn’t rely

Hoang 10 heavily on international trade, they source their clothes internationally, a number of potential policies can affect the way the industry runs its business. There has been a lot of talk internationally about the environment. The environment has a direct effect on commodity costs such as cotton and other fibers that determine clothing prices. “The prices of cotton and alternative fibers have fluctuated “drastically over the past five years due to adverse weather conditions damaging the supply chain, affecting purchase costs greatly.” Due to the volatility in commodity costs in the past five years, this will definitely affect future revenues and profit. If the cost is too high, lower income households will not buy clothing. According to IBIS World US, the women's clothing industry is affected by a number of social issues. In general, disposable income affects demand for clothing. Clothes are considered discretionary, it is only bought when people have extra income. The "per capita disposable income" index is helpful in detecting future changes that will affect the demand in the market. “Per capita disposable income is expected to increase in 2017, creating a potential opportunity for the industry"(IBIS World). A second index this industry relies on is the "number of adults ages 20-64”, a high number in this index is good for this industry since this is a good indicator of potential customers. This industry's customers are females between ages 20-64, therefore a high number correlates to higher demand for clothing. It is predicted on IBIS World that this number will increase slightly in 2017. Lastly, for the specialty market that caters to affluent womens ages 35 and up, this part of the industry relies on "Households earning more than 100,000". Many operators in this industry design products at high prices that are marketed directly towards this specific group. A high number for this index is best for this sector in the industry. This index is reported to go up in 2017 (IBIS WORLD).

Social Issues

Last year in 2017, Nordstrom announced a new store concept to attract customers. Other stores are experimenting with their own ideas as well. "Shopping today may not always mean going to a store and looking at a vast amount of inventory," Shea Jensen, Nordstrom's senior vice president of customer experience, told the Wall Street Journal. Men's clothing retailer Bonobos, for example, got its start by opening bricks-and-mortar locations where men would be fitted for clothing they later would order online (Andrews). Because e-commerce is rapidly changing the retail landscape (notably Amazon), over the next few years retail operators will go through trial and error to find a successful business strategy with a high attention to speed and customer service in mind. It is not known how this industry will evolve in response to the competition.

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"As the retail landscape continues to transform at an unprecedented pace, the one thing we know that remains constant is that customers continue to value great service, speed and convenience," Jensen said in a news release. "We know there are more and more demands on a customer's time and we wanted to offer our best services in a convenient location to meet their shopping needs"(Andrews). This Article was published in 2016, and highlights the trend towards Athleisure wear, which is a $97 billion dollar market according to the New York Times. “Seemingly every clothing brand and retailer wants in on so-called athleisure, a category that has become so prevalent that it has won an entry in the next update of the Merriam-Webster dictionary: casual clothing meant to be worn both for exercising and for doing almost everything else”(Tabuchi, Hiroko). Every well known brand is marketing their own athleisure wear. This might be a continuing trend that will continue to have momentum moving forward. This might be influenced by social marketing on instagram of the healthy lifestyle that consists of yoga and cold-pressed juice, etc.

Technological Issues

Technology has impacted every industry in some way or form. Due to the advancement in technology, counterfeiting has become more lucrative. This negatively impacts the womens’ clothing industry, costing them significant loss in revenue each year. “The development of sophisticated technologies to obtain, process, and reproduce images and the extensive use of new digital channels for online sales have simplified both production and distribution of counterfeit products.”(Meriviglia). In response, new technology is being developed to counterattack counterfeiting, these new technology are still being tested and have yet to be implemented, but are expected to be integrated into the industry steadily.

Legal Issues

The laws that the women clothing industry are affected by includes the Sherman Act, the Wilson Act, The Clayton Act and the Robinson-Patman Act. Congress and state’s initiative is healthy competition and fostering growth of small businesses. These laws could be the reason why the women clothing industry is highly fragmented. “The Sherman Act (1890) prohibits the formation of monopolies that hinder competition. The Wilson Act (1895) prohibits conspiracies that restrain import trade. The Clayton Act (1914) bans certain forms of price discrimination.The Robinson-Patman Act (1936) provides some protection to small independent retailers and their suppliers from unfair competition from vertically integrated, multi-location chain stores”(IBIS World).

