J.Crew's misplaced optimism to slam profit through holiday seasonVery interesting to see J.Crew's bottom line being impacted by increased inventory and reduced traffic...
By Phil Wahba
June 5, 2014
Clothing retailer’s inventory is still too big for its britches. The problem with being a fast-growing company, quickly expanding your flagship brand and rolling out newer concepts, is that you can forget how quickly consumers’ mood can sour.
J.Crew has learned that the hard way, letting inventories build way, way up even as shoppers seriously cut back on trips to the mall and sought out big bargains.
The casual clothing company reported a big decline in its adjusted profit for the first quarter, primarily because its gross margin, a measure of merchandise profitability, plunged a staggering 6 percentage points to 38.7% of sales. (In contrast, at Gap gross margin barely budged, hovering around 39%.)
J.Crew Chief Financial Officer Stuart Haselden blamed a decrease in mall traffic and made allusions to a cold winter hurting sales. But J.Crew’s overly ambitious buying played a big role in the margin depletion, too.
Inventory rose 16% during the quarter on a square-foot basis, while comparable sales fell 2%. That disconnect led to big markdowns as J.Crew tried to clear unsold merchandise. Haselden told analysts on a call the problem would persist until about the holiday quarter. “We have more than we’d like to have,” he said.
Despite the pressure on sales, J.Crew doesn’t plan any large-scale store closings of the kind underway at Abercrombie & Fitch, Aeropostale and, a few years ago, Gap. “Our store base is very productive,” Haselden said.
That may be, but J.Crew faces some choppy waters through the holiday season. Traffic at J.Crew stores this quarter so far is still down from a year earlier, and the retail environment is not getting any less promotional.
And competitors are faring better- Gap just reported a 1% increase in comparable sales for May
It is no surprise to any of us that J.Crew has too much merchandise on hand. All one has to do is take a look at the current sale section. The numbers for the Women's items are around 1000-1600. These numbers were not on the radar a few years ago, and now they seem like the norm.
Some unsolicited advice... (1) J.Crew needs to offer kill prices for items that are on sale for over a year. I am referring to all the Holiday sweaters. Just sell them cheap, and move on as a lesson learned.
(2) J.Crew needs to get back to more "classic with a twist" offerings or at least hire a really good stylist. The following are the current looks J.Crew loves. This use to be a feature I looked forward to. Now, I don't bother.
There is not one look here that I care to recreate. Don't get me wrong, I love certain pieces. However, they are not styled "at their best". (I am tired of seeing sweats and pajamas as a day-time staple.) I would trade in all of the looks above for the one look below from J.Crew's Spring 2008 Collection Look Book.
This is the type of outfit that is styled to perfection. I want to buy e.v.e.r.y.t.h.i.n.g. here. This is what J.Crew needs to get back into.What are your thoughts on the article? Do you think J.Crew will change their ways in response to the decrease in profits/ increase in inventory? Please share your thoughts!
Could not agree more about the styling! Both today's lackluster looks and the fabulous 2008 look book! I think that was the year my J.Crew love affair got serious. ;)
ReplyDeleteTotally agree with your comments that they need to get back to Classics with a Twist.
ReplyDeleteI'm a fairly recent J Crew buyer, as I live in Australia so wasn't able to buy until they opened their O/S site a couple of years ago. This year I've hardly bought anything for a couple of reasons:
The prices are just too high compared to the US site
There are very few items that look worth the $$ now. Most things can be bought from local stores for less. J Crew used to be my go-to store for quirky prints and beautiful coloured basics.
This year it seems to be full of wishy-washy neutrals and very 'girly' skirts
Hmm, there is a reason most of my recent purchases are 2008 Old School on EBay and not new items from retail . . .
ReplyDeleteAmen to that, Hexicon. Recently bought the campo di fioiri ballerina dress, leilani dress, and many other oldies but goodies on eBay. Really thankful for eBay. I buy maybe once every two months from J.Crew anymore.
DeleteOnline sale section now includes s 50% off FS category. Kind of random which items are included. Why not include all the old winter stuff?
ReplyDeleteI know! I noticed this morning several sweaters that have come out recently that are 50% off but some that have been around for EONS are still $70 or higher with only 30% off. Makes zero sense.
DeleteAgreed Alexis. I still check my wishlist every morning but have stopped looking through the sale section. I'm tired of looking through the same stuff.
ReplyDeleteWe've said this over and over again: Edit. the. line.
ReplyDeleteThere are way too many subpar offerings. Instead of 20 poly dresses, make 8-10 dresses in a variety of materials. Nail the design the first time (or learn from your sale section "mistakes"). Seriously, the major cost-cutting in quality/construction so that they can offer a million iterations of the same thing is causing them to resemble Old Navy or F21. The sale section has been exploding with merchandise for a long time and it's not selling - the SA's at my B&M seem to think that the 40% off their sale section will be in effect for the foreseeable future.
