Goldman analyst downgrades J.Crew to 'sell'October 13. 2008
Shares of apparel retailers largely rose on Monday, along with broader market, although an analyst said the sector is facing a deeper slowdown than expected and downgraded Manhattan-based retailer J.Crew Group Inc.
The market surged on Monday, paring some losses from the historic drop last week. As investors’ concerns were eased and governments globally pledged to further aid the banking sector, the Dow Jones industrial average jumped more than 900 points.
However, Goldman Sachs analyst Michelle Tan said in a note to investors that the slowdown in the apparel sector is deeper and broader than had been expected. Apparel retailers have been hit hard as consumers cut back on discretionary spending amid financial-market turmoil, rising food and energy prices and tightening credit.
"The updated Goldman Sachs consumer discretionary cash flow model now implies a much more muted 2009," Ms. Tan wrote. She downgraded J.Crew Group Inc. to "sell" from "neutral."
J.Crew's results might be hurt due to its aspirational and regional positioning as consumers cut back, along with high inventory levels, Ms. Tan wrote.
On a day when many stocks enjoyed huge leaps in value, J.Crew Group shares ended the day up just 10 cents at $20.54
Although the news is not good, it is also not unexpected. It will be interesting to see how J.Crew deals with its "high inventory levels" in the upcoming weeks- whether it be through more promotions, increasing emails announcing the promotions, increasing items "on sale", reducing sale prices even further, and the like. Especially considering the holiday season is coming up (which usually means more inventory on hand for retailers, then during other seasons).
Prices will have to come down if they want shoppers! In their quest to become 'elite' they may have forced many loyal JCrew shoppers to scale back so much that the trickle of sales will be far lower than they ever anticipated. I will wear last year's collection and try to SAVE money. This may not be what JCrew wants to hear, but the new paradigm in the American economy will shift to saving vs. spending money. (And I am a die hard JCrew addict!) Sometimes, reality sucks!
ReplyDeleteJenG.
I think the answer would be a good old fashioned "additional 40% off" ....that would surely move a lot of their stock.
ReplyDeleteI would for one would definitely spend some dollars with them.
A lot of dollars!!!!
Darn - I think my husband just bought J.Crew stock last Monday :/
ReplyDeleteJ Crew employee here. It is funny to see everyone complain about the prices. I work in one of the smaller stores that do not even get cashmere. There are enough lower price items to fill our entire store. We have jackets, sweaters, jewelry, outerwear. They are just not the most expensive items. Prices on the lower items are rising commesurate with other similar stores. Is it that people just do not want any Collection or higher priced items. What is the solution, as readers here see it, to J. Crew pricing strategy. I would love to hear some opinions.
ReplyDeleteSorry, finshed without re-reading... commensurate.
ReplyDeleteAnon: I don't have a problem with jcrew's prices, Collection or otherwise. There is a market for it and I feel that jcrew's prices are a savings compared to some other designer brands. I may be a bit older than many (late 30's) and have been wearing jcrew since high school.
ReplyDeleteJ. Crew employee: this particular crowd of J. Crew customers seems to appreciate the the higher quality and more tasteful design of J. Crew, especially compared to its price peers, or near peers, like Banana Republic and the like. At least, I do, so I anticipate paying more for J. Crew stuff than department store clothes or other chains. This blog group watches prices a lot more closely than most. I think sometimes the very low final sales price signals us that something might be higher priced than the quality requires at the start. Take for instance the starting price of the Amelia tank or the Joelle cami. Nice silk tanks, priced over $70 to start, but now at $20. Could they have started out at $60 and still made a profit? One would think so.
ReplyDeleteThe collection items do tend to draw attention to the outliers pricewise, and not the mode, to use statistical language. The marketing people will have to figure out if the publicity on the collection has a bad effect on the mainstream customer.
I would like to know where all of these J. Crews with extra stock are. I realize NYC is its own beast, but in my experience stores are just as crowded as they've always been and it's still hard to find my size in-store.
