Tuesday, July 21, 2009

Is It An Ugly Time For Madewell? {yeah it is!}

There is another interesting article over at Washington Post (click here to read the article in its entirety) about J.Crew's sister store Madewell and their issues to get customers shopping.

An Ugly Time for Fashion as Spinoff Chains Struggle
By Ylan Q. Mui

July 10, 2009

Opening more stores wasn't enough for retailers during boom times. They wanted to create new forms of life.

Specialty chains spun off new concepts that targeted different demographics. Teen retailer Abercrombie & Fitch spawned Ruehl for postgrads, while rival chain American Eagle created Martin + Osa with casual clothes for young professionals. J.Crew launched Madewell, a sort of hipster little sister. Aeropostale had a rock-inspired chain called Jimmy'z.

But now their fledgling concepts are struggling in the face of the worst recession in decades. At best, they have become distractions to the companies' already embattled management. At worst, they are a drain on earnings -- and some are shutting down altogether.

"It's hard enough for new brands to gain traction in a new environment let alone in the worst recession in decades," said Todd Slater, an analyst with Lazard Capital Markets. "In downturns, many new initiatives are sidelined."

Last month, Abercrombie announced it will close its 29 Ruehl stores, including one in Tysons Corner Center. ...Some analysts wonder if American Eagle will pull the plug on Martin + Osa. And J.Crew executives have admitted missteps in fashion and pricing at Madewell.

Retailers are under enormous pressure to reinvigorate sales and slash costs. June sales at stores open at least a year -- a key industry measure of health -- dropped 4.7 percent compared with last year, according to data released yesterday. Specialty retailers took one of the biggest hits...

During flush economic times, retailers embraced new concepts as a way to increase sales. Many chains had already saturated shopping centers with new stores, so if they wanted to win new customers, they had to create new concepts for them to shop. ...

J.Crew chief executive Millard S. Drexler has acknowledged that clothing at its Madewell spinoff was too basic and expensive, particularly the jeans. The concept is costing the company about $15 million this fiscal year and it lost about $11 million last year, according to Needham analyst Christine Chen.

In a recent conference call with investors, Drexler said that when plans for Madewell were drawn up three years ago, the company decided to start denim at $98 -- and shoppers balked. Now the cheapest jeans are $59.50.

"So frankly, in hindsight, a mistake," Drexler told investors. "The world is kind of changed dramatically in that regard."

Bringing a new concept to profitability requires a large investment. The rule of thumb, Tunick said, requires 80 to 100 stores ringing up $400 in sales per square foot to break even. Closing a concept now doesn't always mean it was doomed to failure. Few predicted the consumer meltdown that occurred last fall. ...

When I first heard of Madewell, I thought it was going to be full of hip & basic items, offered at cheaper prices than J.Crew. When I saw the items Madewell was offering, I thought that it was just targeted at a younger demographic (high school, college), with similar price points to J.Crew. Their prices always seemed way too high for me (considering its quality, and comparing it to J.Crew's own items). So it comes as no surprise to me that consumers "balked" at jeans starting at $98!

What does surprise me is that Madewell is still around. It's clear that this is J.Crew's CEO Mickey Drexler's baby- and he wants to see it succeed. (And as an investor, owning J.Crew stock, I want to see it succeed too!) However, how long will J.Crew support Madewell's if its not being profitable- another year?

What are your thoughts on the article? Disagree or agree with any of the points made? Do you think Madewell is going to stick around for awhile? What do you think the fate of Madewell's will be a year or two from now?

23 comments:

  1. I agree that with this economy Madewell may have potentially priced itself out of the market.
    I was just in the Madewell in Las Vegas a few weeks ago, and while there were some cute things there, I would never pay full price for any of it. The few items that I did buy were at a huge markdown....a dress the was originally $150 for$30 and a skirt org. $98 for $20. Most of the items, including my sale purchases, seemed priced higher than necessary, and without the refinement/quality that I've come to expect from J Crew.
    In all the quality/styles don't seem to warrant the high price points,IMHO.

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  2. I agree that Madewell should have been priced much lower. I only own two cotton cardigans from them, purchased on sale for 19.99...That's what they are worth, not their original price of 69.50.

    I really wanted to like this brand, but I've also tried their jeans, and OMG...How uncomfortable!

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  3. I never even heard about Ruehl. Wow.