At the same time, where are the summer basics like knit dresses and skirts? I got my knit skirts from Joe/Fresh JCP this year because JC had 0, and they certainly weren't $69.50.
Also, the same styles, same colors, same models are everywhere, and JC is not ahead of the curve. At this point I think they either don't care or don't see it as a problem. They're focusing on global expansion now. So who knows? I think a lot of us are feeling the fatigue now....even JCA is not hopping like it used to.
my store still has Merino sweaters sitting there
ReplyDeletewith one MKDN, rest of store ZZZzzz
JC Factory much more fun
All the news about the company's focus on overseas expansion, coupled with ho-hum items and designs leaves me very concerned. I have barely purchased anything from J. Crew since the holidays. Although, I so love my Pleated Flare Dress in red. But seriously, I went last week and all I got was a hat and a pair of shorts.
ReplyDeleteI agree silver lining about the sub par quality and fabrications. The quality used to be why I chose J Crew. But, now I think the biggest miss in their shift to be fashion forward is that the clothes don't flatter. Neoprene is fun, and used judiously is fresh. But no one wants a summer dress that is hot and adds pounds, pants that show every teeny bump, or shirts that are un wearably sheer, or that are made of sweat inducing fiber.
ReplyDeleteI love to buy au courant pieces to enhance my collection of well fitting, well made clothing. I just want them to be quality items, and not my whole collection. I want an ensemble, not a costume. I used to be able to rely on J Crew for both.
Other retailers have clearly copied J Crews aesthetic, but no one could match their original quality. Fit, fabric and fashion are important, but I think flattering is the most important over all.
Because , really, all any one wants is something that makes them look and feel great.
My sentiments exactly.
DeleteThey think they've got inventory problems now? I can hardly imagine the inventory levels by the end of the summer. In August they'll still be trying to sell 2013 holiday sweaters with the 2014 neoprene dresses and floppy shorts on top of that. Maybe add the 2013-14 wedding dresses to the mix? Oy vey.
ReplyDeleteMight the sale section top 2000 at some point?
I don't think they need to lower their prices. I think they need a bonfire.
I need/want/love the shoes in that last photo. Those are stunning!
ReplyDelete"Do you think JCrew will change their ways."
ReplyDeleteYes, but not in the way you would think. JCrew's private equity backers most likely are not at all pleased and will be forcing JCrew to better manage inventory. Inventory management has never been a JCrew strength but if you don't manage the balance sheet - this is what happens. Some of this stuff you couldn't sell at 80% off.
I'd get rid of it all, take my lumps and in the future order less volume and well edited basket. But I'm not their CFO - poor guy.
Yeah, maybe we'll see another crop of merchandise at TJMaxx like we did in '08. That jeweled Fair Isle sweater (07873) is $120 and almost a full size run. Seriously? Slash it to $20 and get it out of there!
DeleteBefore I even saw what you said, Alexis, I thought kill prices. They need to figure out the best way to have a good sale and get rid of a good chunk of it. Ensure that staffing is high to get the shipments out and move forward. I think the store associates are bored and fatigued as well, and that certainly isn't helping store sales.
ReplyDeleteI've been thinking more about Alexis' comment about the declining relevance of Looks to Love and about the 2008 image as a contrast.
ReplyDeleteSeems to me that JC has lost its mastery of the high/low concept, which the 2008 image embodied beautifully. Their current version of high/low is the image above of the woman wearing the blazer and sweatpants. I don't get it - where is she going? It looks sloppy and tasteless.
I think we're all yearning for the return of a competent high/low aesthetic (in addition to good fabrics, quality etc.).
I think they also need to stop making so many overpriced Collection items. Who is buying these items and ? I love that the photo from 2008 is an outfit that is still in style today. I wouldn't be able to tell the year if it was not listed. Get back to basics with a twist! Also agree that not taking further markdowns on items that have not sold from last winter is a failure. They just need to keep slashing price until the inventory is gone. No one wants to see the same items in the sale section for months on end.
ReplyDeleteAgree about the neoprene. The cove floral surf dress is super cute, but when I saw it in person and felt the fabric I was like, "hell to the no." I would be sweating like nobody's business in that. If they just made that dress in a normal fabric - like cotton - I would have bought it.
ReplyDeleteI'm also not a fan of the elastic waist shorts and pants. It does not seem fashion-forward to me at all. It looks sloppy, and it just gives me a vibe of old granny, old man gut-buster pants or baby/toddler wear or pregnancy clothes. All things that I NEVER want to wear. Speaking of pregnancy, the jump into maternity wear over the past year or so was also a head-scratcher for me. I just feel like J. Crew is all over the place and it needs to just hone in on what it does well and do it for god's sake. End of my rant. LOL.
