How Ascena went bankrupt | Retail diving

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Ann Taylor and Lane Bryant owner Ascena last year pushed back on the concept that he was on the verge of bankruptcy – his interim board chief in October stressed his “iconic big brands and a company with significant cash “- and he dubbed on it as recently as March.

It didn’t last. The company is restructuring under chapter 11, filing of documents Thursday in U.S. bankruptcy court for the Eastern District of Virginia, which includes a restructuring support agreement with more than 68% of its secured term lenders, a new $ 150 million term loan from existing lenders and a plan “to significantly reduce debt “by about $ 1 billion, according to a press release from the company.

He will not come out unscathed. After dropping its discount banners last year, (liquidation of Dressbarn and all of its 544 stores and sell a majority stake in Maurices), Ascena continues to dismantle its stable. Including selling her large banner Catherine to the online retailer and the City Chic retailer, closing of all Catherine stores In the process. Stores managed by its Brand Justice Tween will close, probably a significant number, depending on GlobalData Retail General Manager Neil Saunders viewed the brand’s unsettling “roller coaster” performance.

While the total number of store closures at any of the brands is yet to be determined, the company appears to be leaving its premium brands Ann Inc. – Ann Taylor, Loft and Lou & Gray – and her Lane Bryant brand more more or less intact, according to information posted on its website.

Any hope of turning around his already struggling business appears to have been dashed by the COVID-19 pandemic, which in the first quarter forced its stores to close and swept away demand as people need and want less clothing in a faltering work-from-home job. . economy. It was dark for Ascena, as it was for all non-essential retailers, mostly those who sell clothes – and the recovery with the reopening of stores was weak.

But her troubled story is less about the pandemic and more about how she decided to go big over the past decade. clothing sales growth has steadily declined. Long before COVID-19 rocked the retail industry, sales of all Ascena banners have steadily plummeted. The company recorded an overall decrease in net sales in 2019, $ 5.49 billion versus $ 5.57 billion in 2018, and an operating loss that widened to $ 681.4 million in 2019 versus $ 88.9 million in 2018. OOngoing losses over the past six months amounted to $ 125.8 million and were weighed down by more than $ 1.2 billion in long-term debt, according to GlobalData Retail.

“They’ve built their own coffin,” said Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, in an interview with Retail Dive.

The horse had left the barn

Roslyn Jaffe founded Dress Barn in 1962, when she opened her first clothing store in Connecticut for working mothers. This innovation caught on and she and her husband turned it into a chain. In 1993, his son David Jaffe left a career on Wall Street to help run the company, taking over as CEO in 2002.

It’s in the 21st century that Dress Barn changed to “Ascena“(a name coined courtesy of a consulting firm) and started collecting other brands, including scraps of The empire of limited brands then L des Wexner. Ascena bought Justice (formerly Limited Too) in 2009, along with the Lane Bryant banners (also former L Brands label) and Catherine in 2012, according to a timeline on Ascena’s website. In 2015, Ascena purchased Ann Inc. (Ann Taylor and Loft), whose main shareholder at the time was Golden Gate Capital. The $ 2.15 billion purchase has been a headache ever since, in the form of disappointing sales, a depreciation of major assets and an investor trial.

“The Wexners were getting rid of everything that was clothes,” said Peterson, who worked with Wexner for 11 years at The Limited, before Wexner got into the clothing business. “At a time when you see Amazon’s stock go from a hundred to a thousand dollars [per share], when people invest in e-commerce and logistics companies, someone goes out there and buys these outdated clothing brands. Golden Gate Capital and Les Wexners must have laughed at them. “

Certainly, the COVID-19 crisis has exacerbated Ascena’s woes. In March, the retailer laid off employees when it temporarily closed all 2,800 stores in the United States, Canada and Puerto Rico and attracted all $ 230 million of his credit facility stay afloat. But it’s leverage was already a problem at that time, as he took on debt to pay his acquisition frenzy.