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  4. I feel like it's a lot easier for Ruehl and Martin + Osa to succeed than Madewell; once regular shoppers of Abercrombie or AE outgrew those stores, they could "graduate" to the more mature spinoff...but in making Madewell for a younger target, J. Crew was trying to find a target audience that did not necessarily shop at J. Crew to begin with.

    I think one spinoff that was done well was Aerie by American Eagle...they started having Aerie sections in regular AE stores and selling Aerie stuff on the AE website, and now that the brand is more established, there are standalone Aerie stores. I think J. Crew might have done better by creating a Madewell section in their own stores and on the website, and then start to open separate stores (the way CrewCuts seemed to have worked pretty well)...of course this would've given the brand a different image, and I'm sure Mickey Drexler wanted a clear distinction between Madewell and J. Crew, but it might've been a better choice business-wise.

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  5. I think Madewell has problems starting with the concept. They're trying to attract rich urban college kids but they're up against stores like Urban Outfitters, H&M and Uniqlo that make the same clothing for much less. Madewell excels in the styling but right now very few people are dropping $78 on a tee shirt from a non-luxury brand.

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  6. I went into a Reuhl store once. It was dark and hard to navigate with its many floors and oddly placed displays- no wonder it's going out of business! The SA's were snotty and uninterested in helping in general. That sort of behavior leaves a bad taste in my mouth and makes me unlikely to return. I thought their prices were too high, at least for what they were offering. In contrast, I have rarely had any issues with JC SA's.

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  7. I went to a Madewell store for the first time about a month ago and I was not impressed. It was very expensive for such casual clothing, which struck me as marketed toward a younger demographic than me. The store was also very small, and overly packed with merch (mostly denim, a few tops). The SA's were nice, but they seemed very bored ... they jumped on anyone who walked in. I noticed that no one was trying anything on, just walking in, looking around, and walking out again. It was a pass for me, and I haven't thought about going back.

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  8. I've been shopping at jcrew since I was about 14, so Madewell as jcrew's younger sister seems odd to me-- the style is more on par with urban outfitters and watered down boho/streetwear (as interpreted by privileged suburban kids) than whatever a "younger" jcrew is supposed to be. If crewcuts is very much in line with JCrew's style ethos, Madewell does not make sense along the style trajectory, if it's supposed to fit in somewhere between crewcuts and jcrew proper.

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  9. I was in Atlanta last week and so excited when I saw a Madewell at the mall. But I was so disappointed as I walked through - mainly jeans priced as high as JC. I did see the new 59.50 jeans, but didn't have time to try them on. The rest of the clothes looked too young for me.

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  10. I totally agree with you Alexis. I visited the new Madewell Soho store this last weekend and I was taken aback by the prices. Pretty basic cardigans for exemple were $78, the same than at Jcrew, basic tee-shirts started at $29 etc and there. There were much better deals at the Jcrew store! If they are targeting students with money they should work on the image of the brand. And if they are targeting everybody, well they should lower their prices

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  11. I wouldn't mind if Madewell (a ridiculous name for the company to begin with) goes under, and J.Crew then instead focuses on getting its own products back to the quality of a few years ago, when, for starters, the cashmere didn't pill inside of three wearings.

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  12. ot: i saw some pictures from the new catalog....looks like i am going to need to pick up a second job.

    definitely some great stuff for the fall on the way. it makes it easy for me to hold off to the final sale.

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  13. la belle, IMO it would be sad if Madewell went under because it would be due to Drexler's poor choices. Madewell has been around for a long time, previously as a workwear company and started in the region I'm orginially from (SE Mass), so I guess I'd like to see it succeed in some capacity -- though I do find Jcrew's spin on the brand totally uninspired.

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  14. I have never been to a Madewell store, but I agree with BelleHelene that is not a good name for a clothing store, it sounds like boring basics in my opinion. That combined with bad timing to launch a new brand, their price point and target audience is a recipe for disaster right now. For a new brand they don't really have a good marketing strategy, I guess they do not make a lot of their clothes since you cant really order online unless you call them directly and there are not too many stores. They have the exact same marketing strategy as they have for J.Crew, an established brand, which consists of no print, just product placement, and this is hard to do with a new brand that doesnt really have anything new to offer.Let's see how this unfolds since in one of the previous articles posted it sure sounded like Mickey loved the name and purchased the naming rights off of an old retail store.

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  15. I could see how Mickey would like the name Madewell. It is a good name for a store geared more toward his age group, people who put quality at the top of the list. Doesn't really make sense for a young, hip brand where people usually want a certain style or look before they think about quality. Where is the marketing department on this one?