ReplyDeleteITA on the elastic waist shorts!!! While some of you ladies have w/adorable figures have blogged pics and they look cute, they are just a huge NO for me. And I suspect a large segment of the population.
DeleteThe classic, quality clothing sells. Even at full price. Exhibit A: Side slit skirt. Exhibit B: Colorblock tank. Exhibit C: Nike waffle racer (constantly sells out and is restocked on massive backorder in popular sizes). I'm a bargain shopper but even I bit on the full price, no promo Nikes.
ReplyDeleteThose Nikes are the BEST. I have the pair in green and bought my husband the navy. And we wear ours all the time.
DeleteAgree on all your points. If J. Crew doesn't want to go back to those days of the stunning prints and preppy posturing, at least do us all a solid and make some great basics in very figure flattering silhouettes with a bit of quirk. It seems like an easy concept for them to grasp, but this doesn't seem to be their jam right now. Oh, well.
I'm sure I'll LOVE the waffle racers too. Can't wait for them to ship (Oct!!!). Happy to hear you love yours Dina =).
DeleteI adore Nike and refuse to buy Lululemon, Adidas, Reebok, Athleta, etc. I'm ecstatic that two of my favorite brands are collaborating. I have another pair of classic Nikes (J.Crew exclusive I think) from earlier and LOVE them.
I absolutely LOVE the waffle racers!! One of my most favorite JC purchases recently. They are unbelievably comfortable. I wish they'd come out w/another color. I will buy them for sure if they do. I saw some purple ones on Ebay in purple. Wish they were my size.
DeleteI have nothing new to bring to the table regarding this topic, but just wanted to chime in a say I whole-heartedly agree with everything everyone has said. I have a few J.Crew pieces in my closest I will never get rid of from days of J.Crew yore (lawn print shirt, red herringbone skirt, khaki kick-pleat skirt). Beautiful classics with a twist! And I have an original dream sweater from the first year they were introduced, and it's held up beautifully. All my friends think t's brand new when I wear it. Sadly the same can't be said of the dream sweaters since, which pill horribly, and the only reason I keep them is because they are in beautiful colors. Every once in a while I go online and look at the old archived catalogs from 2007-2008 and marvel at how all of those styles would be relevant today. I can't understand why J.Crew can't stick to their classics-with-a-twist pieces AND sprinkle in of-the-moment styles. No more PJs as day wear. No more slouchy ill-fitting silhouettes. We want saturated colors! Tailored pieces! Unexpected details! Quality fabrics!
ReplyDeleteYou had it so good, J.Crew. You can have it again.
Maybe it's just me, but even though I like the 2008 model's outfit, she looks too skinny. I can't get past that enough to care about the clothes she is wearing.
ReplyDeleteI have got to the point where I never EVER buy anything at JC that is not on sale. This is especially important as I am in Canada, where the starting prices are higher anyway. But with inventory being so high, it's easy to go in and try new items, decide what you like and in what size, and then sit back and wait for the shift to the sale room. This brings everything down to Gap-like prices, especially with the teacher discount. Anthro manages their inventory by immediately slashing new sale items by 50% and carrying on from there - and the sale prices in Canada are the same as in the US... why can't JC do the same? 'Cos if I didn't want that skier sweater at $118 in the winter, I still don't want it at $97 in June!
ReplyDeleteI'm guessing that one of the reasons why J Crew keeps prices high for those winter sweaters etc is because they're hoping that clients from the Southern Hemisphere will be foolish enough to buy them! It's winter here in Australia and New Zealand, so an ideal time to be buying warm clothes. However, I think the market here are wise enough to realise that an ugly sweater is still ugly at 30% off!
DeleteCompletely echo many of the major sentiments here. Question of the day: what other retailers have you turned to instead?
ReplyDeleteGap!! I have always been a Gap fan but I switched to their blouses instead of J. Crew's to avoid the dreaded gaposis between buttons. Gap has consistently 1. offered cute and practical clothes and 2. had major sales that apply to almost everything (40% off today!). More accurate sizes and items that I can actually wear to work means I spend my money with them.
DeleteThe mixed eyelet top-a7525-- is on sale and 40% off--- thinking about it--- anyone seen it in person? Thoughts?
ReplyDeleteMomma Wags - I haven't seen the mixed eyelet irl. It's an online only item, if you didn't notice so blogger reviews might be far and few between, if any. I don't think it's been out that long. My thoughts. Love the bib and the colors offered. That no-collar neckline rarely looks good on me. It usually doesn't it open, as shown on the model and doesn't do anything special for me when buttoned. My neck is on the shorter side, though.
DeleteAn example of a short sleeve top by j crew w/a neckline similar to the mixed eyelet reviewed in this post.
Delete