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Ascena CEO Reveals Acquisition Strategy

HMA Managing Director Gene Manheim interviews Ascena Retail Group CEO at the Women's Wear Daily Apparel & Retail CEO Summit.

David R. Jaffe, president and chief executive officer of Ascena Retail Group, has “a hit list” of the 10 companies he’s most eager for his firm to acquire.

He’s not revealing any names, and it doesn’t necessarily mean that one or more companies on the list gets acquired, certainly no time soon, considering Ascena’s Ann Inc. acquisition was just completed in August. Nevertheless, Ascena, under the stewardship of Jaffe, has become aggressively acquisition-prone, having made four major acquisitions over the last decade — Maurices in January 2005; Tween Brands in November 2009; Charming Shoppes in June 2012, as well as Ann Inc. The company, at about $7.4 billion in annual revenues, is the largest U.S. specialty apparel retailer focused exclusively on females through its eight retail brands — Ann Taylor, Loft, Catherines, Dressbarn, Justice, Lane Bryant, Maurices and Lou & Grey.

“I like to consider myself a student of retail,” Jaffe said, during the WWD CEO Summit, where he discussed Ascena’s investment strategy for buying and merging with other retail specialty chains, and was interviewed by Gene Manheim, managing director of Herbert Mines Associates.

“I’ve been around this business for 30 years. I’m always walking malls or reading articles trying to understand what’s the next new thing or what business do we think really has great equity in its brand. I have a hit list of the top 10 companies I would love to be able to acquire.”

On occasion, one of those businesses becomes “actionable,” Jaffe said, possibly because the owner wants to sell, or the business is going through hard times. With acquisitions, “We have dealt with all of these situations,” Jaffe said. “With the four acquisitions that we have done, they’ve fortunately worked out and done pretty well.”

Jaffe stressed that the decision to buy is not opportunistic. “These are not companies that just landed on our laps with the blue book. The way I like to think about it is, we are buying brands, not stores,” Jaffe said. “As part of our due diligence one of the first things we do are interviews. We do focus groups. We do online surveys. We do a lot of research to understand whether that chain is a bunch of stores or whether it truly has brand equity that resonates with the consumer, and that equity is what we are buying.”

Though he has a hit list, Jaffe said the company maintains an “open mind” to companies that may not be on his radar.

Considering Ascena recently closed on its Ann Inc. deal, another acquisition won’t happen soon. “We don’t have much of an open to buy,” Jaffe said. “We are really going to be focused on driving value there, creating synergies with their team. It’s a process we call ‘best practices,’ so that we can learn from each other and make all of our businesses be stronger,” through a sharing of information and technology issues in large part.

Jaffe stressed that Ascena’s acquisition strategy is facilitated by its shared services group which provides all of the back-end operations for all of the brands, centralizing such functions as logistics, supply chain, accounting , tax and legal. “We have about 22 functions that we centralize and in this way we get the advantage of size and we can leverage that for lower costs and greater efficiency,” Jaffe said. “And we can drive those savings back to the brands which [leads to] higher operating margins and at the same time it enables the brands to focus on their customer. The executive teams can focus on driving sales and creating interactions with their customers.” Through the Ann Inc. acquisition, Ascena expects to realize $150 million in savings in three years.

“Anything that faces the customer remains with the brands, so think merchandising, marketing, store operations. That’s all the brand. Anything that the customer doesn’t care about, you want to centralize those things because of the cost-savings available.”

Regarding getting the $150 million in saving, “We are highly confident we can it,” Jaffe said.

“It’s all from these shared-services opportunities. We envision our infrastructure as this ‘plug and play’ capability. It’s now built out in many, many regards. We have the capability but in some cases we don’t have the capacity so we will be building the capacity and just be able to plug in Ann and, some time in the future, some other brand.

“I use the word ‘collaborative’ a lot, so I speak to all of our presidents every week,” Jaffe said. “I bring them all together once a week for a senior leadership meeting to stay connected and talk about the issues.”

Jaffe also talks to his division heads on an individual basis. “We talk about what they are going through. It could be marketing issues, it could personnel issues. It could be sourcing challenges, but they have the final say. They are the ceo’s of their business. So at some point if they keep making decisions that I don’t agree with, maybe it’s a career decision, but really I want to give them not just the responsibility but also the accountability of their decisions.

“For the most part when we have bought a business, we are leaving the existing management in place,” Jaffe added. “It’s a small retail world. Everybody is one degree of separation from everyone else so we are able to do our due diligence on the team and understand the strength of the team.”

In the case of Ann, Jaffe said five vice presidents and some higher-level executives already are working in other divisions. “So it’s a very small world and that’s what has made it very easy and comfortable to merge with these businesses because there is so much connection.”

Jaffe also said he never relocates the acquired company. That preserves the staff and the culture of the brands. “Maurices was started in Duluth, Minnesota, and they are still in Duluth. We never moved them because that’s where 95 percent of the people are from. So if you moved the business to a campus setting you will lose all these people. That tribal knowledge exists and I think it would be a huge problem if you did that. So we have left all of our businesses exactly where they were, with their teams mostly in place.

“As we think about their culture we want them to each have their own culture. The analogy I like to use is if you are from Texas, you are really proud of Texas but you also have the American flag. You are proud of your state, but you are also proud of being part of something bigger than just your state. We want each brand to own their own culture and we want to them to also be proud of being part of Ascena.”

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