J.Crew profit drops as mall traffic wanes; company reported pursuing IPO(1) Very interesting to see that J.Crew did not perform as well as in other quarters. For the most part, J.Crew had been able to avoid the issues other retailers faced (like the decline in mall shopping).
March 25, 2014
By Lindsay Rupp
J.Crew Group Inc., the retail chain owned by TPG Capital and Leonard Green & Partners LP, reported a 42 percent drop in fourth-quarter profit amid a broader decline in shopping-mall traffic.
Net income tumbled to $5.92 million in the quarter, down from $10.2 million a year earlier, the New York-based company said Monday in a statement. Still, revenue grew almost 7 percent to $686.2 million in the period that ended Feb. 1.
J.Crew is working to bounce back from an industry slump that hurt holiday sales and triggered a wave of discounting among rival retailers. At the same time, the company is contemplating an initial public offering for later this year, according to people familiar with the matter. It also held early-stage talks with Japan's Fast Retailing Co. about a sale of the chain, people said in February.
... The chain could fetch a valuation of as much as $5 billion in a potential public offering, one person familiar with the situation said.
Tapping the IPO market would mean following in the footsteps of other private-equity backed retailers. Burlington Stores Inc., which is backed by Bain Capital LLC, is up 83 percent since its October debut. Vince Holding Corp., the apparel company backed by Sun Capital Partners Inc., has gained almost 24 percent since its November debut.
... A $5 billion valuation would be a big jump over what TPG and Leonard Green paid for the chain in November 2010. Net of cash, the value of that deal was about $2.64 billion, data compiled by Bloomberg show. At the time, the takeover drew complaints from shareholders that chief executive Mickey Drexler didn't get a fair price for the company.
The company also said Monday that it will incur a refinancing loss of $37 million in the first quarter.
(2) I also want to point out that as much as J.Crew does not like it, they are still a "shopping mall" store. So when I saw that line in the article, I chuckled to myself.
(3) Lastly, I am interested to hear how J.Crew plans to "bounce back from an industry slump that hurt holiday sales and triggered a wave of discounting among rival retailers". Right now, J.Crew has been offering back to back promotions, and the sale section is still packed with goodies. (I am not complaining about the promotions, in fact, I am happy to see so many. But is it just me, or it doesn't feel like they are moving merchandise like they should be?)
What are your thoughts on J.Crew's performance? Are you surprised or not surprised by the latest numbers? What do you think J.Crew's strategy should be?
I'm shopping less at J Crew:
ReplyDelete1. They seem to be targeting a different audience than when they were at their peak in say, 2007-08. Yes, they need to stay fresh - but their entire focus seem to change - they decided they were too hip for their best customers. (I liked the modern classics they used to sell -not sure what to call their current offerings(?))
2. Their quality declined. Costs increased sure, but they seem to deal with this by reducing quality. So, the cashmere sweaters I bought years ago from J crew look better than the pilling fuzzy messes that I purchased in the last couple of years.
I'm not surprised, especially judging from the sale section {when it didn't pain me to get through it}. This has been the first year that I can remember I bought less than 5 items, and returned a couple of those due to problems with the garment. I'm also trying to be extra careful about what I am spending on, I need to look past my current season's closet and think if I'm going to wear that item next year and longer. I know the sweatshirts, jeweled collars and graphic tees will probably not be a major part of my wardrobe next year so I'm not buying. Even if the sales come and go the base prices keep staying the same. If I didn't buy it the first time with that 30% off and free shipping, I'm not buying it now with the 30% and no free shipping.
DeleteLilyBart nailed it. Ditto. Cheap, fast fashion aimed at a hipper crowd has sent me and my wallet elsewhere.
DeleteI was just reading an article The Real Reason J. Crew's Profits Plunged 42%
DeleteRead more: http://www.businessinsider.com/j-crews-profits-falling-2014-3#ixzz2xvoaIuRQ
and there are plenty of interesting comments explaining shift in sentiment toward JCrew brand. One of the more interesting and revealing comments was about JCrew's ex VP Marketing, Margot Fooshee, in relation to why their prices remained so high, why they seemed to miss and relate to their audience. It makes sense once you learn it is because she is living in a very different world (read super rich) so removed from her audience that she cannot possibly relate ...
LilyBart nailed it as did Allyson. They can make things look nice at a fashion shoot for the catalog but in real life...nothing I am ever willing to buy at full price and have decided not at sale prices either. So disappointing
ReplyDeleteThis news doesn't surprise me. Based on my own holiday shopping from JC, when all was said and done I only ended up with one item - the cashmere textured-stitch sweater - and after about 10 wears it looks like a total rag. "Treat it with love and it will last forever"? Not quite.
