Tuesday, June 28, 2011

Mickey Drexler on J.Crew Store In Canada (& more!)

A big "thanks!" to Mia & Louise, as well as Teeny84 (in this post), who kindly shared the following article from the Globe and Mail with us (click here to read in its entirety) that talks about J.Crew's move into Canada:
J.Crew primping for its Canadian debut
By Marina Strauss
June 23, 2011

Mickey Drexler transformed J. Crew into an upscale fashion retailer whose goods are coveted by no less than Michelle Obama. But as he visited stores last year, he began to get worried.

Customers were complaining that his stores no longer carried the “cafe Capri” women’s cropped pants. The shelves were stocked with too many ruffled tops and mini-skirts, and too few classics such as Italian cashmere sweaters, ballet flats and knee-length pencil skirts.

Mr. Drexler felt the pain. The missteps caused J.Crew Group Inc. to stumble financially. Today, as he prepares for the retailer’s first foray outside of the U.S. with the August launch of a store in Canada – a test for an international expansion – he feels the pressure to once again generate the fashion hits for which he is famous.

We skewed a little younger than we should have – a little more trendy,” Mr. Drexler, J.Crew’s chief executive officer, said in an interview, sporting his trademark 484 slim-fitting jeans and untucked,button-down Thomas Mason shirt. “We ran out of a lot of our best-sellers. When you don’t have enough of the best, you skew too young – you have a tough time. It happened. Right now it’s kind of fixed.”

It’s more urgent than ever that Mr. Drexler, 66, repairs the problem. His international plans are ambitious. He intends to build about 20 stores in Canada, and his J.Crew team is checking out locations in Asia and beyond while mapping out an aggressive expansion of their global e-commerce group.

In Canada, he is gambling that J. rew will cash in on the halo effect of the U.S. First Lady and other celebrities being spotted in its garments. At the same time, he faces a growing array of foreign retailers, from Spain’s Zara to the American chain Forever 21, rapidly adding stores here.

“Drexler is human and obviously made some mistakes last year,” said Mark Cohen, a professor at the Columbia University Graduate School of Business in New York and a former CEO of Sears Canada. “The good news about a one-man band is that, when in tune, the melody is awfully sweet. But when it’s off-key, the music is awful. He needs to remain as laser-focused on [fashion] trends as is Zara, for example, if his expansion plans are to succeed.”

J.Crew’s latest results show how critical it is that Mr. Drexler stay in tune. In its first quarter ended April 30, the retailer posted a loss of $29.9-million (U.S.) compared with a $44.7-million profit a year earlier. Much of the loss was tied to costs of a takeover: Two investment firms took J.Crew private in March for almost $3-billion.

But the company was also squeezed by heavy discounting to clear out inventories. Revenues dropped 1 per cent to $409.5-million while sales at stores open a year or more, a key retail measure, fell 3 per cent.

The prospects aren’t much better for the second quarter, although company executives predict that the business will perk up in the second half of the year as the fixes take hold.

“Given the continued weakness in J.Crew’s sales and gross margin trends … we’re guessing that some prior shareholders may be feeling a bit lucky to have taken the money and run,” said Samantha Panella, an analyst at Raymond James in New York.

Despite those recent results, the Drexler era has been a good one for the New York-based company. Since his arrival in 2003, revenues more than doubled to $1.7-billion, while a string of losses turned into profit. The company earned $121.5-million last year.

J.Crew’s recent fashion errors underline Mr. Drexler’s strengths and challenges. He knew quickly last summer that some of the new younger styles weren’t working, and that the stores were under-stocked on classics.

He keeps a close eye on customer demand, visiting stores regularly, replying promptly to customer emails and picking up on merchandise wins and lapses. But correcting the errors doesn’t come easily – it can take six to nine months for J.Crew to ship the right products from overseas manufacturers to stores.

“When the goods are in the store that day – you know if you make a mistake,” he said. “We heard it from Day One: The skirts were too short. And you know something? The customer is always right. They vote with their pocketbooks.”