ReplyDeleteI totally agree with Fedele. I think that most of us here really appreciate J Crew quality and style, but I would jump on many items sooner if they were a little more reasonable. I have loved the Elizabeth halter for some time but was not going to pay $88 for it in any color. But probably would have paid $59-$65 a month or two ago and purchased a few colors. Finally a few colors came down in this most recent sale and I picked up the pink for $36. I will pay top dollar for a few signature pieces-(I have 2 Berry astrids!) but cannot justify a blouse that costs almost $100. No worries J crew I will still be shopping with you in these rough economic times, but will be waiting more than ever for the sales:)
ReplyDeleteTwiga
Roxy-
ReplyDeleteThe inventory must be in the midwest! I was recently in St.Louis for business and stopped in a great mall -St. Louis Plaza Frontenac and the J Crew was dead @6:30pm on a Thursday night? Seriously I was one of 2 people in the store and it was HUGE! I didn't purchase anything as the SA's were not as friendly as mine back home and I didn't feel like carrying anything else on the plane. But FYI in case any of you are looking for items- this store was one of the larger ones I have been in and was overflowing with merch.
Twiga
When I look at JCrew items, I naturally look for items that I would love to have - because they are diffrent than what is out there, yet trendy and classy enough to serve me for a few years. I don't actually NEED any of those items, I WANT them. At the current state of the economy, although significantly better in Canada then US, I try to give value to an item, a blouse is worth $30-45,or so,and ignore the infalted regular retail price. If it is sold for more, I don't value it enough to get it.
ReplyDeleteI know that 40% off FS is a motivator to buy, but $50 spent is $50 from my bank account no matter how I look at it.
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ReplyDeleteto keep the value of its shares, j.crew has to focus on overseas market more, such as japan and china. U.S. economy will be down, although may not be in recession, for a couple of years. To keep the brand alive, j.crew has to find another life line during the period.
ReplyDeleteThe last one is a good suggestion. I don't know why J Crew doesn't have shops in Far East, or even Europe. I know when I went to Germany, Austria and Belgium the clothes there were a lot dowdier and a lot more expensive.
ReplyDeleteI would not buy any stocks that're based on non-essentials consumer goods in this climate. It's not just J Crew - it's all discretionary stuff like restaurants, electronic goods, etc.
J Crew's prices are way, way, way too high now. Just MHO.
ReplyDeleteI honestly don't think it's just prices that are the problem.
ReplyDelete1. I bought a pair of sandals is size 6 online (I have J Crew boots, mocs and 3 pairs of flip flops in 6).They were too small. I went to the store and they took them back only after I convinced SAs that they simply don't fit even though they are in my size. I don't think I'll be buying shoes online again because retail "therapy" is called "therapy" for a reason. I don't need to get stressed out when I am shopping...
2. One of my orders was cancelled a while ago so I complained and got 10% off my next purchase. I ordered something else, applied the discount and that order was cancelled as well. Am I shopping or playing the lottery?
3. I bought something online on sale a while ago and the price dropped some more the next day. I asked for a price adjustment and got it straight away. I asked for price adjustment a few days ago on a sale item that was discounted and this time I didn't get it. What is the exact policy on price adjustments?
4. I called the JCrew card priority line to ask why one of my orders was cancelled. I was on hold for 10 minutes so I hung up because I had to leave my apartment.
5. The "final sale" is REALLY stressful. I order items in two sizes (because JCrew is not consistent with sizes) hoping I could return one and I am not allowed to. I am seriously considering just to shop in stores. I love SAs in one of my local stores, they are always helpful and kind.
6. JCrew has GREAT clothes (in my opinion better than GAP/BR/Anthropologie, French Connection...maybe even MaxStudio combined!) that I buy all the time. I'm very reserved however, when it comes to buying the new JCrew yoga equipment (Lucy and Nike are my No.1 choice) or handbags (I am still waiting to read peoples' reviews and even then there are unfortunately brands I trust more when it comes to everyday totes-Longchamp is one of them)
I am sorry to hear that my favorite retailer has excess stock but I have had my share of stress with customer service....
sanfranciscoca: Jcrew's official policy on price adjustments permits a one-time price adjustment on full price merchandise only, and it has to be within a certain time frame (7 days IIRC). so technically, you are not supposed to get a price adjustment on a sale item, whether final sale or not. i think this is a horrible policy... along with their shipping rates, general final sale policy, and non-stackable codes.
