J.Crew's Got an Inventory Problem {no, really?}

 

The following article is from Fortune (click here to read in its entirety) about J.Crew's current profit outlook:

J.Crew's misplaced optimism to slam profit through holiday season
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

Very interesting to see J.Crew's bottom line being impacted by increased inventory and reduced traffic...

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!

J.Crew Enters the Asian Fashion Market

The following article is from Fashionista (click here to read in its entirety):

J.Crew To Make Its First Appearance In Asia, Continues Plan for World Domination
By Hayley Phelan
June 11, 2012

J.Crew is on a roll. After reporting a strong sales lift two weeks ago (profits nearly doubled over the last year), the retailer has another exciting announcement: Their wares will now be available in Hong Kong and China, thanks to a new collaboration with luxury retailer Lane Crawford.

According to a press release, a curated selection of J.Crew’s women’s and men’s ready-to-wear collection, as well as shoes, will be available at select Lane Crawford stores and online starting in October 2012.

“We are thrilled to be collaborating with J.Crew on this first-ever, unique multi-channel project,” Lane Crawford’s president Andrew Keith said.

The partnership is also a first for J.Crew. While the American brand has a similar relationship with Net-a-Porter, the collaboration with Lane Crawford marks the first time J.Crew’s clothes will be sold at brick-and-mortar stores outside North America. And J.Crew couldn’t be happier about it.

“We always want to work with the ‘best of the best,’ and Lane Crawford was at the top of our fantasy list,” J.Crew’s CEO Mickey Drexler said. “When it comes to editing and presenting collections with a creative and elevated point of view, no one does it better. We are beyond excited to partner with Lane Crawford to help introduce J.Crew to Asia.”

Of course, the collaboration with Lane Crawford is only the beginning. J.Crew has set its sights on becoming a household name all around the world. “One of the big priorities is building the global brand, in a disciplined, deliberate manner,” Stuart Haselden, J.Crew’s chief financial officer, told WWD. And with retail stores in Canada, an online store that distributes to 106 countries, and brick-and-mortar locations in the U.K. and Hong Kong expected to open soon, it’s safe to say the American retailer is well on its way to world domination.

Pretty exciting international expansion! (They are definitely moving quickly abroad in the past few years.) Curious if they will slow down a bit and concentrate in the international markets they have just entered, or move forward to include additional locations...

What are your thoughts on J.Crew's entrance to the Hong Kong market? What market should they pursue next?