(Bloomberg Opinion) -- Ascena Retail Group Inc.’s gloomy quarterly results are a reminder not just of why the giant chain feels such enormous pressure to change. They also show the challenges retailers face when they try to create a whole greater than the sum of its parts.
The retailer, the corporate parent of chains such as Lane Bryant and Ann Taylor, said Thursday its gross margin slipped to 54.3% from 58.1% a year earlier as it increased discounts and promotions to clear inventory. Comparable sales sank 2% from a year earlier for its chains excluding Dressbarn, which is in the process of shuttering all of its 616 stores.
The weakness emphasizes why the company has already been undergoing a dramatic overhaul: In addition to winding down Dressbarn by the end of the year, it has sold Maurices, a 943-store chain. And it could rip up its empire even further, as Bloomberg News has reported that it is considering a divestiture of plus-size chains Catherines and Lane Bryant.
Slicing up a specialty retailer is certainly in vogue right now: Gap Inc. is soon to split in two, and J. Crew is to spin off its Madewell chain. But Ascena is different because it’s an apparel conglomerate that was bolted together only four years ago.
When Ascena acquired Ann Inc., the company that included Ann Taylor and Loft, executives promised many benefits. Ascena had been growing via acquisition for about a decade by then, and the idea was that it knew how take advantage of efficiencies (centralizing back-office functions, for example, or stuffing several brands into one e-commerce distribution center).
But whatever Ascena has done on that front, it is hard to argue that it is now a healthier retailer. The company has had five consecutive years of losses as it has struggled to offer the right clothing selection, relied heavily on discounting and maintained stores in less-than-ideal locations.
Ascena, after having paid about $2 billion for Ann, now has a market capitalization of about $61 million. There are Manhattan penthouses worth as much this chain of more than 3,400 stores.
It had been clear for some time that the Ann acquisition was not shaping up to be a boon for Ascena. My colleague Tara Lachapelle noted as far back as 2017 – when the deal forced the company to take a significant charge – that the Ann deal was adding to the company’s problems.
Now, if Ascena ends up unloading Catherines and Lane Bryant, what will remain is just the old Ann Inc. plus children’s retailer Justice. The deal will have proved to be a nearly pointless exercise. More important, its failure would call into question the company’s strategy over a much longer period.
Stacey Widlitz, president of SW Retail Advisors, points out that Ascena’s diversification plan ultimately left it fighting three distinct battles on what are arguably the toughest fronts in retail: The value apparel category, where Target Corp. and Old Navy dominate; the teen category, where online shopping has been especially disruptive; and mid-priced apparel, where almost no retailers are prospering right now.
Can new leadership revitalize the company? It’s doubtful. Ann Taylor and Loft have performed relatively well lately, and they are positioned to pick up market share that department stores are shedding. But those chains are putting too much effort toward growing their outlet businesses online, which will cheapen the brands over the long term and potentially hurt margins.
Whatever happens with those chains now, one thing is abundantly clear: Ascena’s experiment has not worked out as planned.
To contact the author of this story:
Sarah Halzack at [email protected]
To contact the editor responsible for this story:
Michael Newman at [email protected]
© 2019 Bloomberg L.P.