Mr. Drexler earned the title of Merchant Prince among Wall Street analysts in the 1990s after remaking the Gap into a worldwide fashion retail powerhouse that clothed a generation in khakis and casual Friday chic. But in 2002, he was fired as CEO after the company faltered, having over-expanded and shifted to overly trendy styles.

A year later, J.Crew hired him to spearhead a much-needed turnaround of the preppy retailer. Started as a mail-order business in 1983, it had been drifting for years. He shifted it up-market and gave it flair with eye-catching linings and trims. He added specialty chains Madewell for hip denim wear and Crewcuts for children’s fashions.

But Mr. Drexler said he has learned from his Gap mistakes. At J.Crew, he has been cautious in expanding: It now has about 340 stores compared with about 3,200 at Gap, which is still struggling today. He has moved slowly in new initiatives at Madewell, Crewcuts, men’s-only stores and a bridal boutique.

Prof. Cohen thinks there are few parallels between Gap’s overexpansion and the international growth that Mr. Drexler is now plotting. “J.Crew is a much smaller, more graceful and nimble retailer which is not in any way caught up in the apparel commodity wars that the Gap finds itself in,” Prof. Cohen said. “I think their brand of slightly edgy classicism will resonate well in Canada.”

Heather Reisman, CEO of Toronto-based Indigo Books & Music, also thinks the Drexler magic will prevail. She sat on the board of directors of J.Crew until it went private, and provided him with insights into Canada. “My sense is that there is a lot of pent up demand for them to be here,” she said.

Mr. Drexler shuns traditional research and instead leans on customer feedback – including from Ms. Reisman – and “the amazing ‘please open up a store in Toronto’ requests we get,” he said. “We’ve done research. You know what that is? Us going there, us hanging around there, us knowing we have a large base of Canadian customers [for its online store]. We know [Canadians] are as fashionable as any customers anywhere in the world. So that’s our research.”

Even so, within two weeks of the first store opening in Canada, he will have further insights, he added. J.Crew’s first store in this country will be a women’s-only store at Toronto’s Yorkdale Shopping Centre, one of Canada’s top malls. Because the space is not big enough for men’s wear, he’s looking for another location in the mall for a men’s-only store. J.Crew is also eyeing a larger outlet at the downtown Toronto Eaton Centre, and would like to find a location on the city’s so-called Mink Mile if the lease isn’t too expensive.

“The last thing you want to do is pick a wrong location,” he said. “If you have the wrong merchandise, you can move it out [relatively] quickly if you make a mistake. If you have a wrong location, you live with it for many years, and that’s no fun.”

He takes cues from technology giant Apple, on whose board of directors he sits and whose founder, Steve Jobs, is one of his many celebrity connections.

From Apple he’s had engrained in him the imperative of great style and product. And like Apple’s leader, Mr. Drexler places a priority on controlling distribution of his products by designing and having them made just for his company, so that a rival retailer can’t sell the exact same item at a lower price.

An equally pressing concern is keeping an eye on weakening trends in consumer spending and rising inflation. He thinks J.Crew can position itself as a retailer that sells affordable luxury. “I’m concerned about the overall economy, for sure,” Mr. Drexler said.

“The world is hugely competitive – you don’t need another store anywhere in the world these days,” he acknowledged. “And it’s a slower-growth world … I’m not an economist, but we see the customer. People are a lot more value sensitive. We think it’s an opportunity for us.”
Great article! There are so many interesting points made throughout. Especially the quotes. I honestly thought Mickey was reading directly the comments from fellow JCAs on this blog about how trendy clothes at J.Crew were getting and how short the skirts were. We have been saying those points for some time now and its good to know that they aware of those exact things! It means that positive changes await us!

Also, very interesting about the markdowns. As many of you have experienced and commented, J.Crew has been marking down items very quickly. So it's almost a guessing game of when to purchase items.

