Sycamore Got a Bargain For Ann Taylor and Loft, But Is Now Tasked With a Turnaround

While consumers across the U.S. hunted for bargains during Cyber Week, private equity firm Sycamore Partners was indulging in a little shopping of its own. On Thanksgiving Day, it announced the acquisition of the Ann Taylor, Loft, Lou & Gray and Lane Bryant brands from beleaguered parent Ascena with a $540 million offer. That sale, which was part of retail group Ascena's bankruptcy process, received the U.S. court's blessing on Tuesday, clearing the way for the deal to be completed this December. For all four brands, the good news is that they will have the debt wiped from their balance sheets due to the bankruptcy and access to the vast financial resources of its new owner, suggesting that marketing and advertising spend will once again increase. In public filings, Ascena said that it reduced expenses in part by cutting marketing costs and advertising spend, though it did not provide specific numbers. According to data provider Kantar, the retail conglomerate spent $8.75 million on print, digital, radio, outdoor, and television advertising through the first three quarters of 2019 compared to $6.79 million during the first three quarters of 2020. In all of 2019, Ascena spent about $11.4 million or nearly $3 million per quarter on advertising. Ann Taylor, Loft, Lou & Gray and Lane Bryant are also likely to benefit from an injection of fresh thinking on the part of Sycamore. The PE firm is expected to re-position the brands by establishing a clearer omnichannel direction for online and offline sales and marketing, though the company declined to comment on its next steps in that area. Accepted Retail Marketing Rules Upended Meanwhile, it's a far fall for Ascena. That company acquired the parent of Ann Taylor and Loft for $2 billion in 2015 with the aim of creating one of the largest retailers of women’s clothing in North America, and in the process, realize tens of millions of dollars in cost-saving synergies. With that buy, Ascena wanted to add two differentiated and relevant brands with future growth potential to its ailing portfolio, which consisted of banners such as DressBarn. But there were challenges. "Ascena was burdened by positioning Ann Taylor, Loft, Lou & Gray and Lane Bryant as separate entities, with separate stores, separate websites and separate marketing initiatives," said DeAnn Campbell, vp of retail strategy and insights at Harbor Retail. "When our incredibly crowded mid-range apparel sector became even more crowded by the influx of direct-to-consumer retailers and brands in recent years, coupled with diminishing consumer demand, there simply [wasn't] room for everyone going forward." The pandemic exacerbated those existing trends. For instance, the decline of traditional suburban malls, the curtailment of apparel purchases by consumers and the shift to online shopping have all rendered accepted retail brand marketing strategies ineffective. "The shift to casual office attire and remote work have been steadily growing trends for the past decade," Campbell said. "Covid-19 has only accelerated these trends into now established consumer behaviors." With women seeking a different kind of work wardrobe, the inability of Ann Taylor and Loft to reposition their brands to meet that need and remain differentiated in their messaging meant they faded into the sea of sameness that plagues much of apparel. Instead, the two brands found themselves competing on price and relying more and more on discounts. By this summer, Ascena, saddled with too much debt, found itself running out of money and then filing for Chapter 11 bankruptcy in late July. That process is coming to a close with the sale of the Ann Taylor, Loft, Lane Bryant and Lou & Grey brands to Sycamore, as well as the sale of children's clothier Justice to Bluestar Alliance for $90 million and plus-size label Catherines to FullBeauty for about $40 million. It’s not the ending Ascena hoped for when it went into bankruptcy protection. It initially planned to restructure by reducing debt and closing stores. Sycamore, however, sees upside in operating the businesses and plans to retain a "substantial" number of storefronts as part of the sale agreement, which is expected to be consummated by the middle of December. As of Aug. 29, Ascena had about 1,500 stores total. Following Talbots' Pivot “These brands have significant potential, and we are excited about the opportunity to partner with Ascena’s talented team to continue delivering new and relevant experiences for customers,” said Stefan Kaluzny, Sycamore’s founder, in a statement, point to the brands's "passionate associates and loyal customers." The private equity firm has a history of taking brands similar to Ann Taylor and turning them into money makers, namely Talbots, which can serve as a blueprint for a turnaround according to Andrea Weiss, the CEO of Retail Consulting. The brand tapped into what the newest generation of professional women deem as classic work wear, which is different from the tastes of prior generations. More recently, Talbots quickly pivoted to offer the kind of comfortable leisurewear women were seeking during the pandemic, said Mary Ann Domuracki, a managing director who specializes in retail at investment bank MMG Advisors. In particular, Sycamore can tap its apparel sourcing unit, Mast Global Fashions (MGF) Sourcing to manufacture the clothing for the soon to be added brands from Ascena. Indeed, Sycamore has acquired all the pieces for a complete omni-channel offering by purchasing Commerce Hub, a provider of cloud-based ecommerce fulfillment and marketing solutions, and owning both NBG Home, a home décor manufacturer, and a 51% stake in MGF Souring, all of which can be utilized to reduce costs, Campbell said. In addition, Sycamore could look to pair up Ann Taylor, Loft, Lane Bryant and Lou & Grey with the rest of its portfolio, perhaps even offer the brands' exclusively in its department store Belk. Another plus, Ann Taylor and Loft still have a loyal customer base that can be counted on. "Sycamore has an opportunity to create more synergies between the community of brands in their portfolio to capitalize on shared platforms, fulfilment systems and marketing strategies," said Campbell. The DTC Challenge On the other hand, as noted above, the two brands are not currently distinctive enough to capture further consumer attention. "Ann Taylor and Loft are better known for what they are not, not too flashy or too plain, not too expensive or too cheap," Campbell explained. "These brands occupy that middle way that so often breeds disinterest, as Ascena’s declining sales for the past several years would indicate," While Ann Taylor and Loft were losing their way, DTC businesses such as Everlane and M.M.LaFleur rose to take their place, said Weiss. These brands are successfully reaching the young working woman with the right messaging and designs, including more comfortable workwear that is machine washable, she said. Ultimately, the formula for Sycamore to succeed with its investment in these new additions to its portfolio may not have to be so complicated, according to Steven Dennis, a former retail executive and the president and founder of SageBerry Consulting. In a post-Covid world in which Ann Taylor and Loft have sorted their distribution system while facing less competition, if they're able to claw back even just half of the sales they had prior to the pandemic, both could turn out to be nicely profitable businesses, he said. Furthermore, Sycamore is not likely to push for a dramatic revision of the brands' advertising or marketing strategies, despite the need to redefine the stores' images. "I believe the most successful strategy for these brands would be to embrace who they are to support their existing customer base, but assimilate operations into shared platforms to reduce operating and supply chain costs, and move to an e-commerce first strategy supported by brick and mortar with Belk and other relevant partners," Campbell said.