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Environmental Issues

As the debate continues for change in improving the world’s carbon emission among policy makers, there is a potential for this industry to go through drastic change in their business model in order to comply with future regulations that might occur. The apparel industry contributes a great deal to the problem, any policy would affect them a great deal. “The apparel industry is responsible for 10% of the world's carbon emissions, and is considered as the second highest industrial polluter after the oil industry.”

Problem Analysis & Description

ASNA had a drastic spike in total debt that occured from 2015 to 2016. They went from having 106.5 million in total debt to 1,648.5 million. They have a DE ratio of 37.15 calculated from the data off of edgar databases. (Edgar) One of the main reason that brought on this debt was in 2015, they went through a class action lawsuit costing them $51 million , they acquired ownership of ANN INC. for $2.1 billion, they made miscellaneous investments that were funded through debt, cash, and stocks that totalled approximately $3.5 billion. “Over the past five fiscal years, the Company has invested approximately $3.5 billion in acquisitions, capital improvements, supply chain integration and technology infrastructure improvements, which were funded through cash, debt and the issuance of common stock.” “[The Company] paid approximately $51 million representing the agreed settlement amount into an escrow account on November 16, 2015.”(Edgar) On August 21, 2015, the Company acquired 100% stake in ANN INC. for approximately $2.1 billion. Due to the competitiveness within the industry, diversifying portfolio through acquisition is a way to stay ahead of the competition. ASNA owns a lot of brands under their belt, it is an assumption that those brands are not capturing a sizable part of the market as expected. According to IBIS World internet sales are capturing most of the market: “Internet sales are expected to capture a bigger piece of the market. Stores that were originally physical stores exclusively, have responded restructuring their business to having a stronger online presence. It is predicted that if a store offers something that is a specialty or niche they will grow rapidly. The rise in mobile technology is also expected to keep this trend(e-commerce) relevant in the coming future.”(IBIS World) The good thing that has come out of this debt is a huge portion was used to fund business restructuring in supply chain integration and technology infrastructure improvements and

Hoang 13 acquiring Ann Inc. But their infrastructure is not up to par, they will need more time and capital to get where they need to be competitively. But with a huge DE ratio, the funds will not easily come from stocks. They are not an attractive company to invest in right now. Another thing that is mentioned a lot on the internet is ASNA’s competition such as GAP. In terms of revenue, GAP Inc. is beating ASNA. In terms of Revenue, The Gap Inc. had a net revenue of 15,855 million in 2017 compared with ASNA’s net revenue of 6,649.8 million. That is more than double the amount.(Edgar) If comparing the differences between GAP Inc. and ASNA: Reported on January 28, 2017 The Gap Inc. operates approximately 3659 stores compared to ASNA who owns approximately 4,800 stores as of July 29, 2017. (edgar) One of the key differences in this comparison is Gap owns multiple stores internationally, while ASNA’s stores are concentrated in the US and Canada. Capturing the market on a Global scale is one of the biggest ways to stay competitive in this industry. Market size is forecasted to increase in different countries other than U.S. and Canada. ASNA is not capturing any sales in the global market. (edgar)

(Wazir) In terms of consumer preference, Gap Inc. owns Athleta while ASNA does not have a foot in the popular trend athleisure wear right now.“Seemingly every clothing brand and retailer wants in on so-called athleisure, a category that has become so prevalent that it has won an entry

