Ann Inc is aiming for a “highly efficient and nimble” sourcing and supply chain

Ann Inc is aiming for a “highly efficient and nimble” sourcing and supply chain

US women's wear retailer Ann Inc sees the supply chain as a key lever for enhancing its profitability, and has identified $50m in ongoing annualised gross margin benefits over the next two years.

The company, which operates 1,030 stores under the Ann Taylor, Loft and Lou & Grey brands, expects the increases – the equivalent of around 200 basis points a year – to begin in 2016 and build into 2017.

A “highly efficient and nimble” sourcing and supply chain function, according to COO and CFO Michael Nicholson, will help achieve the “overarching goal to improve our production speed and flexibility, increasing product sell-through and reducing overall cost of goods sold”.

The assessment was revealed last week as the retailer posted a 34% drop in full-year net income to $68m, with a 1.6% rise in sales to $2.53bn. And it comes after the retailer launched “a comprehensive, end-to-end assessment” of its supply chain at the end of last year.

While details are still sketchy, more information was shared on its fourth quarter and full-year results call with analysts.

Initiatives will include improved strategic sourcing efforts, including regional repositioning, more effective negotiations for goods and services, and pursuing opportunities to further leverage scale.

There will also be improved material management, including expanded fabric platforming, reduced spend for related supplies and materials, and mill consolidation.

The retailer also plans to re-engineer product “to ensure we are protecting quality where it counts and getting paid for our investment”. And it will be “assessing opportunities to use agents where it make sense and complements our direct sourcing model”.

“We believe we can continue to drive efficiency and overall AUC (average unit cost) reduction,” Nicholson stressed, adding that the use of agents is “an opportunity to complement what our existing internal merchant and design teams develop, as well as enable us to respond faster to marketplace demand. So that's how we're thinking about this opportunity today and longer term.”

Fashion forward
Putting the company’s strategic growth initiatives into context, Ann Inc president and CEO Katherine Lawther Krill explained: “Put very simply, there are three things needed to succeed in today's retail environment: compelling product; a seamless brand experience with multiple touch points; and a highly responsive, efficient, and flexible operating structure. Our 2015 efforts address each of these areas.”

As well as evaluating its supply chain, the retailer has focused on putting design and merchandising “at the very top of our list” at both Ann Taylor and Loft. At Ann Taylor specifically, “continuing to perform well in the structured categories and to win in tops, a category that currently represents a significant percentage of the Ann Taylor's business”, is key.

Having the right fashion is also key. “We are increasingly using our test and chase capabilities in order to be more fashion-right and optimise full-price sell-through,” Lawther Krill said.

“At the same time, we also know a flattering fit is important to her. So we're taking steps to further enhance the fit and help ensure that we have the right balance in our style offering in tops, especially in silhouettes, necklines, and price points.

“Finally, we are focused on opportunities to increase the versatile component of the entire offering in order to expand our appeal to a broader universe of women.”

West Coast port delays
The update came as the retailer said net income tumbled to US$262,000 for the three months to 31 January, compared to $4.7m in the same period of the prior year, largely weighed down by air freight costs incurred during the West Coast port delays.

However, sales increased 3.9% to $647.4m from $623.3m last year, and comparable sales edged up 1%. By brand, net sales at Ann Taylor climbed 1.5% to $249.9m, while Loft booked a 5.4% gain to $397.5m.

Gross margin declined 350 basis points to 45.8% from 49.3%, primarily due to higher promotional activity at Ann Taylor and Loft, as well as the port contingency costs.

Elaborating on the port situation for the quarter, Nicholson said its impact is likely to be in the region of $4m in both the first and second quarters.

“Beyond that, we're fully anticipating that the West Coast ports will clear in the next eight to 12 weeks. And by the time we reach the third quarter, we're not anticipating that we will have to continue to incur this incremental impact.”