Is Bankruptcy Looming for J.Crew?

J. Crew’s Financials Aren’t Good

A Reuters article, dated 11/16/16 is speculating that J.Crew is considering a spin-off of their successful Madewell division, in a likely attempt to raise cash. According to the 3rd quarter 2016 results, J.Crew stores had a 7% sales decline and including Madewell, had roughly $1.5 billion in debt and just $38 million in cash. This is not a healthy place to be.

What happened to one of the best specialty retailers in America? It’s easy to blame mall traffic, but those shoppers are shopping elsewhere and online. By the way, J.Crew has had an exceptional e-commerce site for many years.

They got caught in a maelstrom of changing trends and self-inflicted wounds.

The 4 Biggest Reasons J.Crew is Struggling

Millennial shoppers are the most strapped generation in decades. This largest demographic in the history of the US, is now 16-33. They are the most diverse American generation ever, with a wide range of tastes. Their shallow pockets have given rise to fast-fashion, consignment, rental and vintage apparel sales. I don’t think they aren’t interested in fashion, but clothing is discretionary after rent, school debt, healthcare, transportation and food costs. 

J. Crew had been dogged by inconsistent quality and styling.

J. Crew had been dogged by inconsistent quality and styling.

J.Crew seemed to target this growing base with lower quality materials in an attempt to decrease or hold prices. They also dabbled in trendier silhouettes, adding to the brand confusion. In the classic business you walk a fine line, to offer the expected, with a touch of newness to excite the customer.

Seemingly, in an attempt to be all things to all customers, they alienated fans that saw them as the quality, hip “American” lifestyle brand in the mall. They should have embraced their monopoly as a reliable, premium brand and let the rest of the generic tenants duke it out.

J.Crew had what they thought was a winning formula, cotton/spandex Capri pants, cashmere sweaters and cotton tees. They rested on formulaic laurels while customers were discovering more comfortable, durable and flattering fabrics in athletic apparel from the likes of Lululemon and many others. The rapid adoption of athleisure was lost on J.Crew. They didn’t see that customers were embracing a new casual. They should have evolved some of their assortment to address the exodus, in new fabrications or styling with a J.Crew spin. They just launched, in fall 2016, a “brand-right” athletic apparel collaboration with New Balance, maybe too little, too late. The athletic apparel market has much less elbow room at this point.

There are new kids on the block. At one time, J.Crew was the epitome of the modern prepster. They blended an urbane twist with classic American looks, to define an eclectic, cool state of prep. This wearable market position had a wide audience with fashion and traditional customers.

This late summer 2016 product is what they are know for, classic with a twist.

This late summer 2016 product is what they are known for, classic with a twist.

In recent years, they veered off course with poor quality or trendy items, overly eclectic pairings and strange colors, a road too far for their loyal customer.

As J.Crew confused its customer, they created a vacuum for other rapidly growing, consistent brands to fill. Kate Spade has taken away legions of suburban and urban women of all ages with their whimsical, colorful vibe. Vineyard Vines offers the traditional country club and aspiring wanna-bees,  preppy classics, that really resonate with Millennials. J. McLaughlin attracts the hard-core suburban prepster with uber-traditional, quality clothes. Tory Burch skims off the East Side, preppy customer. Club Monaco speaks to the contemporary, classic customer. These five brands are growing and nibbling at J.Crew’s forgotten following. The pie is only so big and their slice is getting smaller.

There continues to be significant markdowns across categories.

There continues to be significant markdowns across categories.

The stores need a facelift. The above brands have bright, organized new store formats. J.Crew’s shops are cluttered, chaotic and dark and the wood paneling feels very Brooks Brother’s 1992. They don’t highlight their best categories in a focused, shoppable layout. The brand experience needs a serious intervention, a difficult task, with mountains of debt.

None of these opinions are probably news to J.Crew. This is a formidable company with tremendous talent. Maybe they became too insular or content?

This product is a bright spot in the Fall 2016 assortment.

This product is a bright spot in the Fall 2016 assortment.

Amidst the clutter this fall, I’ve seen glimpses of the best of J.Crew. Time will tell, if it’s enough to save them from a painful bankruptcy. It’s not looking good based on 3rd quarter results.

Most retailers never achieve the iconic consumer and fashion industry respect of J.Crew. I’m rooting for them to turn this ship around.

