With each passing quarter, J. Crew appears to be inching closer and closer to its deathbed.
It’s no secret that the retailer has been struggling in recent years, and — as its latest earnings report revealed — 2016 was no exception. Total revenue across all brands for the year decreased by 3 percent to $2.43 billion, while J.Crew’s 2016 sales decreased by 6 percent, 7 percent in the last quarter alone. Add the company’s long-held $1.4 billion debt, and current circumstances look bleak.
Meanwhile, Madewell, J. Crew’s sister brand, continues to thrive. Madewell’s sales increased 14 percent to $341.6 million in from 2015 to 2016, and 11 percent in the fourth quarter of this year. As J. Crew continues to deteriorate, rumors have been mounting that Madewell is starting to make moves to separate itself from its parent company. Sources told Reuters that, while no official decision has been made, Madewell has been in talks with the investment bank Lazard Ltd. to discuss future options that may involve a sale or spinoff. (Representatives at Madewell did not respond to a request to comment.)
“While the overall retail environment remains challenging, we continue our disciplined management of expenses and inventory, and remain focused on delivering the very best, iconic J.Crew and Madewell products our customers love across all channels,” Millard “Mickey” Drexler, J.Crew’s CEO, said in a statement. “As a team, we are taking important steps to drive improved operational excellence across the company.”
The source of J. Crew’s strife is varied, but largely centers on a lack of identity formed by bouncing between stale, outdated styles and eccentric, overpriced fashions that are failing to resonate with consumers. In an attempt to differentiate and rebuild its ailing brand, J. Crew launched athleisure products for women in fall 2015 and expanded into men’s athletic wear earlier this year. Still, diversifying its product portfolio is not transpiring to sales.
“J. Crew continues to be an important global brand, but the customer is increasingly demanding,” said William Susman, analyst at Threadstone Investors. “The brand needs to express its relevance and to be on trend. It’s not easy to do in a changing market.”
Part of this slowed decline can also be attributed to a scaling back of inventory, according to Kate Smith, senior analyst at Edited. Though J. Crew has four times as many products as Madewell — in part due to its larger consumer base (unlike Madewell, it offers menswear and children’s apparel, in addition to women’s styles) — there were 28 percent fewer new products arriving at J. Crew in the last three months than in the same timeframe a year ago. Of these products, Smith said J. Crew is failing to take advantage of popular trends that could help bolster sales.
“J.Crew women’s spring offering could have focused a little more on unusual sleeve shapes, which are core to current trends. The product lacks punch,” she said. “Replenishment rates are high, showing the retailer repeats styles often. Sticking closer to trend could inject the assortment with a little more pizazz.”
Regardless, J. Crew has lofty hurdles to clear if it wants to maintain its position in the American retail space. Neil Saunders, managing director of GlobalData Retail, said in a statement that, while J. Crew has managed to slow its dissipating returns and ultimately slightly improve its bottom line, it’s smoke and mirrors to its larger problems.
“As good as these things are, they are but pinpricks of light in a rather dismal balance sheet that still highlights a company that is struggling to make the economics of its operations stack up,” he said.
While Saunders attributed some of J. Crew’s slowed losses to being more strategic about discounting rates, Smith said the way it has communicated sales, in comparison to Madewell, is tarnishing the brand. For example, J. Crew has send 10 email newsletters about discounting merchandise in the month of March alone, while Madewell has sent only two.
“That sets an expectation with the consumer,” she said. “J.Crew simply isn’t escaping the perception of their shoppers that their goods are not worth their full price. It will lead to further reductions and won’t help the bottom line. J.Crew needs to find a way to engage shoppers with content promoting their full-price offerings.”