J. Crew is in trouble.
Once the retail industry’s fashionable ready-to-wear darling, the company has suffered from a continual staggering decline.
And the industry is calling it like it is.
“As its latest set of results attest, J. Crew is a mess,” Neil Saunders, CEO of consulting firm Conlumino, wrote in a research note.
Its comparable sales were down 12%. Worse, J. Crew suffered from a net loss of $759.7 million.
The company is aware of this harsh reality.
“We said on the last call, 2015 would be difficult, and we’re doing the best we can do to get the business moving forward,” Drexler said on an earnings conference call last quarter. “I did say to the team, the only one who really matters here in terms of judgment is the customer.”
“If you’re in [this] business, you have a DNA that’s optimistic, but I think you’ll see a lot of positive changes that have gone on now,” Drexler said last quarter, “but until we have a call that speaks to numbers that make all of us happy, we’re not happy.”
This quarter, he clearly was not happy with the results. “This does not happen over night,” he said on the conference call. The call ended abruptly without the usual question-and-answer component.
“In a sense we believe that J Crew and its management are not sufficiently humble about the brand’s current status and are rather divorced from the realities of the retail marketplace,” Saunders wrote, citing the company’s international expansion as a prime example.
Although the fall’s selection demonstrated that the store was going back to basics and was, for the most part, positively received (“many of our iconic classics with a twist are resonating with our customer,” Drexler said on the call), experts are fearing this is not enough to undo the damage that has been done. (And an unseasonably warm fall hasn’t helped anyone who sells sweaters — look no further than Banana Republic, which also suffered a 12% dip in comparable sales this past quarter.)
“Rebuilding the sales line after a series of fashion missteps is now looking like an insurmountable task. Many customers once loyal to J. Crew defected elsewhere following the company’s move away from the classic, preppy basics that were once its heritage, and it now proving extremely difficult to win them back. This is not helped by the still fairly premium price J. Crew expects its customers to pay; given the brand has lost so much of its equity, and given that today’s more democratic fashion marketplace abounds with retailers selling on-trend, low-priced basics, this position is simply not tenable,” Saunders wrote.
The company’s lower-priced Mercantile concept might provide some sales growth.
“To be fair some efforts have been made to respond to price sensitivity with the launch, for example, of the factory outlet Mercantile stores which the company has put into mainstream malls. However, as sensible as this may be, it does little to address the problem with the core J. Crew brand,” Saunders wrote.
The spring/summer 2016 collection showed some promise, but Saunders believes that the biggest changes will be seen when Somsack Sikhounmuong — who was pulled from Madewell to J. Crew in a major corporate shakeup this summer — debuts his forthcoming collection. But, Saunders writes, “even if this is a hit, we believe J. Crew will still only be in the foothills of the mountain it has to climb to restore the company to financial stability.”
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