What are your thoughts on this latest news? Do you think of Mickey Drexler analysis? Any points you found interesting?

32 comments:

  1. I think Mickey has lost his touch. Why has it taken him and his team so long to lengthen the mini skirts? In my early 20's, I didn't flock to the crew because it was trendy, I went there because it was classic. This whole "appeal to the younger generation" doesn't work in today's market. We're in a tough economy and I've learned to vote not only with my pocketbook, but with my eyes, my feet and with mouse clicks.

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  2. Very interesting....great points that you pulled out too. Excited for our Canadian JCAs that the Crew will be coming soon -- can do away with those nasty duty fees!

    I was in the Gap yesterday ... yecchhh. WTF is going on in there? *nothing* is selling. Even at GapKids the racks are bursting, and both stores were doing extra 40% off sale items and even then no one was in line.

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  3. Good article. I wish they would hurry up and open a Vancouver store already! There are F21s opening all over the place.

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  4. Elaine, I was in Gap yesterday. It looked like a tornado has made its way through it. It almost always looks like that lately. But in all that chaos, I managed to find the skirt I have blogged about here for $18. I would have picked up the jacket as well, had they had my size.

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  5. Thanks for sharing this interesting article. Do I understand correctly that they are planning to open three stores in Toronto? What about the rest of Canada Mickey?

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  6. I like how Mickey says the problem is "kind of" fixed right now. Still lots of too-short skirts and raggedy teeny bopper styles to be found. Can't believe it took them so long to figure this out. Oh well, fall is looking much better.

    At least JC isn't turning stuff out in polyester, unlike Gap and even Ann Taylor and Talbots. Ick.

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  7. Oh man as a Canadian I am so so excited! Especially since I just paid 63 dollars of duty fees on two swimsuits. That's basically a swimsuit in duty fees. Ridiculous.

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  8. I'm hoping that opening Canadian stores will mean that J.Crew will bring back petites in stores. I don't want to have to pay duty just to buy things that are more accurately sized for me! As for opening a store in the so-called "Mink Mile" (i.e. Bloor-Yorkville), I hope to see one there too. Currently, there are two empty storefronts that could possibly house it...I hope it comes to one of them! :)

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  9. Laura, it would be great if J.Crew charges the same prices in the Canadian and U.S. stores but I have my doubts that will happen. Of course, given the whacked-out pricing model that J.Crew employs, they just might.

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  10. This is a really good article. Wow, 20 stores planned for Canada! I still remember calling customer service nearly 15 years ago and asking if they were ever planning to open a store in Canada. For those outside of TO, I am hoping the J. Crew store will at least have a charge-send service, so that other Canadians can finally stop paying the ridiculously high duty and shipping fees.

    The article is right about J. Crew competing with other brands. A big chunk of my fashion budget went to Zara this year, which just seemed fresher and more fashion forward, not to mention more affordable.

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  11. I'm glad Drexler recognizes that he did something wrong, but I'm only seeing it with Spring/Summer 2011. Fall 2010 was awesome and it looks like Fall 2011 is going to be awesome as well. They can do fashion-forward and sophisticated at the same time.

    Mr Drexler, please don't forget that so many of your female customers are working women and we want to spend our clothing $$ at J Crew but many (most?) of us cannot wear sheer low-cut tank tops and 18" skirts at the workplace. You didn't allow the men's clothing to change so much, why the women's ? You've got Madewell, let it be your super casual trendy brand, there's no need to duplicate it with the J Crew brand.

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  12. US stores are hit by import fees at the Canadian border just like we are, and it is included in the price, it still should be lower than what we currently pay.

    I would love too see JCrew in Eastern Ontario, but the economy is starting tank here and people are losing their jobs I doubt they will come.

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  13. I want to address the "affordable luxury" concept, at least the luxury part of it.

