1. Does Ascena’s corporate strategy seem sound?

2. What are key forces in the general and industry environments that affect Ascena’s choice of strategy?

3. What internal resources and assets did Ascena have that gave it a competitive advantage?

4. How did Ascena compete?

5. What has CEO David Jaffe done to implement strategy, and what challenges remain?

In the first quarter of 2017, 10 retailers filed for bankruptcy, with 19 others teetering on a “distressed” list, giving 2017 the dubious distinction of being the worst year for retail¬ing since 2009 when 18 entities closed shop. This was the state of the external environment in 2017 as Ascena Retail Group, Inc. (NASDAQ: ASNA), owners of a well-rounded portfolio of brands providing women’s and girl’s specialty apparel, was try¬ing to digest recent acquisitions and position itself for this challenge. The biggest and most recent news concerned Ascena’s acquisition of ANN INC., iconic specialty retailer of women’s apparel provided under its Ann Taylor, LOFT, and Lou & Grey brands.

Since 2014, ANN had seen a poor product performance in its core Ann Taylor brand, forcing it to engage in widespread discounting in order to move product. Although this discounting activity was not an unusual strategy employed by retailers facing declining traf¬fic, ANN had other problems. ANN’s missed earning pro¬jections, stagnant same-store sales, slow inventory turnover, and significant margin compression had activist investors demanding additional changes. These realities led to the announcement in August 2015 that ANN INC. had been acquired by Ascena.

With the acquisition of ANN, Ascena Retail Group became the largest U.S. specialty retailer focused exclu¬sively on women and girls. Only exceeded in net sales by L Brands, the owner of Victoria’s Secret and Bath & Body Works, and by The Gap, Inc., Ascena offered apparel, shoes, and accessories for women and girls. Ascena operated four focused, branded retail options: the “Premium Fashion” segment with brands Ann Taylor, LOFT, and Lou & Grey; the “Value Fashion” segment, represented by the brands Maurices and Dress Barn; its “Plus Fashion” segment with Lane Bryant and Catherine’s stores; and merchandise for tween girls via the Justice brand, under the “Kids Fashion” segment. Ascena also offered intimate apparel via Cacique and Catherine’s Intimates. The ANN acquisition meant Ascena had expanded its brand profile even further across multiple segments, and would operate over 4,900 stores with annual projected sales of more than $7 billion.

As a result of the acquisition, Ascena not only gained a presence in the premium women’s fashion market, but also hoped to real¬ize $150 million in annualized run rate synergies through the integration of ANN’s sourcing, procurement, distribu¬tion, and logistics operations. This anticipated synergy was a potential lifeline for ANN, but what might it mean for Ascena? Ascena had had disappointing same-store sales in its previous portfolio for several years, and had boosted over¬all revenue primarily through acquisitions. Industrywide retail sales projections continued to be on the soft side, and many analysts worried that the increased debt Ascena now carried into 2017 would need increased positive cash flow in order to provide adequate coverage. Given the uncertainty, analysts wondered if Ascena had pursued a growth strategy at the wrong time, asking, “Did Ascena overplay its hand and is ANN’s acquisition a threat for the company?”

CEO David Jaffe had intended to position Ascena as the largest specialty retailer focused exclusively on women and girls, with a well-diversified portfolio of brands, covering multiple customer segments. Ascena had a revenue base spread across multiple real estate for¬mats, and an efficient, scalable shared services platform. Jaffe had con¬solidated corporate functions and created a global sourc¬ing capability. An efficient distribution and fulfillment network fully supported an omni-channel platform, both online and in store. In 2017, Ascena’s strong cash flow and liquidity was also positioned to navigate industry change. COO Brian Lynch admitted the industry was “seeing a paradigm shift in retail and the operational changes necessary to reposition for success are complex and comprehensive.” However, he believed Ascena was “working to deliver capabilities for our brands that are better, faster, and more cost-efficient than our competitors.”

This sounded good, but, in 2017, as all specialty retail industry watchers noted, “earnings are soft, traffic is soft, and customers are cau¬tious.” Ascena may have made an expensive, risky acquisi¬tion at the wrong time. The increased debt it now has to carry might make it a takeover target itself as a larger com¬petitor would gain a large store count and additional syner¬gies, which would allow for the repayment or replacement of debt with better terms over time. It appears the odds of survival in specialty retail are not favorable, even for top companies.