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!