Fashion
As its latest set of results attest, J Crew is a mess.
Not only have sales fallen across the board, but the drops are significant and come off the back of declines in the prior year.
Even the relatively small Madewell division, which has traditionally performed well in sales terms had a poor quarter, with comparable numbers rising by a slim one per cent.
Profitability, which was already lacking, has deteriorated further with a net loss of just shy of $760 million racked up over the quarter; this now brings the company’s total losses so far this fiscal year to an eye watering $1.2 billion. This performance comes on top of a balance sheet that is already weak and weighed down by $1.5 billion of long term debt.
There is now a very serious question mark over the firm’s survival and it is likely that lenders may seek to take control if performance does not improve in the vital fourth quarter and beyond.
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 is 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.
In a sense, 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. Nowhere is this truer than in the international expansion efforts where, for example, products in its UK stores often cost more in pounds sterling than they do in dollars in the US – a significant uplift over and above that accounted for by the UK’s higher sales tax rate.
In today’s interconnected, digital world where prices can easily be checked on smartphones while standing on the shop floor, such a policy does nothing but alienate and annoy customers. And even without this comparison, by UK standards prices are highly uncompetitive for the type of product J Crew sells.
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.
J Crew is now pinning its hopes on a better holiday season; however, this will not mark a turnaround in the company’s fortunes. The earliest possible date for a change is spring of next year when the first collection designed by Creative Director Somsack Sikhmounmuong will hit stores.
Even if this is a hit, J Crew will still only be in the foothills of the mountain it has to climb to restore the company to financial stability.
