Analyst initiates J. Crew at 'Market Perform'Associated Press
October 2, 2008
Shares of J.Crew Group Inc. sagged Thursday, after an analyst initiated coverage of the apparel retailer with a "Market Perform" rating amid a difficult environment. Shares fell $2.06, or 7.5 percent, to $25.43. The stock has traded between $23.97 and $51.96 during the past 52 weeks.
Friedman Billings Ramsey analyst Adrienne Tennant wrote in a note late Wednesday that the economic environment will continue to weaken at the high end, which hurts retailers such as J.Crew. As consumers cut back on spending amid financial-market turmoil, rising food and gas prices and a prolonged housing slump, retailers that focus on low cost and discounts have been faring better than those sticking to higher price-points.
"We believe that the deteriorating consumer environment will next affect higher-income households, which we believe J.Crew primarily targets," Tennant wrote. Tennant added that channel checks show J.Crew has been increasing its promotional activity because of high inventory going into the third quarter.
"We believe inventory growth may continue to outpace sales trends, and this could result in margin pressure and, therefore, margin contraction in the near term," Tennant wrote. She also expects same-store sales, or sales in stores open at least one year, could slide for several quarters amid week sector-wide traffic trends. "We are cautious given the overall negative headwinds the company-and our entire specialty apparel sector-faces over the coming 12 to 18 months," Tennant wrote. She put a $25 price target on the retailer's shares.
I found the line about J.Crew increasing promotional activity interesting as it explains all those additional emails we have been receiving. (Like multiple emails announcing the same sale or all the additional emails being sent to card members.) I am curious to see how the economy's current condition will impact J.Crew in the next few months.
What are your thoughts on the article? What actions do you think J.Crew should pursue in order to maintain sales levels?
That seems like a big fluctuation in price. I don't have the slightest clue of what any of these retailers can do these days. I imagine they are trying to move early fall merch for all of the late fall and Christmas merch that's on its way. Must be stressful times. Good for shoppers, though. In the same vein, I am hoping to be able to do some work on our house in the next 6 months because I think we'll be able to negotiate some deals!
ReplyDeleteOff-topic, but I just noticed that the website states that the educator & student discount is applied to ANY in-store purchase. Didn't it just recently get changed to only include regular-priced items? Did they just change this back??
ReplyDelete"As consumers cut back on spending amid financial-market turmoil, rising food and gas prices and a prolonged housing slump, retailers that focus on low cost and discounts have been faring better than those sticking to higher price-points."
ReplyDeleteI thought that line was pretty interesting, too, especially as we've all commented on the shift to high-end on their part.
As someone who hasn't seen her salary increase at the same rate as J.Crew's prices, I'm glad the store has taken a hit because of the economy. My perception of J.Crew is that, compared with their competitors, J.Crew is less generous with discounts and sale prices. For example, I've noticed that their website's Final Sale items don't seem to get additional discounts very often, even if the items have been on sale for weeks. Then there's their well-known shipping charges, which eat into any savings one might have made by purchasing Final Sale.
ReplyDeleteI think if they want to get their inventory moving, they need to offer even deeper discounts and more chances to earn free shipping. As for maintaining/increasing their profit margin, I just don't think it's possible in this economic atmosphere, assuming many in their customer base are like me in viewing J.Crew as an occasional splurge.
I think if they want to keep up with the state of most consumers and the economy they are going to have to discount their sale prices even more. I was just looking at the sale page this AM and there is a bunch of really old stock at high price points and it is NOT moving.
ReplyDeleteFree shipping codes would be helpful too, perhaps more of the free shipping on the $150 purchases, to include sale merch too.
For me, personally, I will still be willing to pay full price on items that I LOVE (like those flower pins and that rose chiffon t-shirt) because J.Crew tends to sell out of my size quickly and at the moment I am a internet-based consumer, there are no J. Crew stores in Italy unfortunately.
As it has been mentioned before it makes no sense for JCrew to be moving to higher prices/ higher end garments...Mickey is making a big mistake and I think it will come back to haunt him....This article states just that...not a smart move in the ever changing economy.
