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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Under Armour Looks for Growth in Athletic-Inspired Sportswear Trend

Under Armour Announces New UAS Line

Under Armour launches their newest initiative, UAS or Under Armour Sportswear September 15, at New York Fashion Week for immediate sale at Barney’s, Mr. Porter, their own brick and mortar stores and a dedicated UAS website. This upscale, fashion sportswear product is anything, but performance athletic apparel. The athletic-inspired clothing is targeting “ambitious Millennials” with “modern American sportswear, at home in a professional work place and not on the field.

UAS Under Armour Sportswear

Photo credit Under Armour

Why UAS Makes Sense for Under Armour

Some people may be scratching their heads over this move into sportswear, but it makes perfect sense for a several reasons.

In 1997, Under Armour was a pioneer that introduced expensive, fashion performance apparel to a market used to activewear as thoughtless, cheap basics from footwear companies. They were the first major aspirational athletic brand for men, as Lululemon was for women.

Under Armour created an athletic brand that sold strength, prowess and status in the mind of the wearer and by the way, sold comfortable, performance apparel. Fashion branding is about stirring emotion and they have been squarely in the fashion business, since the beginning. They upped the ante on the whole men’s athletic market.

Under Armour is an epic brand, at a time when it is getting harder to achieve mega-status in a niche-driven, individualist market. The appeal of their brand gives them license to branch out into other categories and price points, upscale, technically-inspired sportswear being one.

Consumers started wearing the higher quality, more stylish and comfortable clothing out of the gym. The use of performance fabrics and athletic details in everyday sportswear has been gaining steam for a while, as a natural extension of this trend.

The market is overflowing with spandex blended fabrics, polyester is no longer considered “low-rent”, performance properties abound and even merino wool has been “recast” as a technical fabric. Apparel startups Kit and Ace (former Lululemon founders) and Ministry (former MIT students) are two examples of this major trend. The new Van Heusen Flex Collection is selling comfort and technical properties to the men’s moderate wear-to-work market.

Sportswear is being inspired by athletic apparel and is experiencing a huge disruptive change to the look, feel and function of these categories.

UAS Under Armour Sportswear for men and women

Photo credit Under Armour

The Athletic Apparel Market Is Extremely Competitive

For more than a decade now athletic apparel has been the big growth story in a lack-luster apparel industry. Athletic startups and existing brand extensions have exploded. There is much less breathing room in the active market right now. Either you innovate, take risks, extend your brand in new categories or stagnate, shrink or die. Puma, Adidas and Nike are all responding to this market shift with collaborations and extensions.

This market explosion has blurred the lines of distribution away from sporting goods to all retail channels, not good news for apparel-dominated sporting goods stores.

Under Armour was born from apparel lineage, so it is an easier transition for them. Many strong athletic footwear or sporting goods brands have yet to even capitalize on the seismic shift that happened in active lifestyle apparel. They are missing a great opportunity and do this at their peril. UAS has now gone beyond athleisure to sportswear.

UAS won’t be Under Armour’s biggest initiative simply because of price points, certainly not the huge opportunity of their new moderate distribution to stores like Kohl’s; but it will allow them to capture the imaginations and wallets of new customers.

 

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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