ReplyDeleteJC seems to be in the habit of stubbornly continuing to do what doesn't work. I don't know if it's a symptom of the industry but they seem to be inflexible when it comes to making improvements.
1. Fix the website. The blown-out pictures are blinding and do nothing to properly represent or showcase the items. When I see things IRL, the color is often very different. And if you're not going to do that, at least allow the capability for reviews. JCA's may be willing to make exchanges, go check out things IRL and share reviews/pics but I bet a lot of other customers just get something, it doesn't work out, and they don't bother with exchanging or trying something else.
2. Allow reviews. If JC did this, they'd be able to see how many customers are sick of short-waisted dresses, bedazzled Collection items, etc. Of course, they could also just take a look at the sale section (if they're able to navigate it - I gave up weeks ago).
3. Edit the line. Nobody needs 10 peasant blouses in different prints.
4. Come up with another way to differentiate yourself (beyond ridiculous starting prices). Other retailers are looking so similar at lower prices - I know this happens in fashion, but when you become so predictable, it's not surprising to go to Loft/Gap/JCP/Kohls and see a model in a bejeweled sweatshirt with a chambray shirt underneath, rolled boyfriend jeans and high heels.
5. Look at your data! I think there are a lot of answers there. What has sold out at full price? That $300 peacoat trench from January...and it never pops back. There's your classic with a twist.
I do think a lot of JC's customers (maybe the audience from '07 like LilyBart mentioned) are looking for some kind of longevity (in construction and style) more so than fast fashion - especially given the prices. I think some of their aspirations have pushed them to the middle... and there's a lot of other retailers there.
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DeleteReally well said, silver_lining. I wonder if they use their data?! It seems like they're paying too much attention to their Fashion Week fare and not enough to their bread and butter mall store offerings. Along the lines of data, in an interview once we saw Mickey saying the sale rack was filled with their mistakes. That's a lot of mistakes lately, though. I browsed through it the other day and they were packed but there was nothing I wanted. Peasant blouses (how is this on sale after the winter anyway?), linen tees (same), pants that don't fit right, odd fitting sweaters and dresses, novelty Toothpicks, tops with the jewels sewn on. Anything can look good on a 5'11" thin model... J. Crew needs to try their samples on people in a range of sizes to see what works on other body types.
DeleteI totally agree about adding reviews to the site, everyone else does it {including Madewell} so I don't know what they are afraid of. I also which their images would be sharper with better color, but at least they offer product shots alongside the models which I have been afraid they would get rid of. I think Boden does a great job of having both, so does Lands End.
DeleteVery well said silverlining!
DeleteA word on the MW reviews - I've been submitting them on the site lately (gotta help out my fellow MWA's!) and when I wrote an unfavorable one on the holepunch sidewalk skimmers, CS followed up with me, acknowledged my quality concerns and offered free return shipping on them, which I thought was a nice gesture.
DeleteAnd speaking of Lands End, just the other day I took a very long survey from a marketing firm that is working with them. Hopefully they will actually do something with the data they collect. JC has a wealth of information here - almost 6 year's worth of qualitative data! - and I think that if they thought about mining it they could come up with a lot of answers. However, there's an arrogance there that they're the business people and their customers will just buy up whatever they put out as long as CFS puts a spin on it. JC never struck me as a company that was interested in customer feedback and I think now their profits are starting to reflect that nearsightedness a bit.
Silver Lining - your comments are 100% dead on. I hope JC is listening.
Delete@cate, I have to say that some of their stuff doesn't even look good on rail thin 5'11" models. And the quality of their fabrics and construction are not there. I've said before that, for example, I used to love the JC graphic T's, but they're horrible now. The material is sheer and see through and just sloppy. I blew through the most recent catalog and there wasn't even one page I dog-eared. Into the trash it went. I used to have the whole catalog dog-eared for outfit ideas and clothing I hoped to buy. I used to spend a lot of time looking through the sales racks hoping to find a gem. Now it's just a jumble of junk that I don't even look at anymore. In fact, I used to never go to the mall w/o stopping at JC. The last few months, I don't even go in and when I walk by, it's usually empty. This is just my experience, but it seems to be pretty similar to many others' experiences here.
Delete@Silver Lining, I also agree about editing the line. There's too much stuff! I know there wasn't this amount of clothing constantly being churned out back in the 04-08 years. It's hard to separate the wheat from the chaff when there's so much to dig through. It's like overload.
Delete@cate Don't worry, it's not just you. I happen to be tall and thin and nothing fits me either. Seriously don't know who these clothes are made for...
DeleteI mean just look at what Jenna Lyons wears and how poorly most of it fits her. It's just not flattering to a woman's body. And that's who's directing the line.