ReplyDeleteJ Crew employee - Good question. I think one of the challenges is that J Crew has customers who have shopped the brand for 10, 15 years and it's changed on them. It's like going to GAP and seeing it turn into Neimans within a couple years. In numbers...going from an average price point of $59 or so to $89 is a a bit steep. I guess if J Crew had a grand reopening to unveil the new vibe & price points, it would have turned away a lot of loyal customers but that might have been better than creating feelings of being hoodwinked. I imagine the smarter thing to do is exactly what they've done, which is slowly raise the prices and hope people acclimate. Some will naturally fall away and new ones will take their place. I also recognize that costs of doing business have increased so there is that, but we all know that China is making everything on the cheap and a lot of the profits are lining the pockets of the top tier of all the companies.
ReplyDeleteIt's also tough to handle the prices if you go to a store and the SAs are rude. I admit the right comments or conversation can entice me to purchase. I'm not keen on giving my money to places with rude, snooty, moody or vacant SAs. And to sanfrancisco's point -- the service can be spotty on the web. Who wants to play the lotto when shopping? The web problems have improved, but I would never order something for a specific occasion. So in closing I'll just say that J Crew has violated trust on some levels and people are looking for bargains maybe even more so than usual.
I was very pleased to find that the other day in a B&M I was able to double up on promos. They gave me the 15% student discount along with the 20% off of $175+ which I was very surprised about as this blog has been reporting on the refusal on J.Crew's part to double up on promos. This must have had something to do with the high amount of inventory as well as the poor state of the J.Crew stock. It's too bad that J.Crew is getting hit hard by the economy right after they had that fiasco with the upgrade. With that double whammy, things must be tough around there. I was very pleased with the great deal I got though, as it very significantly lowered the prices on three full price items that I would not have otherwise gotten!
ReplyDeleteTo "JCrew employee",
ReplyDeleteOne HUGE factor with the pricing is the descrepancy with online vs. b&m. Why don't the prices match? How can someone pay $23.99 in store for an item that remains $59 online? If the prices were consistent, those of us that shop online, wouldn't feel like we are getting cheated when ordering clothing... It just doesn't seem fair. I know, life isn't fair, right?
JenG.
I happened on this site, LolFed, which actually discussed J.Crew today. They mocked the newspaper window decorations and also their move into a "higher" market. They also referenced Mickey Drexler handing out a personal number, the handing out of gift cards, etc., which are all things that we've talked about on this blog. I thought it was interesting. :) Even though the tone is acerbic, I thought they made some good points.
ReplyDelete@ melanie,
ReplyDelete"When your house in the hamptons is foreclosed on you won't need those critter shorts." LOL!
Cut Mickey some slack- being CEO is a stressful job, but I know he's competent and runs a good company. Go JCG!
ReplyDeleteI have to say, the state of the economy has left me with no desire to shop at J. Crew. I barely even look at the website anymore. And I could not bring myself to use the $25 off coupon from the last catalog. Sad! :-( It's not that I have any less money than I used to, I'm just scared about what's to come. Right now, there's probably nothing that could get me to shop there; I just want to ride out this crisis, and when the market improves, I'm sure I'll go back!
ReplyDeletemelanie,thanks for the posting the link to the article...interesting, stinging, read!
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ReplyDeleteJC go back to the basics, along with some of the other designs, and offer colors in a wide spectrum not just the bright colors. I don't want a wardrobe full of brights I like to have a combination of muted colors along with the brights.
ReplyDeleteAlso I don't plan on spending as much in the coming year and when I do I want pieces that will be in style for a couple of seasons.
Fidele makes a good point - when items are eventually reduced by over 50% (and sometimes in as quickly as a month), some shoppers, like a lot of the Aficionadas, are apprehensive about paying full price on anything. Flip through the July and August catalogs - a lot of the over $150 pieces are already marked down by at least $100! Case in point: I got the khaki Tuesday Trench in August, a month after it came out at $225, for $85. That's like, 65% off on a "new" item. Plus, once the items get discounted they go into like a final sale purgatory, because at the sale (but not really that great of a discount) prices people don't want to take a gamble on an unreturnable item. Somebody mentioned in another post that perhaps JC should have a first tier markdown where the items aren't really priced to move, but would not be considered final sale. Then the items that are FS are the ones that are truly slashed in price.