Hoang 14 in the next update of the Merriam-Webster dictionary: casual clothing meant to be worn both for exercising and for doing almost everything else”(Tabuchi, Hiroko). Another thing that stands out is the combination of branding, trademarking, and franchising GAP Inc. is undertaking. To pull this off there needs to be strong brand recognition for franchising to succeed. One of the strengths of GAP Inc. is its ability to build on the brands they have owned for a long time. They have been investing money into marketing the brands they currently own instead of following ASNA’s example of an expensive acquisition. ASNA does licensing with their trademark as well, but currently in 2017, it only accounts for less than 1% of their revenue. “We earn licensing revenue through international franchise stores along with advertising and other marketing initiatives with partner companies. Licensing revenue is less than 1% of our consolidated annual net sales. As of July 30, 2016, ANN had six international franchise stores and Justice had 68 international franchise stores. We continue to explore other partnership opportunities to support our long-term growth ”(Edgar). Gap Inc. had 429 franchised stores as of February 8,2018. That is a huge gap compared to ASNA’s 6 international franchise store. Even though Gap Incs. amount of franchise store is impressive, they are also closing a good amount as well so it is not the franchise that makes GAP Inc. successful. It is their brand recognition that is ultimately helping them succeed. This is where it ends in terms of how much better GAP Inc. is doing than ASNA. GAP Inc. is struggling as well in terms of business strategy. Both are heavily restructuring their business funded through loans. According to Edgar GAP Inc. focus is on brand awareness and technology, which is a similar business strategy listed for ASNA on edgar: “In fiscal 2018, we are focused on investing strategically in the business while maintaining operating expense discipline and driving efficiency through our productivity initiative...Underpinning these strategies is a focus on utilizing data, analytics, and technology to respond faster while making decisions that will fuel market share gains and lead to a more nimble organization”(Edgar). Right now, the current trend in the women is towards fast fashion such as forever 21 or H&M, or fully integrated online e-commerce companies with a low product price point such as “Missguided” which is not listed on the fortune 500 companies, and well known specialty brands that have had a history of more than a decade such as Chanel, Louis Vuitton, etc. According to IBIS World: “Customers preference has shifted towards fast fashion and online clothing e-commerce. Premium brands and specialty brands have been able to establish themselves in the years leading up to 2017” (IBIS World). GAP Inc. and ASNA have not fully placed themselves in one of these niche markets within the women’s clothing industry, if they don’t quickly implement proper strategy, their revenue will keep declining. Time and capital is a problem for these companies right now.

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They are at a disadvantage because implementing new business strategies take at least a couple years to implement, while businesses that are already following trends are continuing to capture a large piece of the market. Another significant issue for ASNA is the name change the company went through last year and how it relates to stock prices. As said before in financial history, ASNA used to be under the Dress Barn named. Due to the name change, ASNA’s oldest stock report is April 20, 2017, which reported the highest stock price of 4.10 (yahoo finance). Based on a quick glance of their stock price history on their website, their stock has dropped from an estimated price of $14 dollars in 2015 to roughly $2 dollars in 2018. For a stock to continue to be in decline for such a long time means ASNA’s performance has not been pleasing investors. The biggest reason for decline in stock prices is profit margins. ASNA’s profit has been declining ever since 2015. Around that time, mentioned before with DE Ratio, ASNA placed itself in significant debt with a DE Ratio of 37.15. The result was acquiring ANN Inc., but Ann Inc. is a long term investment. As of now, their premium line is declining in sale as well. Right now debt is gonna be a big factor that will hinder ASNA’s ability to grow for the next couple years. This is further aggravated by the news of rising interest rates which will affect the whole economy. Mentioned earlier in political issues: “Investors are also on edge about the anticipated uptick of the Federal Reserve’s key interest rate — which could hamper strong economic growth.”(Heath) They are in a situation where they realize they need to invest more capital into their technology infrastructure, and work on branding, but they realized it too late. They are in debt and at a loss for time. Companies who are already well-positioned are claiming market shares, while ASNA is still implementing its business structure. “One of the company’s biggest focus is converting sales in the physical stores into e-commerce sales.” (Edgar) It is a fact that developing a business strategy and implementing it is going to take more than a years time, with ASNA’s current forecast, it seems from the outside this company is just struggling with a lot of debt that is further aggravated by high interest rates. And the only way they can grow is by piling on more debt. This is why their stock prices are declining, their current outlook would make any investor nervous.

Problem Statement:

ASNA failed to take into account industry trends when implementing their business strategies, which led to a drastic decline in stock price, a high DE ratio, and dismal revenue in comparison to their competitors.

