If you shop at J. Crew, you've probably noticed that sales over the last few months have been virtually continuous and unusually deep cutting, including some ridiculous pricing on perennial favorites such as Red Wings, selvedge denim, and the Alfred Sargents I picked up recently. While it's been like Christmas in the short term for consumers, it has also signaled a perilous time for the one-time darling of the industry.
J. Crew has been caught in a downward spiral as of late, posting horrible sales with shrinking profits through 2014 and into this year. Same store sales were down 10% and the company reported over a $600 million net loss. In addition to struggling sales, due to a controversial leveraged buyout orchestrated in 2011 the company took on $1.5 billion in debt. In June of 2015, they laid off 175 employees at their corporate location, including their women's head of design.
So what's going on with J. Crew, and who's to blame for its falling fortunes?
It's no secret that fast fashion brands like H&M and Zara have seen massive growth as of late relative to their traditional counterparts. Stores under this model have been able to pump out trendy designs in a fraction of the time that conventional retailers can, and often at rock bottom prices due to significant cost-cutting in materials, construction, and labor costs. The combination has been devastating for retailers like J. Crew, who have been undercut on multiple fronts in a changing ecosystem that only recently saw them as apex predators.
As much as guys may love J. Crew, women's sales drive the majority of profits for most clothing retailers, and 2014 was not a good year for them in that regard. One major problem is that women's design has fallen off the mark. While the men's store has established a core identity rooted in vintage Americana, the women's side has recently struggled to produce relevant designs and failed to resonate with their target audience. The most infamous example of this was the Tilly, a cropped sweater disaster that became somewhat a symbol of struggling J. Crew design on the whole. Earlier in June, J. Crew replaced Tom Mora, the head of women's design, with sister brand Madewell's head designer Somsack Sikhounmuong, who recently brought Madewell to prominence by successfully focusing and maturing the brand aesthetic.
J. Crew used to have sales occasionally with extra discounts, but in recent months they have become much more frequent and at previously unseen additional cuts. The successive sales have been a reflex to drive revenue during the slump but ultimately have hurt J. Crew's image as a "premium" brand. Customers have started to realize that items will usually make their way to the sales section with just a bit of patience and eventually are discounted well upwards of 50%. Having constant additional high percentages off of items already on sale in effect makes initial sale prices into a new MSRP of sorts. Aside from truly unique must-have pieces, there is virtually no reason to ever buy anything at J. Crew at full price at present.
J. Crew runs parallel to J. Crew Factory, the outlet (AKA the cheaper store) based on inflated prices with continuous "____% off entire store" sales - similar to what J. Crew has been doing as of late but entirely premeditated from the start, unlike what its big brother has been forced into. Like fast fashion, it relies on cost-cutting materials and construction but also benefits from association with the J. Crew name. While elevating JCF's perceived status, it has also pulled J. Crew's image down on the flip side. Combined with the constant sales, the signs J. Crew have been dropping indicate that they are a budget brand. That is not good.
It's important to remember that this isn't the first time J. Crew has had to turn the ship around. In 2003, visionary retailer guru Mickey Drexler (the man who built Gap into an empire) was hired to take the helm at what was then a flagging J. Crew. Previously, J. Crew had gone through 3 CEO's in 5 years. In the next decade, Drexler steered J. Crew into unprecedented growth and success in large part by producing germane design and reimagining the brand as more of an upscale boutique.
Drexler recently admitted that J. Crew's women's design has lost it's grip on the pulse. J. Crew needs to reconnect with its customer base by refocusing its women's design first. They are hoping Somsack Sikhounmuong can do exactly that, which would be a huge step towards rebuilding brand image.
|J. Crew Mens A/W 2015|
In the 1970's, the Swiss mechanical watch industry was almost destroyed during a period of time known as the Quartz Crisis. Cheaper, more accurate mass-produced quartz technology stormed into the market and traditional watchmakers, formerly unchallenged, were left in the dust. From 1970 to 1983, the number of mechanical watchmakers was cut down from 1,600 to 600 and Swiss market share had dropped from 50% to 15%.
The Swiss ultimately responded in a few ways. First, a research consortium was formed in which the Swatch was created, a simplified plastic watch aimed at the trendy entry level market. Second, the mechanical industry on the whole shifted out of the budget demographic entirely and into the luxury market, concentrating on quality and craftsmanship.
J. Crew obviously can't move into the luxury space, but it needs to find its voice again and distinguish itself from the competition rather than simply try to price compete. Until it does, guys can expect to continue enjoying the spoils as the company continues to lick its wounds. There's no question the brand is heading into dangerous waters. Let's just hope it's not too late to turn the ship around.