Thursday, November 12, 2009

J.Crew News: Over the Holidays

There is an article over at the Wall Street Journal (click here) about retailers (including J.Crew) and expectations for the Holiday season.
Overconfident Retailers Risk a Holiday Stock Shock
By John Jannarone

November 9, 2009

Restocking shelves for the holidays is always a balancing act for retailers. This year, the temptation to pile high could be hard to resist.

Bruised from last year's devastating fourth quarter, retailers from department stores to teen-apparel chains have sharply cut inventories to brace for an extended slump. But with sales trends looking a bit better, some retailers are planning to increase inventories in case it turns out to be a bumper Christmas.

That is a risky bet, with consumers still cautious and malls full of inexpensive gifts. If inventory levels turn out to be too high, retailers could again be forced into painful discounts that hurt both margins and sales.

Take American Eagle Outfitters, which saw same-store sales drop 16% in the quarter ended in January. While many companies are reluctant to disclose specific stocking plans, American Eagle says it expects a mid-single-digit percentage increase in inventory for the quarter ending in January 2010.

Granted, American Eagle says the inventory increase will be driven partly by denim and woven tops, which showed better sales during the back-to-school season. But with total same-store sales declining 4% in the October quarter, American Eagle could be pinched unless trends improve quickly.

J.Crew Group, however, has shown it is possible to increase same-store sales without actually boosting inventories. Credit Suisse's Paul Lejuez estimates that J.Crew's inventory-per-square-foot fell more than 10% from a year earlier in the October quarter. In the same period, the company said same-store sales likely rose by a high-single-digit percentage. And while Mr. Lejuez expects that inventory will decline in the fourth quarter, he doesn't believe that will prevent the company from meeting its forecast for another improvement in sales.

How? Even with less merchandise on the shelves, J.Crew was able to generate more sales per store by selling at higher prices. While the company probably offered discounts on many products, the reductions were smaller than last year.

Part of J.Crew's formula has been skillful fashion choices. But it also has an edge over other retailers because of its small size. J.Crew has just 319 stores, while American Eagle operates in 1,114 locations. That makes it easier for J.Crew to respond nimbly to specific inventory needs as they become apparent.

It is possible that American Eagle has timed its risky inventory bet perfectly. That would mean a handsome payoff for investors. After all, its stock trades at 15.3 times next fiscal year's consensus earnings, compared with a pricey 21.9 multiple for J.Crew. If not, American Eagle shares look set for another round of markdowns.
What are your thoughts on the article? Disagree or agree with any of the points made? Do you think J.Crew is taking the right steps this Holiday season?


  1. I remember three or four years ago, J. Crew overbought on coats and sweaters. I have easily 150+ cashmere sweaters neatly folded in my armoire due to sales like the ones at the end of that season. If you timed it right, you could get up at 5:00 a.m., hit the new markdowns and get cashmere sweaters for $60-70. And I bought five coats that year in the $75-90 range. I know J. crew is avoiding that at all costs this year. We've seen their inventories to be pretty limited and that pearl great schoolboy blazer was in the catalog as long as August and it's still full price.

  2. J. Crew may be doing the right thing for business in the short run because limited inventory and few sales means customers buy things as soon as they see them but playing inventory games will eventually frustrate people and turn them elsewhere, ESPECIALLY because of the quality issues. I know everything is a layering piece, but is it too much to ask for a sweater that's not a 1/3 nylon, super thin, and waiting to pill the minute I get it home?! Or a coat that doesn't feel like it was made from dollar store felt?

    That being said, I'm glad J. Crew still has great signature pieces and I'm even more glad I've shopped there for a few years so I already have a quality double cloth coat, a decent schoolboy blazer, and a few long gone true wool-cashmere blends without all the nylon. I just need a vintage Jackie!

  3. So they ARE higher prices! Higher prices, crappier quality... Aarrrrrgh.

    I was hoping to score one of those (classic) coats for a song come post-Xmas (like last year), but maybe not this season. Oh well. Here's hoping they up their inventory at least so it isn't slim pickings in mid-Dec.

  4. New catalog on-line! Heaven to view.

    Filled my cart: especially loved the tuxedo vest and jacket and the silk pajamas. I'm hoping the B&M has both the catalog and at least a FEW of the new items Thursday, before I buy on line.

    Enjoy the visual feast, all!

  5. New arrivals so so, the Dream Cabin Cardigan $148.00 item 20609
    is the Assymentrical Moon Cardigan that has been featured on many blogs this week.

  6. I have not bought anything from JCrew full price except if I have a rewards or gift card to use towards it. So, no, they will not be retraining me. Let them retrain the rest of the population....I am a tried and true sales girl at heart!


Dear J.Crew Aficionadas & Aficionados: Please feel free (and encouraged) to share your thoughts and opinions. :) However, please note that this is still a personal blog. So comments that are considered inappropriate (e.g. obscene, racist, homophobic, personal attacks, rude, and just plain mean) will be removed.

And now back to J.Crew! :)