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Solution, Evaluation & Recommendation

Solution 1: Stores that are underperforming should be closed. Stores located in popular tourist (in high income metropolitan areas) should be maintained. How a store should be closed or maintained should depend on their net profit margins of at least 30%.

Solution 2: Based off their 2017 revenue report, focus their marketing on the Ann Inc. subsidiary brand. Key data to analyze should be focused on consumer preference and trends. Companies should engage their consumers with new products through social media.

Solution 3: Invest heavily on e-commerce infrastructure. Streamline the supply & logistic aspect. Increase user-friendliness on website and smartphone website.

Based off of the weighted matrix results: Solution 3 should be implemented.

Weight Matrix Table:

Criteria Weight Sol. 1 Sol. 2 Sol. 3

Potential Profit 3.00 3 9 7 21 9 27 Growth

New Customer 2.00 2 4 8 16 8 16 Attraction

Feasibility 2.00 10 20 7 14 7 14

Marketshare 1.00 3 3 5 5 5 5

Impact on Total 2.00 4 10 5 10 6 12 Debt

Total 10.00 46 66 74

Assumptions: if these solutions were put in place the results would affect the fiscal year 2019.

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Cost Benefit Analysis Cost Benefit

Intangible ● Customers might not ● Positive business purchase as much relationship with online as expected suppliers ● Trends might have ● Improve the brands shifted loyalty, brand, and ● The plan might not be quality of service. efficient ● Decrease in expense ● Supplier contracts in the long-run could be broken ● Investors might like ● Could cost more than the business plan expected ● Trade policies might affect solution ● Currency value can fluctuate ● Might take more than a year to implement

Tangible ● Budget Costs of hiring ● Increase in website website developers, views, and length of web designers, 20% time spent on higher in wage e-commerce website expense can lead to relevant ad ● Hiring Supply & space Logistic Managers, ● Improve customer 20% rise in wage retention expense ● Less customer return ● Buying additional purchases technology equipment ● potential to reach a ● Outsource efficient global audience supply & logistic solution expertise to a 3rd party, 10% of expense

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Implementation & Success Metrics

The solution proposed is a long-term solution that will lead to the well-being of the company in terms of higher revenue, and higher stock prices. The effect will not be immediate and will take an estimated 5 years time to see visible results. DE ratio will not be addressed directly if this solution were to be implemented, on the contrary DE ratio might increase due to increased spending on updating the online platform and additional talent. If planned correctly, the company can expect to reap the benefits. The company can start the planning anytime, in the beginning allow 3 months to gather a team to analyze the competition. After the period collecting data on successful websites and understanding consumer behavior. After submitting a plan to the higher ups on how the online platform should look and function, based on similar competitors e-commerce websites. Another 3 months should be used to outsource the work to a professional service company that specialize in building successful e-commerce websites. After the product is finished, pay the specialize service company to maintain the website. In the same timeframe, expand existing supply & logistics department to handle potential increase in orders. hire additional workers to track packages and manage orders. Outsource a service where they specialize in streamlining the supply & logistic aspects of handling multiple orders. Purchase computer systems from them and tracking systems. Allows 9 months to test to see how everything works together. The goal is increase in sales order, and having the orders reach the customers in less than 10 business days.

Stakeholder Analysis

1. Employees: employees might sustain a loss because different employment won’t be profitable for the company to retain, in this solution, new positions will open up if this solution is implemented 2. Competitors: competitors potentially might be unaffected in the first 3 years, but after the e-commerce platform is implemented it might affect the revenue of the competitors 3. Communities: If this solution is implemented it will not affect the community too much, there might be loss of business from this company if they are relying less on brick and mortar stores. But a benefit for the community is the space that is unoccupied will be filled by an alternative service that will benefit the people more. 4. Suppliers: if this solution is successful, suppliers will greatly benefit in their bottom line because they rely on the success of their customers in order to be successful as well. Attracting more orders online will lead to more demand at a supplier level

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5. Customers: This will be a big benefit for customers, it will closely align with the customers demand. Leading to a better experience for customers

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