 

Some other posts you might enjoy:

Decoding Millennial Shopping Traits & Habits

Are Sporting Goods & Outdoor in a Death Spiral?

7 Common Fashion Brand Management Mistakes

 

The Dix & Pond Blog, by Stephanie Bernier is the blog of  Dix & Pond Consulting, a Boston-based, company that consults on business strategy, creative direction, brand experience, trends, product development and merchandising. Clients include retailers, apparel, footwear & consumer companies.  CONTACT US TODAY! 

Thank you for sharing with a friend, if you enjoyed the post!

 

 

 

 

 

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Tough Retail: 7 Ways to Grow Your Consumer Brand

Seismic Changes Are Happening to Retail

Under-employment, stagnant wages, historically high school debt, credit card debt, large healthcare deductibles, staggering urban rent, first homes, weddings and new babies, is there any wonder why Millennials seek value in their discretionary purchases like apparel, accessories, footwear and home?

This is the overhang from a deep recession, the Affordable Care Act and lackluster recovery. It has given rise to the Amazon-effect, outlets, successful discounters like TJX, fast-fashion, rental, consignment and intense comparison shopping. Who can afford to pay full-price?

Practically every retailer and brand is chasing the most cash-strapped generation in decades, because the Millennial generation, ages 15-33 is now the largest population in the US, finally surpassing the much wealthier Baby Boomers and Generation X.

A quote in the Wall Street Journal on May 12, really caught my attention. “Non-discretionary spending on health, insurance, education, and housing has taken an extra 4% out of personal consumption expenditures in 2015 compared with 2000, according to Craig Johnson, president of consulting firm Customer Growth Partners. That has reduced the discretionary spending available for traditional retailers by $500 billon, more than the combined annual sales of Walmart Stores and Costco Wholesale combined.” No wonder  we are seriously over-stored.

Traffic is down at brick and mortar retailers, everyone is trying to explain it, but the reasons are actually quite obvious. There are huge headwinds on spending, so consumers are chasing good deals or staying home.

Online retail, even though it represents less than 10% of all purchases is the fastest growing retail channel. This reflects the ease of comparison shopping, selection and simplicity for insanely time-strapped consumers. It isn’t the best way to browse or make impulse purchases. Who goes on Amazon, just to see what’s new?

Survival Strategies in Tough Times for Consumer Brands

What should apparel, footwear, home and consumer discretionary companies do to combat intense spending headwinds? Here are seven ways to grow in tough times:

Offer brand value. Brands with a consistent, clear identity and experience will rise above the clutter and command higher prices than weak concepts and me-too products. Think Apple, Nike, Under Armour, Kate Spade, Madewell and West Elm.

Be strategically focused on core strengths. It’s necessary to test new things, but focus on your sweet spots, invest in your strengths and best brands. Don’t get romanced with low-value, expensive projects and extensions.

Value great design. Creativity and innovation create demand and pricing power. Big marketing efforts without great products to back them up, won’t fool consumers, who value authenticity.

Look for untapped markets or niche opportunities. For instance, the  underserved plus-size markets for women and men, trending activities, hot fitness trends, growing sports, hobbies, etc..

Increase DTC efforts. Many stores will close, decreasing available doors for your apparel, footwear and consumer products. Your direct to consumer efforts online, with company-owned stores, pop-up stores, partnerships, direct mail etc., will help you control your brand message and destiny.

Think beyond Millennials. Brands with cross-generational “lifestyle” appeal will weather the competitive storm better than discretionary fashion brands just targeting Millennials. Baby Boomers have the greatest wealth in the history of the US and are due to inherit even more, even though they also took a hit during the Recession.

Take risks. This is counterintuitive in bad times. Hire experienced and visionary people who can execute a well-balanced strategy of taking creative risks while covering established business.

 

Some other posts you might enjoy:

7 Common Fashion Brand Management Mistakes

The New Definition of Athletic Apparel

Decoding Millennial Shopping Traits & Habits

 

The Dix & Pond Blog, by Stephanie Bernier is the blog of  Dix & Pond Consulting, a Boston-based, company that consults on business strategy, creative direction, brand experience, trends, product development and merchandising. Clients include retailers, apparel, footwear & consumer companies.  CONTACT US TODAY! 

Thank you for sharing with a friend, if you enjoyed the post! 

 

 

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