ReplyDeleteReally a shame to see their stock downgraded to sell:(
ReplyDeleteI do think things will get worse before they get better....
The issue with the prices, IMO, is that the quality ISN'T there to warrant them. Quality Control at J.Crew has been pretty much non-existent as of late, yet the prices continue to increase. I have received merchandise with buttons falling off, buttons sewn on unevenly, uneven stitches, and even holes in them after one time of laundering. There have been many instances where I have received an item on sale and was extremely relieved I had not paid full price...it was worth the sale price, but NOT full retail. It makes it even worse to know that the clothing is coming out of the same place as other retailers who don't charge as much, but J.Crew chooses to mark it up excessively because of the name. Higher price doesn't necessarily mean higher quality, and it seems as if J.Crew wants it's customers to believe that paying higher prices for mid-retail clothing makes the brand *special*. I truly, truly adore J.Crew merchandise...I appreciate the styles and fit...the majority of my wardrobe is J.Crew, but it was purchased on sale because of my belief it's not worth the full retail price. I definitely don't appreciate the increasing prices or the continuing neon bright colors...I would like to see more muted colors and lower starting prices...I don't think J.Crew would lose money, customers, or it's reputation by doing this. I actually feel that sales would INCREASE for the company, and according to this article...that's just what the company needs right now...increased sales.
ReplyDeleteI totally agree that placing orders with jcrew is like playing the lottery, and i don't think this is acceptable, customers shouldn't feel like they have a 50/50 chance of getting their oders filled.
ReplyDeleteWhile overall my frustration is more with their inconsistent customer service, and the fact that the online prices/sales are often not as good as the retail stores (since i'm in canada and we don't have jcrew stores there), and the inconsistent customer services at the 1800#. I have received some really crappy rude CS's, while others have been just wonderful. I think jcrew's problems will not necessarily be fixed if they were to drop their price points, customers get attracted more by % offs, such as 40 or 50, more so than a price drop, not all customers notices reg price drops.
Ack, J.Crew messed up my order AGAIN. I ordered 4 gifts yesterday to be shipped overnight (supposed to arrive today): a burgundy velvet jacket, a tawny olive velvet jacket, a tweed jacket, and a handbag. Today I receive a UPS package containing the tawny olive velvet and the tweed jackets....and then I get a FedEx package with the handbag and then the tawny olive velvet and tweed jackets again! So for those of you counting, that's 2 tawny olive velvets and tweed jackets, and 0 burgundy velvet jackets. At least they got the handbag right. :( So I called to see if the burgundy would be arriving, and they said since their system said it shipped out, they'd have to do a 'find it' to see where it got lost, and then they could send me a new one after that process was complete in 7-10 DAYS!!! i ordered it overnight for a reason! *sigh* this is the 4th time since the website overhaul that one of my items has been missing from an order, and one of only many shipping problems J.Crew customers are experiencing right now. I mean, this is not rocket science! I've been ordering from J.Crew for years and have never seen anything like this. It has to be fixed, and ASAP if J.Crew wants to retain its loyal customers.
ReplyDeleteTwiga-Interesting to hear Frontenac is one of the bigger stores. I have not gone to many others in different cities and didn't realize my store was big. I feel they are always lacking in the newer merchandise arena but maybe it is actually better than other places and I should count my blessings! Thanks for that feedback. Yes, they have a lot of snobby employees and a few that are very nice. It's a very wealthy neighborhood and sometimes I think they think they are elite just because they rub elbows with this class of shopper. BTW-the mall is generally not busy on a weeknight. Here's a case where I want to remain anon.
ReplyDeleteI agree with those commenting on starting prices. How does something start out at that high price and end up $20 not too long after. Why do they think we are all cheap and waiting it out for a sale--because that's what they have brainwashed us to think will happen and DOES!
BTW-I made the comment about two sale levels/sections. I think it a very nice idea if I don't say so AGAIN:) Why not have sale for things that are newer and go down a bit in price and then final sale for things that have been around and marked down a couple times. It is crazy to expect someone to still pay $200 for a blazer they haven't even seen in person as their store doesn't have it and never tried on before and then really have no option to return!