ReplyDeleteThe report isn't surprising, and confirms what many of us believe: that Drexler is making a tactical error trying to make the shift to a luxury market, at least at the moment. Economic news this morning is frighteningly dire again. I'm no economist, but it would seem that only true luxury brands do well in bad times, because the same small number of people always have money. Frankly, the upward trend of J.Crew's prices isn't justifiable in terms of the quality of the merchandise. It's pretty and well-designed, and don't get me wrong, I love it, but for me, the quality of the merchandise is mid-market brand (and IMHO overpriced at its current price point). Can you imagine a Chanel skirt with a hem held up with tape? I couldn't believe that when another contributor noted that the hem was falling down on her J.Crew suit skirt because it was taped, not sewn.
ReplyDeleteWhat surprises me is the fact that, even with high inventory levels, J.Crew is reducing discounts and incentives, not providing more. It just seems counterproductive.
As someone posted before they have been hit with a double wammy, the website mess and the economy.
ReplyDeleteWith high inventories JC is going to be producing less clothes so I expect to see less selection next year.
no surprise j.crew is struggling, most retailers outside of Costco, Walmart, etc, are. Then combine the sloppy, unprofessional website change and an uninspired fall collection loaded with overpriced items, and j.crew's boat is listing.
ReplyDeletemelanie: I too found this part (see below) very interesting! The first thing that came to mind upon reading it was that horrid brown Lucido that was absurdly priced at $1,800!
ReplyDelete"As consumers cut back on spending amid financial-market turmoil, rising food and gas prices and a prolonged housing slump, retailers that focus on low cost and discounts have been faring better than those sticking to higher price-points."
This article just confirms the discussion we Aficionadas have had many times on this topic...very sad but I don't feel sorry for JCrew one bit! I think their price points have gone up where the quality has not...Also, their shipping rates have gone up as well and they are making a profit on their high shipping charges so I think they could reduce the high shipping fees and still be making a profit but not in the high/crazy figures currently. Also, this comes at a time when they are not allowing customers to use more than one coupon code as well. Not that long ago too they took away the coupon codes from retailmenot.com. I have been ordering from them still but about 3/4 the amount less....which is a big difference in what I used to spend at the rate of about $1,000 per month. If only I had a store nearby...that would be wonderful. Their online prices are just too high with final sale now on top of it to stay. Seems like they are trying to hurt themselves not help themselves.
ReplyDeletewhy do I still think that their major problem is their mess up website? No matter how much promotion they have in the local stores, local stores customers aren't going to increase too much. But with a good website and friendly online shopping policy, they can really increase their customer numbers through out the country.
ReplyDeleteI would just be happy if all the pictures would show up on the website. I have yet to try and enlarge an item and actually have something show up. It is so horribly frustrating!
ReplyDeleteJ. Crew is solidly, definitively, middle market, and they used to know that. How many educators wear Chanel? Everyone knows it's easier to keep an existing customer than to attract a new one - they're taking a big gamble by trying to shift their customer base, and I'm afraid they're going to alienate everyone. I think J. Crew should stick to what they're good at rather than rolling out new services at the expense of old ones (e.g., pushing personal shoppers for big spenders while customer service for everyone else deteriorates).
ReplyDeleteAnon at 9:05. I haven't had that problem in over a month. All of the enlargements work for me. Actually, the website has been working great for me and I have gotten some amazing final sale deals in the last two weeks. I was the person who got the one candy tweed jacket that went up earlier this week. I loved it last year but never took the plunge. Now it is mine!
ReplyDeleteThe article makes me think Mickey is the oen who nkows what to do. As times get tough, the one group that always spends are tthe affluent and with J.Crew moving up in their price point they will possibly be insulated from tougher times.
ReplyDeleteThe ket for J.Crew is to move above store like Gap, but not into the true luxury and high end market. If they can tap into near luxury they could become very successful.
