NEW YORK -- AnnTaylor Stores Corp., the women's clothing retailer, has a hit with Ann Taylor Loft, a chain it started 10 years ago to sell lower-priced casual clothes. And that has Kay Krill, the company's chief-executive-to-be, in a bind.

Ann Taylor, the company's flagship chain, was once a retailing bellwether, selling many women their first suits as they entered the work force. But today, Ann Taylor Loft is booming while the original namesake flounders. Ms. Krill, 50 years old, rose to her current position by overseeing Loft's rapid rise. Now she must restore Ann Taylor while keeping it out of competition with its sibling.

That won't be easy. With $827 million in annual sales and 375 stores, Loft outsold Ann Taylor for the first time in August. Last year, Loft's sales jumped more than 40 percent, while Ann Taylor's slipped 1.5 percent. Loft's moderately priced, casually stylish clothes are particularly appealing to many working women who have grown disenchanted with the ever-changing look of Ann Taylor -- sometimes too tight and trendy, other times too bland.

As she prepares to take over as CEO for the whole company on Oct. 1, Ms. Krill is sweating over similarities and differences in the two brands' catalogs, trying to ease staff frustrations on the Ann Taylor side, and refereeing when both divisions want to stock a similar design. When both recently proposed selling velour jackets and pants, she let Loft go ahead and told Ann Taylor to switch to cashmere, which is more expensive and luxurious.

The retailer wants shoppers to think of Ann Taylor as polished and sophisticated, while it aims Loft at women who want a more fashionable and casual look. In practice, that means formal suits and little black cocktail dresses at Ann Taylor, while Loft leans toward styles like strapless cotton dresses and trendy cropped cardigans. Prices, on average, are 30 percent higher at Ann Taylor. Dressed in a black jacket, black cashmere sweater, black dress slacks and pearls in an interview at her Times Square headquarters, Ms. Krill herself looks more like an Ann Taylor customer than a Loft shopper. Already, Ann Taylor says it is seeing better success with newer lines -- while Loft sales fell below executives' expectations this past spring.

Ms. Krill's company is one of a growing number of specialty retailers wrestling with how to keep a founding brand fresh without cannibalizing a newcomer. After opening thousands of stores, these retailers concluded their big-name brands couldn't grow endlessly. They launched new chains that aim at profitable niches but risk dividing their core customer base into narrower and narrower slices.

After letting its Gap and cheaper Old Navy brands crowd one another, Gap Inc. now takes pains to keep them distinct. It aims Gap stores at shoppers in their 20s and 30s, while Old Navy targets teens and moms shopping for families. This fall Gap will open yet another chain, Forth & Towne, for baby-boomer women. Abercrombie & Fitch Co., the young-adult brand, has opened Hollister for high-school students and Ruehl for twenty-somethings. Polo Ralph Lauren Corp., American Eagle Outfitters Inc. and Chico's Inc. are developing or rolling out new chains.

Ann Taylor was founded in 1954 by Richard Liebeskind, who opened a women's clothing store in New Haven, Conn. His father, a dress wholesaler, gave him the rights to his best-selling dress, called the "Ann Taylor." The name came from a company tradition of giving styles women's names, but officials don't know if there was a real "Ann." The store was geared toward busy, social women who wanted versatile clothes so they didn't have to change outfits from day to evening.

In the 1960s, Ann Taylor helped spread new styles like the pantsuit. By the 1980s, its shoulder-padded "power suits" had become an office staple. From the end of 1989 through 1994, its sales jumped 86 percent to $658.8 million from $353.9 million. Though profits were uneven, over the same period the company swung to a profit of $31.8 million from a loss of $12.2 million. It nearly doubled its number of stores, to 262 from 139.

At the same time, executives had their eyes on outlet malls, then one of the fastest-growing segments in retail. Shoppers increasingly were hunting for deals, and retailers found leftover merchandise sold better when customers could match it with newly designed clothes to make complete outfits.