My first reaction upon reading this was sadness, because I don't see this leading anywhere good - not for the company, not for the employees, and certainly not for the customers. I think the leadership has been out of touch with reality for some time. If something is cute and different in one print, we see the print reiterated in pants, skirt, jacket, clutch... and only a few months later, at the "Factory Store." JC is knocking itself off, which inevitably leads to customer fatigue.
ReplyDeleteMy suggestions:
£. Hire a real Women's designer.
€. EDIT the offerings.
¥. Step up the quality for real, and make sure everyone knows it.
$. And for goodness' sake, ENOUGH ALREADY with the cult of personality.
Agreed. It's ridiculous to see duplicate items debut at Factory that have been languishing in the retail FS section for months. Plus, starting prices are so out of whack that I think even dedicated JCA's don't know whether to buy - I liked a couple pieces from the last rollout but I'm not going to buy them at FP (or FP-30%) to see them marked down with an additional percent off in 2 weeks. JC's rising prices (and subsequent constant markdowns) have really taken the fun out of shopping there. That hooded basketweave jacket went from $178 to what, $53 in the course of a month? Just open at $118 and be done with it.
DeleteSo in other words...#firejenna?
DeleteI totally agree that JCrew leadership has been out of touch. I just read this article http://www.businessinsider.com/j-crews-profits-falling-2014-3?pundits_only=0&comments_page=0#comment-533ec7cbecad04887f2dbf31
Deleteand some of the comments are very revealing about their management e.g. their VP Marketing, Margot Fooshee, is apparently out of touch with middle class as she herself lives this super-rich lifestyle and can't relate to her audience - middle class. So why was she allowed to be in charge of their marketing for so long? And now she is listed as their "consultant". It makes no sense to me. It just seems like a total mismatch.
Maybe if they focused less on trying to sell so many $500 sweaters and more on increasing the quality and design of their main (non-collection) line, JCrew might start to become more profitable. Just a thought...
ReplyDeleteI think stopping the pricing games is important, too. I also agree that I love the back-to-back promos they've been having, but they're all so different - 20 percent off one day and then 25 percent off the next and then nothing and then 40 percent off sale and then the sale stuff doesn't move so they finally change it to 50 percent but even then it STILL doesn't move. I know personally that as a sale shopper I DO wait until I think I'm getting the best price, but then ultimately I get tired with the pricing games, with checking how much something will be one day in comparison with another, and it gets exhausting and then I just don't end up buying anything at all. the reality with the economic downturn continues to be that people are looking for what they consider deals or bargains, and j. crew is playing this game that doesn't seem to be getting them anywhere.
ReplyDeleteI really realized this last week when I visited the j. crew store in harbor east, baltimore, which is beautiful, huge, and packed with so much merchandise - and had only two customers in it on a friday evening. that was when the 25 percent off everything plus 20 percent off sale promo was running, and the sale section was overflowing with stuff, and no one was perusing but me. people seem to be over this inconsistency.
I agree with so many of the comments. I used to love getting the catalog, sitting down and picking out new items. To me it seems like the same item recycled month after month. Where are the unique styles, beautiful prints/colors? I always lusted after a pencil skirt print and nothing for a couple of years. I really dislike the concept of many items showing up in the factory with cheaper fabrics. Plus with the lack of interesting prints and colors that will not work well much longer, nothing to duplicate. My J Crew statement reflects my spending habits and that is data they can certainly and should be reviewing. Reach out and ask why?, right they don't care about customers as stated above by silver_lining. For this spring/summer it looks like I will be wearing my older J Crew styles.
ReplyDeleteGreat points, silver_lining. I don't have much to add except that the company seems to be very stubborn. I'm not sure how much they listen to the information we provide here for freeeeeeee. Website should've been fixed already. That's a small issue. Online reviews? Been waiting for those for eons. Just noticed that I lost my counter with my website redesign a coupon months ago. I went ahead and added another one. lol
ReplyDeleteI do feel sorry for my vps who is not excited at all by the merchandise. I thought she was less interested in my business since I turned into a sale customer, but that's not the case. She is not into the merch and all and doesn't feel comfortable pushing it.
I have purchased a lot of J.Crew lately . . . used, on eBay, from 2008 and earlier. IMO that says a lot right there.
ReplyDeleteI agree with what everyone is saying-especially Wellfedfred, Gigi and Silver_Lining!
ReplyDeleteWhat I dislike is the fact that pieces J.Crew created for their store, is recreated a year later for Factory, ridiculous!
@Gigi - totally about the VPS. I wouldn't want to promote/sell merchandise knowing that it doesn't look fab. It must be hard for her to put outfits together with what J.Crew is producing...
