J.Crew Expanding in Hong Kong

Last year we heard about J.Crew's expansion plans to open in Hong Kong (refer to the "J.Crew Enters the Asian Fashion Market" and "J. Crew to Open Store in Hong Kong {oh yeah!}" posts).

"Thanks!" to Sabrina & Get Fresh who shared the following article from the Wall Street Journal (click here to read in its entirety) about J.Crew's overseas move:

J.Crew Plans to Expand in China, Hong Kong
By Jeffry Ng, Yun-Hee Kim, & Mariko Sanchanta
July 31, 2012

After withdrawing from Japan four years ago following a botched expansion, J.Crew Group Inc. now is wooing someone new in the region: the sophisticated Chinese consumer.

The U.S. clothing retailer, ...will dip its toe into Hong Kong and Beijing this autumn when it debuts its clothes at Lane Crawford—Asia's version of Barney's New York.

J.Crew is scouting stand-alone retail space in an upmarket Hong Kong mall, with plans to open next year and is looking at opening stores in mainland China, according to Chief Executive Mickey Drexler. The company, which is based in New York, also is looking at a possible return to Japan. Mr. Drexler was to fly to Tokyo on Tuesday for meetings and to scout out real estate.

J.Crew's move comes, however, when the once torrid China luxury market is starting to show signs of a slowdown.

It isn't clear whether the U.S. line will be well-received in China, where consumers favor luxury European brands and logos. The late entrance of U.S. retailers into China means they have to try harder to build brand recognition and loyalty.

"It is easy for a Chinese consumer to understand Gucci, 'It is expensive, so it must be good, and you must be someone if you have it.' How does a Chinese consumer understand the history and lifestyle that [a particular U.S. brand] represents?" said Franklin Yao, chief executive of consulting firm SmithStreetSolutions.

J.Crew this year started shipping online orders to more than a hundred countries as a way to test the markets. Hong Kong, Japan and Australia are now among J.Crew's top five international e-commerce markets.

Mr. Drexler, who ran Gap Inc. for much of the 1980s and '90s, said J.Crew is in no hurry to expand internationally and that he would wait to see its stores open in Hong Kong and London next year before considering his next steps. "We don't have a grand plan for opening X%," he said.

Building brand recognition in Asia, particularly in China, will be a challenge. J.Crew will have to compete with the dozens of midtier international clothing names already in the market. Pricing is an issue for new brands entering China, Mr. Yao said, especially with the advent of international shipping from e-commerce sites and the growth of Chinese travelers shopping abroad.

"You need a more sophisticated consumer, someone who can make the distinction between spending $150 for a pair of pants compared with $80," said Torsten Stocker, the head of the consumer group at consulting firm Monitor Group. "These consumers are emerging in China, but it's not as obvious as it is in markets like Hong Kong or Singapore."

To address the challenge, J.Crew recently hired a head of international marketing from handbag maker Coach Inc., one of the most successful U.S. fashion names in Asia. ...

Mr. Drexler said he believes customers in Asia will be attracted to J.Crew's unique, high-quality apparel. "We offer an alternative that's not being offered in the marketplace today," Mr. Drexler said.

Unlike other U.S. retailers seeking international exposure to mitigate slowing growth at home, J.Crew has been expanding steadily. It plans to open 42 stores in North America this year, bringing its store count to around 400. "We're not here because we are running out of places to go in America. We have so much organic growth there," Mr. Drexler said.

...It was Mr. Drexler's decision to pull its shops out of Japan, at the time J.Crew's only market outside North America. "Tokyo reflected the same issues we had in America but trying to do something in America and fixing Tokyo at the same time was impossible," he said.

What J.Crew won't repeat is expanding abroad with local partners, a strategy that was unsuccessful in Japan. "We like control.…We have the capital to do it, and I don't want to visit a store where I have to discuss with…my partner what I like or don't like about my store." "I don't consider this a huge risk at all and if, in fact, we didn't succeed in Hong Kong, life goes on. We'll figure out alternatives," Mr. Drexler said.

It will be interesting to see how J.Crew translates its brand to a consumer base who may not be that familiar with the company. The other thing is what kind of prices will J.Crew be charging. (As international JCAs already know with J.Crew's current international e-commerce site, the initial price points are much higher than the counterpart in dollars.)

I am also interested in seeing what types of marketing their new head of international marketing (formerly from Coach) will pursue. I am guessing the Hello World is just the start (refer to the "J.Crew Styled around the World" post for more).

Lastly, I did not know that Hong Kong, Japan and Australia were part of J.Crew's top 5 international e-commerce markets. I am guessing Canada fills one of the two other slots. Maybe the U.K. is the other one?

Are you excited about J.Crew's move to Hong Kong? Do you think J.Crew can build & translate its brand in the international retail market?