Given the current credit crisis and the uncertain impact on jobs and the rest of the economy, I don't believe the Jcrew will have increased sales growth. From what I have been reading, the wealthy are not spending their money at places like Niemens or saks and I think Jcrew is in that category. Hopefully the economy will improve 18 months from now but for now I think consumers are going to be much more frugal.
ReplyDeleteJ Crew Guy in Canada - you seem to be one of the few on this site that looks at things as a whole rather than just the way it affects you personally. Thanks for your fresh approach!
ReplyDeleteJCrew guy, I don't agree...think you and Mickey are just a bit out of touch with what true affluent people spend their money on....what brands, etc.
ReplyDeleteThe article states:
ReplyDelete*"We believe that the deteriorating consumer environment will next affect higher-income households, which we believe J. Crew primarily targets*.
How can you possibly believe J.Crew will not be affected? The wealthy that do not tend to be scared off from spending in this kind of economy are the EXTREMELY wealthy who don't even shop J.Crew.
I wish JCrew would offer free shipping to card holders for any on-line purchase. If they did, I would get the card AND I would buy ALOT more stuff. LLBean does this, and cardholders (such as my parents) spend way more there than they used to. Are you listening, JCrew?
ReplyDeleteAnyway, let's all hope that JC's current ecomomic problems result in some HUGE markdowns in the coming months! YAHOO!!!
I wish someone at J Crew would note how we all want FREE SHIPPING. They have the WORST shipping fees. I HATE that it is based on price and not weight. Beyond unfair. Usually my J Crew box is all smashed when I get it too. FREE SHIPPING would increase me buying for sure.
ReplyDeleteI agree with FFM. There are the uber-wealthy that will always be able to spend as much as they want on whatever they want. These people are few in # and are definitely not shopping at J Crew. Then I think there is a category of people with a couple million in the bank. I have a few friends that are fortunate enough to fall into this category and I can tell you that they have cut back on spending just like everyone else and aren't very willing to buy a J Crew dress priced at $900. If they were going to splurge it would be on Chanel or something of the like and not on J crew.
ReplyDeleteI have to really really want something to pay full price at J Crew and I don't think that I would ever want something badly enough in the Collection to pay full price.
I almost feel neglected by J Crew b/c they have chosen to ignore what the majority of their customers would like and focus on a small group of indv who can afford to buy Collection pieces on regularly.
I completely agree with all the comments about what J Crew perceives as a "sale" price. On what planet? If the shoes started at a mark up of at least 200%, I expect a drop. And not from $198 to $128. The shoes should be $70 as soon as they are on sale. Take the T's & knits down too! They are a dime a dozen everywhere and the quality just isn't there to validate a $60 tissue tee.
ReplyDeleteI agree with jcrew guy. whats driving the stock market down is fear more than anything else. the number of people affected by this economic crisis isn't what we think it is. Its hitting some areas and some industries very hard, but others not nearly as much.
ReplyDeletej.crew's target demographics include young urban professionals, upper middle class/fairly affluent consumers, college students, etc. Now, which of these groups is being severely hurt by the economy/ do you think is cutting back on consumer spending? ...I'd venture to say not many.
I'm young, a professional, and live in San Francisco. My friends who are bankers are worried. But those of us not in the financial industry haven't changed our spending habits. (Anecdotal/qualitative evidence, I know, but I'd argue its indicative of others in my demographic group?)
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ReplyDeleteI agree w/shoegal. I am in the SF Bay area where the tech sector dominates. I don't know many in the financial industry so I can't speak to that area. I do think there are less shoppers out there in general, but I imagine it's not as dire as other places. And with the dollar being what it's worth, it seems tourism is still in force here. Business is moving on as usual for the most part.
ReplyDeleteOn another note -- I think we're forgetting that shipping also includes handling. It costs money for them to have someone package that box. You know...money to run the warehouse. Now, I still feel like they could continue to work with pricing and shipping specials to attract/retain the type of customer they want. We want to pay what *we* think the item is worth. But I think from a business standpoint, you're also paying for a certain type of experience. Of course we all want that to include consistent policies and a website that works, among other things. *lol* But seriously...they have a target in mind and they can keep out those they are not targeting with certain price points. Plain and simple. I think some mistakes were made at Gap and Drexler's not looking to repeat here.