An unachievable approach

Wexner (who just stepped down as CEO of L Brands, who now only leads lingerie brand under siege Victoria’s Secret and personal care retailer Bath & Body Works), was giving up selling clothing for good reason. Or some good reasons.

Households, especially those in the middle class, observed their discretionary budgets are cut for decades, and working professionals didn’t need to dress as much for their job – two forces that have slowed clothing sales. But Wexner also found running a sprawling conglomerate less than ideal, according to Peterson.

While Wexner’s idea was to have a collection of retail banners that would appeal to all women by selling to any woman at any age and at any stage in her life, the company did not generally not that way. Brands have competed with each other internally, sometimes reducing each other’s performance and stealing each other’s share, Peterson said. And buyers have not always obeyed the lines drawn by the conglomerate and its various brands, interfering with the company’s ability to divide and conquer the market.

But while the Chapter 11 process presents an opportunity to rethink the strategy, Ascena doesn’t seem to be taking it.

“Ann Taylor, LOFT, Lane Bryant, Justice and Lou & Grey have incredibly loyal customers who are at the center of everything we do. These iconic brands have significant long-term potential and we continue to fulfill their mission of providing all women and girls with the fashion and inspiration to live confidently every day, “Gary Muto, who replaced David Jaffe as CEO last year, said in a statement.

A new start?

Also in his statement, Muto called the pre-arranged restructuring “a new start for our company. “

Yet, in a key way, this is not the case. The management team, including Muto, will be the same one put in place last year, according to the company’s statement. More importantly, and perhaps riskier, the focus is on Ann Taylor and the other Ann Inc. brands, which GlobalData Retail’s Saunders said. lacks a “clear sense of identity” which makes it “too easy to ignore”.

And his client turned away, according to Jane Hali, CEO of investment research firm Jane Hali & Associates.

“Ascena was / is a combination of all the plus size and baby boom brands that are not important to the customer,” she said. “Baby boomers have closets full of clothes. This is not where they spend their money. They were spending on travel, and now, thanks to Covid, they are renovating their homes. Ann Taylor and Loft fashions were the latest on their Both stores also sold to satisfied professional women. Women have become much more casual at work and now even more so thanks to Covid. Justice was the only channel that stood a chance. “

It is true that with the namesake Dressbarn gone (the spelling was changed in 2012) and once Justice also faltered, the conglomerate had few options as it headed for bankruptcy. But rather than putting his chips on Ann Taylor and breaking up her plus size segment, it might have been wise to focus on the plus instead, given that remains an underserved market and these retailers each enjoy strong loyalty, according to Kristin Bentz, Chairman of KB Advisory Group.

Ann Taylor doesn’t fit into that vertical, and Justice is an outlier, but if they’ve maintained a plus-size vertical and acquired [teen plus brand] Torrid and any of those other plus size brands it could work, “she told Retail Dive in an interview.” Lane Bryant rescued this customer from the department store, which was the only place to get more clothes but in a separate store. , where are you ostracized. Catherine is at church on Sundays, gloves and hats. They both bRand fairness and intense follow-up. “

Instead, with so much riding on Ann Taylor, Ascena will have to consider not only the drop in demand for her clothes, but also her neglected state. During visits to Ann Taylor during the holidays, where seasonal merchandise was arriving late to rivals, DeAnna McIntosh, founder of retail and e-commerce consultancy The Affinity Group International, noted ” quality and fit in several categories of the brand’s signature “Essential” shirt.

It’s “shocking because it’s a key driver for their assortment,” she said. “With the rapidly changing retail environment and fierce competition, retailers simply cannot afford to make these critical mistakes.”

The grim state of clothing sales will continue to complicate Ascena’s outlook, although her place in the murky middle makes it even more difficult, according to Saunders. “It doesn’t offer great value or great fashion,” he said. “It was a slow killer before the pandemic hit. In the midst of and after the current disruption, such a position has become a fast track to failure.

Correction: An earlier version of this story inaccurately described Golden Gate Capital. They are a private equity firm and were the largest shareholder of Ann Inc. prior to its sale to Ascena.

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