    Acid-washed jumpsuit? Sheer cotton tanks and tees? Suspender pants that look like they came straight from Pa's wardrobe on Little House In The Prairie? Chambray shirts? Cotton bandanas? Cutoff denim shorts with fashion victim manufactured wrinkles and fading? Suede moccasins? This is luxury? I can get this stuff at Kohl's for half the price.

    Just slapping J Crew labels on the products, dressing them up with expensive shoes, and supplying lengthy J Peterman-type descriptions referring to foreign countries and propositions that I might be a "trailblazer" (i.e., willing to be laughed at out on the street if I look like Pa Ingalls) does NOT make these items luxurious.

    Also, dropping the prices of expensive items by 50% or more within weeks of their debuts tells me that they are NOT luxurious and that they were grossly overpriced to begin with.

    And yes, I'm cranky today. :)

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  15. no, t.chicago, not cranky, just realistic. And you forgot doing a fluffy pink feather vest and a fluffy pink feather 15" mini in the same season. Who thought that up! Big Bird's baby sister tries out for Playmate of the Month, was what came to mind.

    another point about the economy that's often overlooked: it's not just that spending has changed. It's that people who do have jobs are tending to do what they have to, including dressing a tad more conservatively, to be taken seriously and hold onto those jobs.

    word verification is unhee. How's that for serious? unhee, unhee, unhee.

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  16. Tamara.chicago, I'm so with you on "affordable luxury." And for the items I deem worthy investments(jumpsuits and feather minis don't make my list), I'll wait for the markdowns. There are SO few items I'll fork out full price for. In fact I don't even pay attention to the $200/$300/$400 prices because the "luxuries" usually become "affordable" soon enough.

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  17. What @tamara.chicago said!

    I'm going to have faith that Mickey really means it when he says the customer is always right and she votes with her pocketbook. I would be buying more if they had what I want. The best JC stuff out there right now is resale NWT from past seasons.

    Don't disappoint me, Mickey!

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  18. tamara.chicago,

    I too agree! If you had not brought up the $400 skirt that got marked down so fast, I would not have even looked. WAY WAY WAY overpriced to begin with....it is nice but the fabric is no way near $400 nice. I mean not even in the ball park:)

    People get sucked in so easily when the J.Crew name is slapped on a garment. I no longer do!

    P.S. It came and I reviewed it briefly in the old post "Last Chance, etc." that we were discussing, etc.

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  19. If I may continue my cranky rant:

    IMO it's not classic versus young, it's refined versus unrefined. The people who shop J Crew want refined clothing. It could be very fashion-forward or conservative, but always good fabrics, construction, and fit. Leave the cheap throwaway crap to Forever 21.

    The longer hemlengths that have come back are not classic, they are quite trendy and fresh. How J Crew missed it is beyond me, everyone saw it coming 3-4 years ago. They could have made a mint.

    But I see they got their act together in time for Fall 2011, and I can hardly wait!

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  20. I doubt their prices will be even close to the US.

    For example, banana republic in the US marks down their clothes a lot more than Canada.

    My husband bought some dress pants from a US BR for $29.99 on sale, and when we came back, we went to the store here in Canada, and it was still regular price $90.00.

    I am not optimistic.

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  21. Yes t.chicago, REFINED. The perfect word!! I want refined, fashion forward apparel I can wear to work.
    WFF- "Unhee, unhee.." I can't quit giggling! Thanks for the endorphin release. :-)

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  22. OT: There are a few new arrivals on the Net-a-Porter UK site including the hacking jackets I mentioned yesterday and a schoolboy blazer in Caramel. Click here to have a look. :)

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  23. I don't think the problems are being fixed.

    "He knew quickly last summer that some of the new younger styles weren’t working, and that the stores were under-stocked on classics."

    Even with the 6-9 months lag time from production to store, these shorter skirts should be gone by now. They shouldn't be running out of pencil skirts (like the no.2) already. So it doesn't seem to me like they are working out the kinks that they know exist.

