The crews appearing in the polished catalogs of the J. Crew Group are far from motley. The retailer is known for its preppy fashions, including jeans, khakis, and other basic (but pricey) items sold to young professionals through its catalogs, websites, and 450 retail and factory stores in the US and Canada under the J. Crew, crewcuts (for kids), and Madewell banners. Madewell is a women's-only collection of hip, casual clothes. CEO Millard "Mickey" Drexler, recruited from The Gap to revive J. Crew's ailing fortunes, has led a renaissance at the firm, capped by a public offering in 2006. J. Crew was taken private in 2011 by TPG Capital and Leonard Green & Partners.
Change in Company Type
TPG Capital and Leonard Green & Partners (LGP) bought J. Crew in March 2011 in a deal valued at about $3.1 billion, including the assumption of $1.6 billion in debt. They retained Drexler, who owns nearly 10% of the business. (TPG and LGP own the rest.) The buyout sparked numerous shareholder lawsuits, which were settled in September 2011 when investors, upset about the deal's mechanics, agreed to a $16 million settlement. Some investors accused Drexler of using the deal to enrich and entrench himself at their expense. The company is exploring going public again in 2014.
New York-based J. Crew has stores in about 45 states and the District of Columbia. The US market accounts for essentially all of the retailer's sales. Beyond the US, it operates about a half a dozen stores in three Canadian provinces: Alberta, British Columbia, and Ontario. J. Crew launched its e-commerce site to over 100 countries in 2012 and is looking overseas for brick-and-mortar locations.
Sales and Marketing
The retailer relies on the J. Crew catalog as the primary vehicle for marketing and advertising. The catalog, which drives in-store as well as direct sales, utilizes high-quality photography and art direction, to burnish the J. Crew brand. Beyond the book, the company relies on online, print, and outdoor advertising. Catalog costs totaled about $44.5 million in fiscal 2013 (ended January), and other advertising costs amounted to about $39.1 million. The retailer also offers a private-label credit card that accounts for about 16% of its total net sales. The chain's customers are affluent, college-educated, professional and style-conscious women and men.
Shrugging off the recession, J. Crew has enjoyed nearly a decade of steady and, more recently, robust sales growth. Indeed, in fiscal 2013 (ended January) sales increased 20% versus the prior year, to $2.2 billion, driven by increases sales of women's apparel, specifically sweaters, knits, and shirts. Store sales increased 21% year over year, while direct sales were up 19%. The addition of some 40 retail stores and a 12% gain in comparable sales (sales at stores open more than one year) also pushed up sales. Income from operations increased by nearly $68 million to $253.7 million, or 11.4% of revenues.
To continue to grow sales, J. Crew is focusing on expanding its direct and retail store businesses internationally. The chain opened its first stores in Canada in 2011 and is eying markets in Asia and Europe for store growth. It's also adding stores at home, with the Madewell chain adding more than 20 shops since 2012. For the price-sensitive shopper, J. Crew is growing its factory store operation. J. Crew Factory stores are located primarily in large outlet malls and sell a specific line of merchandise tailored after products sold in the previous season at J. Crew retail stores and online.
The company credits its on-target fashion sense and lean inventories for its strong performance. (Of course, having the First Lady Michelle Obama sport its fashions probably didn't hurt either.) Sales are also getting a lift from the expansion of the Madewell and crewcuts formats (both launched in 2006). Fast-growing Madewell offers women's apparel, including a new line of suits, that is priced 20% to 30% lower than J. Crew merchandise at more than 50 stores.