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J. Crew sells men's, women's and children's apparel and accessories through North American retail locations as well as catalogs and its website. The company produces products with a traditional preppy aesthetic similar to that of Polo Ralph Lauren (RL). J. Crew had total revenues of $1.4B in 2008^[1], with net income of $54 million. The company is in direct competition with Jones Apparel Group (JNY) and Liz Claiborne (LIZ), both of which own and produce other brands in addition to their namesake lines.

Although the recession in the American economy has hurt many a retailer, J. Crew has actually managed to perform better than its competitors Claiborne and Jones Apparel Group, both of which posted a net loss during 2008 whereas J. Crew had a profit. First and foremost, its more traditional product offering has proven to be more attractive to consumers who, facing a smaller shopping budget, have started making purchases based more on value and longevity than on transient trends. In addition, the endorsement of Michelle Obama (she has been known to wear J. Crew pieces) has led to rapid sell-outs of specific pieces. Also, J. Crew has been making attempts to increase its brand image through collaborating with high-end brands such as Mackintosh and Barbour.

Business and Financials

Financial Performance

The company's revenue for fiscal year 2008 (ended January 31, 2009) was $953 million, a decrease of almost $500 from 2007. Same-store sales for fiscal 2008 also decreased by 4%, a big change from the previous year's 5.6% increase. 2008 and 2009 have proved to be difficult years for retail companies, as the recession broughout about by the 2007 Credit Crunch as well as the Subprime lending crisis have made consumers very uncertain of their financial security and thus they have decreased their spending on clothing and accessories. J. Crew announced on February 27, 2009 that they would cut jobs in an effort to save an estimated $40 million before taxes.^[2]

The first quarter of FY09 (ended 5/2/09) saw a revenue increase of 2% to $346 million with comp store sales decreasing 5% and direct sales decreasing 6%. J. Crew is staying cautious in 2009, planning to open a total of 24 stores in the year, compared to 42 in 2008. Consumers who usually shop at high-end boutiques have traded down to J. Crew's product offering. At the same time, the company has sought to raise its profile by using higher-quality materials and collaborating with other well-established brands. For example, the company sells products by Red Wing, an American shoemaker; and Selima, an eyewear manufacturer. In addition, J. Crew products have been worn by First Lady Michelle Obama (who has become well known not just for being the First Lady, but also for her clothing choices) and her children, which elevates the brand's image in the eyes of public opinion. In the second quarter of 2009 total sales increased 6% and store sales increased 7% (store sales increased by 7.4% during the same period in 2008). Same-store sales for the first half of 2009 decreased by 5%, whereas revenues increased by 4%.^[3]

Net income, along with sales, were on a steady increase from 2004 to 2007. However, net income took a dip in 2008^[4]

Sales by category for JCG FY 2008^[5]

Stores (68% of fiscal 2008 revenue)

The stores segment of JCG includes both retail locations and factory stores.

Factory Stores J. Crew operates 74 factory stores in the United States. Factory Stores are generally located in outlet malls. The factory stores are used to sell merchandise that didn't sell well at retail stores or other merchandise at lower prices than retail and catalog prices. These locations are operated in much the same way as the retail locations, with the difference arising from greater emphasis on higher inventory turnover.^[6]

Direct(28.6% of fiscal 2008 sales)

J. Crew conducts its direct sales through the J. Crew website and the J. Crew catalog. J.Crew has two distribution centers in the U.S., one in Lynchburg, VA (this facility doubles as a call center for the whole U.S.), and the other in Asheville, NC.

Catalog The J. Crew catalog serves as J. Crew's primary marketing tool for the J. Crew brand. In 2008 J. Crew distributed approximately 44.4 million copies of its 23 different catalog editions. The revenues derived through catalog sales totaled $70.7 million^[5] in 2008.

Online Online sales were $338 million in fiscal year 2009, making it the internet the largest contributor to direct sales.^[5]

Other(3.1% of fiscal 2008 sales)

Other revenues consist of shipping and handling fees related to the Direct business.^[5]

Trends and Forces

The First Lady's Influence Buoys Sales

First Lady Michelle Obama has worn a number of J. Crew pieces ever since she and her husband entered the public eye, and each piece she wears is soon sold out on the company's website. For example, on a trip to London a photograph was released of the First Lady wearing a cream-colored J. Crew cardigan. It was sold out by 10 a.m. that very morning. In addition, a $198 skirt she wore on the same trip had a 200-person waiting list within days. The advertising JCG receives, in addition to having their goods associated with someone who is considered a style icon, has been a boon to the company's share price, which has increased nearly 64% in the past four months.^[7]

J. Crew's Product Offering an Asset in Recession

Due to the 2007 Credit Crunch and the Subprime lending crises in 2007 and 2008, the American economy has plunged into a recession. Consumers who once bought clothes whenever they wanted have found themselves cutting back on nonessential goods and services in order to save money. This reluctance to spend has had a substantial adverse effect on the retail industry. Given the state of the economy in 2009, consumers are more likely to spend money on the brands they perceive gives them the greatest value, not necessarily what is most fashion-forward.^[8] Consumers perceive J. Crew pieces as providing high value for the price. Being able to provide high value to consumers is a boon in an economy where people need increasingly higher incentives to spend hard-earned money on nonessentials.^[9]