One thing I noticed, with J.Crew's decision to move one of their veteran women's designer, Somsack Sikhounmuong over to Madewell as head designer. Madewell's designs have been looking really nice. More cohesive than J.Crew. Somsack was part of the Jenna/Marissa Webb team back then...
Something must be done...revamp the women's line starting this fall season! Make it fresh, but keep classic, relevant..
What, you're not into 1920's Berlin? This is the picture that inspired the Fall 2014 collection.
DeleteYeah, I think that Collection needs to be spun off into its own thing. Put Collection and bridal together and make TM the head of that (I think he used to be bridal before he became head of womens').
I totally agree with JSR about Somsack and Madewell. Their line looks much more cohesive, wearable, and dare I say classic (JC had to copy their Transport Tote, even - and they're the same company!). I think he's really doing a great job there.
Lovely painting...will go well with my Danka hooded sweatshirt that I plan on buying (not). haha! :)
DeleteThey are a mall store. Affordable classics with a fun twist. Clothing designed to last in construction and in our closet. At least that's the J Crew that appealed to me 6-7 years ago. I'm surprised they've allowed so many items to linger in the sale section for months and months.
ReplyDeleteOne thing I will add - they bought too much inventory for the holiday season (like other retailers) and even with mark-downs, that inventory is generally not moving. So a double hit to their margin. Will also add that the focus on "Collection" distracts from the rest of the line - and those girls that bought Collection have gone back to where they shopped before - also hurting margin.
ReplyDeleteI started buying J. Crew after Mickey and Jenna's launch of the August/September 2004 catalogs. They were a revelation and I couldn't buy enough. They had printed cardigans, printed A-line skirts, kiltie mid-heels, the occasional ruffle, ornate buttons or frog closure. Those clothes were unique and I still have and love them. When is the last time they did a really cute printed cardigan that wasn't overpriced cashmere? Remember the cardigans that might have a print that joined as a flower when you buttoned it? Or the knee length flared skirt with sailboats that could be worn all summer with sandals? Those clothes never stopped being great and I still have the catalogs. I have a closet full of basics, it's the special items I would buy and J. Crew does very little of that anymore. I always thought "classic with a twist" was painfully overused but they aren't even that now, they are cheap mass fashion and designer knockoffs. I think Mickey and Jenna stopped caring once they achieved a certain level of wealthy and notoriety so they may as well sell.
ReplyDeleteEveryone has said it all (and I agree with most of it!). I will say, as I sit here wearing my almost all J.Crew, what I am wearing today retailed for $335 and I bought it all for $70. I am so trained for the super sale and I hardly look at the new releases. I can't imagine that's good for the bottom line.
ReplyDeleteI spent more on 'J.Crew of yore' on eBay than at J.Crew this month and last month and the month before that...'nuff said.
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ReplyDeleteI concur. When I was a young lad (i.e.middle school) I dreamed of shopping at J.Crew. Now that I am well into my adult years, ah hem ... a lady never tells her age, but for the sake of context... over 10 years ago the product has changed significantly. More so price and quality. Oh, how I would love for a classic "true quality" revolution. However, I sense profits are their top priority, as evident by the starting price point. So, I wait for the "'additional 50% off sale" email. I frequently notice sale items remain in stock for more than 4 months, and instead of marking the item down after the fourth month JC still lists the item at the starting sale price. JC should take the hint. Getting customers to pay something is better than paying for shelf space. Any thoughts JC? I would really dislike for JC to be bought out.
ReplyDelete...and oh one more thing, that insulting Bait and Switch game they play with adjusting the price of an item back up when there's a promotion has got to stop! It shows a real lack of respect for the customer. My two cents.
ReplyDeleteI don't care how aggressive and competitive their sale pricing is. If I DON'T want it at full price.....I don't want it at sale price! I haven't seen anything I've wanted to even try on in seems like a year. I'm so burned out on the bejeweled look, the Lulu jewelry, the sheer fabrics, chambray, the high heels with jeans, neon, super short dresses....etc. ENOUGH ALREADY! It's so bad for me, I don't even stop into the store anymore. And I was a hardcore shopper before! I think the Crew needs to go back to their roots. I stopped in Banana Republic recently and loved what I saw and bought an full price trench coat. Didn't blink at the price. Loved it's classic details, great sizing (it fit my shoulders and arms....thank you BR!!! The design team at the Crew needs to realize girls have broad shoulders and well developed arms) and loved the color! And I was given a whole sheet of 40% off coupons for my next visit, which I plan to use. No games, no checking the website every morning, no price adjustment hassles.....who has time for that stuff. I don't' want to see the Crew bought out or closed down...but it would be their own fault. Oh....and I guess I prefer to shop at store in which I'm the "celebrity" wearing the clothing....not a 6 ft. tall CEO. HA!
ReplyDelete