With its own few outlet stores doing well, Ann Taylor in 1995 started a moderate-price division called Ann Taylor Loft. Loft appealed to customers who liked Ann Taylor styles but couldn't afford them. The stores were located in outlet malls, but they sold their own designs instead of Ann Taylor hand-me-downs.

To run Loft, the company named Ms. Krill, who had joined the company in 1994 as a vice president of merchandising. She had already made a career out of discerning the tastes of working women. After she graduated in 1977 from Agnes Scott College, a women's school in Decatur, Ga., she enrolled in Macy's management-training program, which long had a reputation for grooming future retail executives.

She later worked at Talbots Inc., another women's-clothing chain, and at Hartmarx Corp., the suit-maker, where she added styles that were more colorful and less conservative to draw in new customers to the company's women's line. She also served as president of Carroll Reed, a mail-order company that sold classic women's apparel.

When she first joined Loft, "I was thinking it would definitely be the little sister," she says. Some staff called it "Ann Taylor-lite." To motivate staffers, Ms. Krill handed out weekly prizes for innovative thinking, such as a day off work or a beach towel with the Loft logo.

As Ms. Krill scoured competitors' stores, she decided no one was selling office clothes that were fashionable and moderately priced. She pressed Loft designers to try using printed fabrics instead of sticking to basic, solid colors.

Loft got a boost from the late-1990s move toward casual dress in the workplace. Loft's less-structured styles were precisely what many women were seeking. Today, fewer women wear traditional suits, and they're more comfortable mixing and matching pieces. Loft stores cater to them with outfits like colorful, button-down shirts with coordinating capri pants, or a pleated skirt with a camisole and cardigan. "We have evolved Loft as women have evolved," Ms. Krill says.

As Loft soared, Ann Taylor receded. Loft has outsold Ann Taylor for eight of the past 10 months. This year, Loft plans to open 70 to 75 stores, which would put it over 400 stores and well ahead of Ann Taylor, which ended last year with 359 stores. The company's stock remains well below its highs from early 2004, when it topped $30. But the stock has rebounded lately, increasing more than 25 percent since it fell below $20 late last year.

The Ann Taylor brand had a hard time coping with the shift to more casual, mix-and-match clothing. As its clothes swung from one style to another in attempts to keep "Ann" current, sales grew unpredictable.

In 1995, when Ann Taylor tried to sell a more youthful look, customers shunned the short, sexy styles. The company had to ask its banks for more credit.

While at Loft, Ms. Krill kept a stable design crew working on the next styles, a series of head designers rotated through Ann Taylor. "We've tried to Coach-ify, Banana-fy, Gap-ify, Liz-ify," says Eileen O'Connor, a spokeswoman for the parent company.

Low morale led to rapid turnover. Ever-shifting priorities and disputes among executives -- who were frequently replaced when a season went sour -- left some staffers feeling adrift. The group took so long to make decisions that last fall, the brand had to airlift 50 percent of its merchandise from manufacturers, whereas it usually packs only 15 percent on planes. It generally costs five to six times more for the retailer to send an item by air than shipping by boat.

"It was hard for the Ann Taylor people to be working so hard ... and to see themselves off their game while Loft was on," says Catherine Sadler, a former chief marketing officer for the parent company who now runs a fashion-brand consulting firm in New York. "There's a natural level of competitiveness and angst about your division, and a desire to be on the winning team."

In 2003, the company hired Jerome Jessup, Gap's head designer, to modernize Ann Taylor's strict professional look with more business-casual and mix-and-match options. His vision was promoted last fall in a costly campaign to celebrate Ann Taylor's 50th anniversary. Enlisting top models like Karen Elson and Linda Evangelista, the company produced a 50-page insert for Vogue, the biggest in the magazine's history. Mr. Jessup plumbed the retailer's archives and created special anniversary pieces, including a $199 remake of the "Ann Taylor," complete with a stiff crinoline lining. Ann Taylor sold merchandise at prices it had never reached before, like $900 for a rabbit-fur jacket.