J. Crew Attempts to Attract More Affluent Customers with High-End Collaborations

Designer collaborations have become a staple of the middle-to-lower end markets, starting with Karl Lagerfeld's collection for H&M. Designer collaborations serve as a way for lower-priced brands to cash in on the name recognition afforded by high-end designers. In addition, even if the particular designer is not as well-known as Karl Lagerfeld or Roberto Cavalli, these collaborations allow consumers access to a brand they would be unable to afford otherwise. J. Crew has begun its own set of collaborations, not with designers but with other brands that fit into its more conservative aesthetic. For example, J. Crew sells outerwear by Barbour and Mackintosh, luggage by Globe-Trotter and shirts by Thomas Mason.^[10] Pieces by such brands sell for 2 to 3 times more than comparable J. Crew items. These collaborations seem to be geared towards attracting a higher-end consumer and raising J. Crew's brand image. However, given the recession in the American economy its effects (if any) are unclear.

Competition

J. Crew operates in the highly competitive specialty retail industry competing against high-end department stores, catalog retailers, web based businesses, and other specialty retailers.

• Liz Claiborne (LIZ) sells men's and women's apparel through two main channels. It designs and markets premium brands such as Juicy Couture, Kate Spade, Lucky Brand Jeans and Mexx. In addition it has a group of department-store based brands such as Liz Claiborne, Dana Buchman, DKNY Jeans, DKNY Active and DKNY Men. Claiborne dwarfed J. Crew in total 2008 sales, however Claiborne had negative net profit in 2008 whereas J. Crew had positive profit. Claiborne's products are sold through both standalone stores and department stores such as Macy's Inc. (M), thereby increasing exposure to consumers. J. Crew, on the other hand, only sells goods through its own stores and does not have a wholesale division. In addition JCG, primarily a retailer catering to middle-income consumers, has made an entry into the luxury market through collaborations with Mackintosh and Globe-Trotter, an outerwear and luggage company respectively. Claiborne Inc. has supplemented its own premium lines through collaborations between its namesake like (Liz Claiborne) and high-end designers such as Isaac Mizrahi and John Bartlett.^[11]

• Jones Apparel Group (JNY) is a designer, marketer and wholesaler of apparel and accessories. It's brands include: Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, Easy Spirit, Evan-Picone, l.e.i., Energie, Enzo Angiolini, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Albert Nipon and Le Suit. The company also has a license with Givenchy to produce, market and distribute jewelry in the U.S., Mexico, Canada and Japan under the Givenchy name. The license expires on December 31, 2011. The company also licenses out some of its brand names, such as Anne Klein New York, Nine West and Jones New York to third-party manufacturers in addition to designing and producing its own products. Some of JNY's brands are sold through individual stores such as Bandolino and Easy Spirit. Other lines are wholesale and thus rely on orders from other retailers. Like Claiborne Inc., JNY's 2008 revenue was higher than J. Crew's, however its operating margin was -35%, the lowest of all three companies. Unlike J. Crew or Claiborne Inc., Jones Apparel has not attempted to penetrate the premium goods market outside its license with Givenchy.

• Abercrombie and Fitch (ANF) is a retailer of clothing and accessories. ANF brands include: Abercrombie and Fitch, Abercrombie, Hollister, RUEHL, and Gilly Hicks. Catering to an "aspirational" customer base, ANF considers the products it sells to be "near luxury". ANF and JCG's customer base overlaps on age but ANF usually targets a wealthier crowd. Due to the poor economic climate of 2009, ANF has seen many of its customers "trade down" to less expensive stores and has suffered damage to its brand image due to its refusal to lower its prices.

• American Eagle Outfitters (AEO) is a mall based apparel and accessories retailer. Operating in the United States and Canada, it sells its own brands that include American Eagle Outfitters, aerie, and Martin + OSA. Targeting customers between the age of 14-30, AEO's customer base overlaps with JCG in terms of age. AEO boasts the highest operating margin in the 14-30 clothing retailers group. AEO is currently expanding its Martin + OSA and aerie brand lines and continues to expand its physical presence as well by opening new stores.

Footnotes

1. ↑ JCG 2008 10-K
2. ↑ JCG 2008 10-K page 25
3. ↑ J Crew revenue up 6%
4. ↑ JCG 2008 Annual Report pg. 23  
5. ↑ ^{5.0 5.1 5.2 5.3 5.4} JCG 2008 Annual Report pg. 24  
6. ↑ JCG 2008 Annual Report pg. 25  
7. ↑ "Michelle Obama’s J.Crew outfits trigger shopping frenzy"
8. ↑ "Study: Value Trumps Price Among Shoppers"
9. ↑ "Study: Value Trumps Price Among Shoppers"
10. ↑ J. Crew website
11. ↑ Liz Claiborne New York website