    As Brenda Kao said, they should group the websites online like other such as GAP, BR, ON & PL do. It would drive traffic to the Madewell brand because it is right there and people would likely check it out while viewing J.Crew or Crewcuts. Of course, that means Madewell would have to get its website up and running first. :P

    I've never really cared for the style of Madewell. Everything looks like stuff I already own, there is nothing to get me interested.

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  16. I really don't care much for the "spin off" stores. I remember when Ruehl came around - it was just like Abercrombie but MORE expensive...I was not impressed.

    Now, I have never been to a Madewell store, but from what it sounds like - it has the same problem. I shop J.Crew for a reason - I don't want to shop at it's less-cool-sister-store. No thanks!

    I hope J.Crew just sticks with what it is good at and focuses on it's primary stores. I'm not sure what should happen to their Madewell stores...

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  17. I agree with jbird on the Ruehl stores. Totally uninviting, yuck.

    Madewell seems boring but I am probably too old for it (24). But I do love the pair of white rail straight jeans I got for $10 from them. That's about it though!

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  18. ahhhh... i'm just thinking that as part of that target range who likes the clothing coming out of madewell, m+o, and ruehl, i hope the concepts are still viable. (though this economy is probably not the best place to try it out given that recent grads are usually the first to get let go at a company...and there goes that fun disposable money...)

    of the 3, though, i like madewell's stuff the most..hands down. it just has more style and uniqueness. m+o is too basic-gap-ish sometimes, though they have a couple of winning pieces each time.

    I do agree that the pricing seems a bit high as a money-conscious shopper. but i also know plenty of high schoolers who like the cool "older but not too old" feel of madewell and shell out $100 for their jeans with parental money easily. so maybe there is a market for some?

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  19. Yikes! It seems like I am the only Madewell fan! I love that store. I completely disagree with the opinions that the quality is cheap. I do agree that the store is pricy but I like the flow and size of the stores. They feel more like a boutique and less like a chain. Additionally, they seem to have HUGE sales every time I shop there (we have a location here in Dallas) and I have rarely paid fullprice for anything. The store offers great basics in quality construction from seasoned brands. I think it is great. Perfect for a 24 yo who feels too traditional for stores like Urban and too hip for grown up stores. (P.S. JCrew is a favorite. The majority of my wardrobe is from there.)

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  20. Madewell is a case of good concept but bad timing. By the time it launched, the economy was starting to tank. It was made for a different demographic than JCrew so it is no surprise many JCAs do not find many things to love.

    I think this is more than a concept for Mr. Drexler. He successfully launched Baby GAP at a time when he could not find what he needed for his daughter. Now that daughter is grown up and her group probably did not find what they were looking for in the market -- something younger but less accessible than Urban Outfitters. I think he knows the pulse of this age group.

    Although I am well outside that demographic (ahem, add 12+ years), I do have quite a number of Madewell items that I am very happy with. Some I bought last year at full price and this year only at sale price because of the times. It's good to see they are adjusting to economic realities by lowering their price point. I think an online presence will help the brand.

    I don't want to see them close, as I would not want any business to close. The layoffs all over are heartbreaking.

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  21. I'm with magpiesandmagnolias - everyone seems to be pretty down on Madewell. I'm 29 - maybe too old for Madewell - but still single and have a "young" lifestyle. When MW first came out, I thought it might be a little too Urban Outfitters-esque, but I went in the Soho store last summer and found several things I liked. I got a pair of jeans somewhere in the $110-125 range (saw the same pair on sale this summer for half off), and a $175 jacket that I debated about for a while because it was expensive but so cute. I think their stuff is somewhat overpriced for what it is, but not drastically so. The quality is better than Urban Outfitters for sure. I've been getting a vast majority of my clothes from J.Crew for the past 10+ years, but it's good to mix it up sometimes....J.Crew is more classic/chic, Madewell is more hip. That's cool if you're not into the style, but doesn't mean it's not a viable concept for a certain market (maybe with some price adjustments). They don't seem to be slowing down, really - just got an email today about a store opening in Charlotte, NC on August 1. I agree about the Atlanta store, though - didn't have a great experience when I went there. In and out.

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  22. There is a Madewell in Dallas at Northpark and I have never once been tempted to go into the store. I just don't care for the styling of the clothes. I have a kind of blasé attitude toward Madewell and I don't really care if they survive or go under since I don't shop there to begin with.

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  23. I would be sad to see Martin & Osa fail they have good quality clothing with reasonable shipping rates.

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