Customers couldn't see how to fit the fanciful styles into their workaday wardrobes. Sales fell once more. The parent reported a fourth-quarter loss of $12.5 million. Mr. Jessup resigned in January. The anniversary line "was really stretching the limits of Ann," Ms. Krill says. "I think that's a nice way to put it."

Flipping through a 2004 Ann Taylor catalog, she makes caustic comments about the models, and how their appearances seem out of line with the image the company is trying to cultivate. She points to a picture of one model wearing pink shoes with a winter outfit. "That's not very practical, and our girl is practical," she says. Pointing to another picture of a young model in a midriff-baring top, she says, the Ann Taylor woman is "not going to show her stomach."

Mr. Jessup didn't respond to repeated calls seeking comment.

Now Ms. Krill, who has been known to race through the hallway of the executive offices showing off a new fabric she likes, is taking steps to ensure that paralysis at Ann Taylor will "never happen again." One of her first steps after taking over as president in November was to write a letter to employees on the Ann Taylor side. "We lost sight of who our client is and how our product could best serve her," she wrote. The anniversary collection had some great items, she added, but customers couldn't figure out where they could wear them.

She pressed employees to create a profile of the "iconic" Ann Taylor shopper: She's 36 years old, is married with two children, and has a professional job and a household income of $150,000. She is "very busy, sophisticated and polished," Ms. Krill says.

Next, she sequestered about 20 of the brand's top employees in the basement of Ann Taylor's flagship store on Madison Avenue in New York. For two days they sorted through piles of Ann Taylor merchandise from last September and this fall's collection. The head merchandiser and designer assembled outfits to show what "Ann" would or wouldn't wear. The group then critiqued the creations.

They finally settled on a typical wardrobe for "Ann." For instance, when giving a presentation to a client, she'd wear a formal suit with a blouse, not a camisole, underneath. On a "casual" Friday, her idea of dressing down would be a velvet jacket with jeans. The executives dressed mannequins, took pictures and filed the photos in a book for future reference.

The goal now is to make the Ann Taylor brand professional but not stuffy. Boxy, '80s-style power suits are out, while shapely, feminine cuts in lightweight fabrics are in. Ms. Krill says enough women still need to dress up for work to make the brand a success.

Though it gave fewer details about the profile of a Loft customer, the company said she is also in her 30s and is married with children, but has a household income of $75,000 to $100,000. Her job doesn't require very dressy attire, and she prefers to call her style "casual chic." For work, she might wear pants and a floral top with ruffled sleeves. On the weekend, she would wear a printed, shoulder-baring halter top with cropped jeans.

Ms. Krill keeps close watch over the two brands' merchandising plans, and got deeply involved in their May catalogs. For Ann Taylor, in particular, she requested models who looked more friendly and approachable than some of the grimacing, lank-haired models in the anniversary catalog. "They were more like, 'I'm going to get you!' " she says, making claws with her hands to demonstrate.

She also wanted to present Ann Taylor as more sophisticated and professional, Loft as more laid-back and fun-loving. So the Ann Taylor catalog was shot at the ritzy Breakers hotel in Palm Beach, Fla., with models lounging under cabanas. The Loft catalog was shot on the beach in Jamaica, with one model standing astride a rowboat.

The company says the Ann Taylor division is making progress, though overall sales have yet to pick up. The retailer's stock jumped more than 8 percent last Thursday, when it reported better-than-expected June sales. Customers are buying newer styles on display and many offerings in the May catalog were among the brand's best-sellers. Meanwhile, Loft's same-store sales -- sales at stores open at least a year -- have slipped in recent months, even as total sales are still growing rapidly. After sales soared in spring 2004, executives ordered too much merchandise for this year. Stores are marking it down to clear it out.