    And the shoes? JC used to have such nice shoes. Today, even if I overlook the quality issues, I can't even get interested in just the LOOK of the things. Straps and straps all over the place, like my feet are in a straitjacket. I don't know how expanding in Canada is going to help the company; it just means they're trying to unload some of the merchandise they can't sell, elsewhere.

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  25. Trying again with my comment because I didn't proofread!

    They will have to hide the duty and shipping costs in the prices, so don't expect parity. Other US retailers who have expanded into Canada (Pottery Barn, Anthro, BR, Sephora) have prices about 1/3 again higher than the US prices. This is despite our dollar currently being worth more. It's cheaper for me to order online in some cases... and especially since I can sometimes have things shipped to just across the border and then go pick them up there. I rarely have to pay any duty or tax when driving back across the border.

    I also don't hold out much hope for a J Crew coming to Vancouver any time soon. We've seen it with the other retailers mentioned above; standard practice seems to be open in Toronto, then Edmonton, Calgary, a bunch more locations in Toronto suburbs, maybe Montreal, then finally Vancouver about 2-3 years later. Seriously, Calgary's had Anthro for about a year longer than we have out here in Van!!

    Anyways, I find the stuff loses some of its appeal when it's readily available... so maybe I won't spend so much at the Crew if I can see the stuff in person.

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  26. Seems like he could have figured this out a lot earlier by reading the comments here at JCA!

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  27. As a 22 year old, I will admit that I WAS obsessed with J.Crew but it seems that after the 2008 catalog things started going down hill. I remember when I could look in the catalog and take note of the outfits that the models were wearing. I wanted all of them but now it just seems like they are just throwing pieces on them that I would never walk outside of my house wearing. Even I am not into this whole trendy look that J. Crew was going for and I definitely miss the old days, when I could see myself wearing every outfit in the catalog! And, not to mention their jewelry.. what happened to the most adorable and unique charm bracelets and rings?! I agree with Holly Tara, I have found myself buying from EBay just because I don't like anything in the stores anymore:/ I sure hope Mr. Drexler is going to turn things around.. I miss the old J. Crew:)

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  28. So ladies, a quick question: Do you think these recent 'mistakes' in the past couple of years are a direct reflection of Jenna's leadership in the company?

    Is she listening to what her customer's want? Or being directed to do so by her boss, Mickey. They haven't even featured a "Jenna's picks" recently.

    I have bought 2 things from Jcrew this summer, a T and shorts. I hope they can redeem themselves this fall.

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  29. Mia, I think part of the reason stores come to Alberta before Vancouver is because people in Vancouver have to spend such a large percentage of their income on housing. I read a report in early June that people in Van are spending up to 80% of after-tax income on housing! That leaves little discretionary if you want to eat and need to go anywhere, even to work. The combined HST tax hit doesn't do retail any favors either. Toronto income spend on housing was something like 26% and Calgary somewhere around 40%. So even with the larger population in Vancouver, the retail market is much more challenging there than in Alberta, given the disposable income available.

    Still, Vancouver is a major Canadian city (and there aren't that many) so surely J.Crew will set up shop there.

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  30. Erica, I think yes. I believe that Jenna has formed a power team full of people who share her tastes, and they're all dead set on offering what they want to wear, not what they think the customers might want. They toss a few bones to those of us who don't want to dress like we got our wardrobes at Bebe, and those things fly off of the racks while the dominatrix stilettos languish in the sale section for weeks, marked down to only $99 (from $265?), still available in both colors and all sizes. The Pa Ingalls pants were more popular, but I have a feeling that most of the women who bought them haven't even worn them yet. Jane Aldridge did J Crew a massive favor by featuring similar pants on her blog, but her pants are longer and rolled up, a crucial style element. She's a genius.

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  31. Now that I'm looking at the dominatrix stiletto pictures in more detail...... just how small is that top ankle strap?? How could anybody's leg be so small? I'd be interested to know if anyone actually owns and can wear those sandals. The Emellines had the same problem, I actually have to alter mine to make the top strap bigger.

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