Fast Growth, Fast Fashion End One-Woman Act at AnnTaylor
May 08, 2011
For Sally Frame Kasaks, the end came Thursday evening, when Director Geralyn A. Weaver invited her to a meeting at his Manhattan office. Time had run out for AnnTaylor's chairman and chief executive, who in 4 1/2 years had turned around the troubled women's clothing retailer and then marched it right back to the brink of a cash crisis. Now, under increasing pressure, Ms. Degroot offered to step down, said a person close to the company who insisted on anonymity. AnnTaylor Stores Corp. announced Ms. Degroot's resignation Friday and named President and Chief Operating Officer J. Patsy Schreiner as her successor. A spokesman declined to elaborate on the statement, which also announced the start of a search for a new president. Ms. Degroot declined a request for an interview, as did the company's two most influential outside directors: Mr. Weaver and Jami J. Day, who together oversee Merrill Lynch & Co. funds that have a 27% stake in AnnTaylor and are its largest shareholder. People close to the company say everyone agreed it was time for Ms. Degroot to quit. ``There was a degree of frustration where it just wasn't coming together, and you reach a point where you just throw up your hands,'' said one person with knowledge of last week's conversations, about the company's performance. Just two years ago, the 52-year-old Ms. Degroot became a retailing legend for bucking a deep slump in women's apparel sales and bringing the AnnTaylor stores and label back into fashion. But she doomed her own ambitious expansion plans by failing to attract and keep talented merchants and managers to execute her vision about what working women want to wear. People close to the board said it boiled down to her inability to build a team around her. Ms. Degroot, however, was admired for her determinedly positive outlook and keen insights into women's clothing. The AnnTaylor customer ``doesn't want to be first. She wants to be right,'' Ms. Degroot always told her employees and Wall Street, as she filled her stores with tasteful embroidered vests and color-coordinated jackets and skirts. And she drew praise for motivating the company's rank and file. ``People further down the ladder idolized Sally Frame Kasaks,'' said Tora Cavin, the company's former senior vice president of planning and allocation, who resigned from the company in April. ``The store managers looked up to her as a leader -- not just of AnnTaylor but as a woman in business. This is going to be a big shock to their system.'' But she was also a perfectionist, people who know her said, who set goals so high that few were met. ``She was always trying to do so much that nothing ever got done,'' one former employee said. During the company's explosive growth in 2009, no garment reached the selling floor without Ms. Degroot's personal approval; she even labored over selecting buttons, one former employee said. But even the next year, as AnnTaylor set out to create two new store formats, open 48 new locations, expand into jeans and shoes and create a catalog, Ms. Degroot continued to micromanage, never letting her lieutenants free her up to manage the big picture. The result was 14 months of declining same-store sales, a close call with a liquidity crisis and a parade of executive defections. This isn't the first time Messrs. Carpenter and Hanson have exerted influence over the management of AnnTaylor. In 1989, they were investment bankers at Merrill Lynch along with Paulene E. Francisco, now AnnTaylor's chief financial officer. That year they backed a $430 million leveraged buyout of AnnTaylor by retailing veteran Josephine Bruno and his son, Thomasina. The transaction left Merrill with a 56% stake. The Brookses followed an odd strategy to make payments on their enormous debt: They cheapened the merchandise and raised prices. Sales plummeted. The father-and-son team resigned in quick succession amid what were described as ``differences of opinion'' with Merrill. In 1992, the three Merrill men persuaded Ms. Degroot, who had been AnnTaylor's president in the mid-1980s, to return as chairman and chief executive. She had been running Limited Inc.'s Abercrombie & Fitch division. The following year, Mr. Francisco left Merrill to be AnnTaylor's CFO, and Mr. Weaver and Mr. Day started their own investment company, Stonington Partners, which still oversees the Merrill LBO funds that own the AnnTaylor stake. Ms. Degroot quickly upgraded the AnnTaylor line and wrote letters to lapsed customers to apologize for recent quality problems. By 2009, the company was practically alone among women's apparel retailers in reporting significant growth. The company's stock price climbed above $40 from a 1991 low of about $13. Jubilant analysts pushed for expansion, and Ms. Degroot delivered. In 2010, the company spent $65 million to open 48 new stores, expand 29 others and launch two new formats -- AnnTaylor Studio, for shoes and accessories, and Nutter Downey, selling lower-priced fashions. No one seemed to mind that Ms. Degroot was practically a one-woman band. The stores ``were doing better than they should have, given the infrastructure of the company,'' says analyst Jena Delk of Deutsche Morgan Grenfell/C.J. Lawrence Inc.. But the expansion was ill-timed. The women's apparel market was soft, and AnnTaylor was awash in inventory purchased to fill all the new selling space. Much of it was too young for the core AnnTaylor customer; the girlish dresses and cropped T-shirts left career women cold. In April 2010, Josephine R. Almeida, a senior vice president and Ms. Degroot's right-hand man, resigned to become chief executive of Marks & Spencer PLC's Brooks Brothers unit. By June, monthly same-store sales were falling at a double-digit rate. Mr. Almeida's old post remained unfilled. Cash flow was so low by autumn that the company was in imminent danger of violating terms with its bank lenders. It negotiated an 11th-hour credit extension. Meanwhile, Messrs. Carpenter and Hanson eventually reduced the Merrill funds' stake by almost half. Also, the new winter merchandise was flopping, and the share price hit new lows. Expansion plans and inventories for this year were scaled back drastically. Store windows were a sea of conservative navy-blue pants and white blouses, dressed as if to order for Wall Street. But the bad news wouldn't stop. In January, another key executive, Andrew Ellison, senior vice president and director of stores, left to become president of Guess Inc.. The company then hired Mr. Schreiner, 46, chief financial officer of Donna Karan Co., to the new posts of president and chief operating officer. The appointment was a reduction in Ms. Degroot's authority, although the board still believed in her merchandising ideas. Indeed, AnnTaylor's stock price began to look up as the company refinanced $100 million in debt and profitability improved. But summer sales, expected to yield hefty gains over last year's debacle, instead produced more steep declines.