I believe, very strongly, that the wealthy are impacted by the current state of the economy. I mean where are they putting there money??? Most likely it's invested in the stock market...Whether they have billions, millions or a few thousand, everyone is seeing their investments diminish exponentially! So I feel it's VERY safe to say that everyone feels this and are shopping less or, at the very least, are more particular about how and where they spend their money.
ReplyDeleteI agree with Weab, and I would also like to add that all of JC demographics are affected by the economy, the credit crunch, stock market, home values, and the higher prices on everything, takes away from the shopping budget at all income levels.
ReplyDeleteThis is an economic crisis that shows no bias. EVERYONE is affected, directly or indirectly. Unemployment has risen, consumer spending has plummeted, retailers are already conceeding a dismal holiday season, and then, of course, the big one: Foreclosures all over the country, which affects neighboring property values ... indirectly or directly, everyone is impacted by the chaos.
ReplyDeleteNow we've got a bill to stabilize banks and bail out greedy little shits on wall street - but it's far from over.
People on this blog seem to be spending freely:)
ReplyDeleteIf I'm going to spend $18 on shipping for stuff I can't return Mickey better come to my house and bake me a whole batch of cupcakes, not give me a free one while I'm trying on clothes!!
ReplyDeleteI'm on the East Coast and I agree with Gigi and Shoegal. I shop at J. Crew and I am not "scared off from spending in this kind of economy". Just like in the recession of the early 90's, I am actually spending more because of all the great deals I can get.
ReplyDeleteI don't feel affected by the economic turmoil at all. Employment is very stable where I live, homes are increasing in value and there are few if any foreclosures. (The foreclosure issue is definitely much worse in some regions of the US than in others.)
I am paid well and get medical, dental and vision insurance through my employer at no cost to me. My job is secure. I've gotten 2 raises and a bonus in the last 12 months and I expect another significant increase in salary by the end of the year through a promotion or job change.
I have excellent credit and my only debt is student loans at less than 3% interest.
I live 10 minutes from work and have a car that gets good gas mileage so the price of gas could double and it really would't make much difference to me.
My investments are for the long term, so when the stock market drops, I look at it as a great time to buy.
Am I better off than I was 8 years ago? Yes, very much so. However, I do understand that that may not be the case for others. And a lot of the reason that I am in good shape is because I work hard to live within my means.
Good for you but I live in a very affluent suburb of Minneapolis and the foreclosure in my neighborhood is extremely high...we sold our house at a loss (just trying to sell it b/c we moved- no foreclosure) and all the foreclosures brought down the home prices and we got hurt b/c of it....the homes range in price from $350,000--499,000.
ReplyDeleteanon 12:01 - False security beware, that is what people thought on Wall Street before they lost their jobs, the people in the auto industry with the strong union behind them, the high tech industry that went bust 5 years ago, all these people thought their jobs were secure.
ReplyDeleteI think that J Crew cardholders should automatically receive free shipping on all purchases with their J Crew cards. A lot of websites already do this for their cardholding customers (LL Bean, etc) and it is a much more useful perk than just getting the availability of a "personal shopper" - great, I can get that anywhere.
ReplyDeletecounterpoint to gigiofca:
ReplyDeletei make six figures and don't think my job will be affected (bk lawyer). i'm def not buying jcrew these days b/c things are uncertain and i don't realy know where the economy's going. why am i not buying? eh, why splurge in uncertain times? i'll sit tight and see how things go.
but frankly, i'm with some of the others on here who think jcrew is alienating a bunch of us. i rarely shop at br and they send me goodies all the time. all jcrew can muster is a $20 markdown? whatevs. i'm going back to old navy for warm sweaters and save my money for cute shoes at nordie's.