The crews appearing in the glossy pages of J. Crew catalogs 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 more than 500 retail and factory stores across the US under the J. Crew, and Madewell banners. Madewell is a women's-only collection of hip, casual clothes. Outside of the US, the retailer also boasts around 25 stores in Canada, London, Hong Kong, and Paris. Founded in 1983, J. Crew was taken private in 2011 by TPG Capital and Leonard Green & Partners.
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. About 54% of the retailer's total sales came from women's apparel sales in fiscal 2015 (ended January 30), while Men's and Children's apparel sales generated 26% and 7% of total sales, respectively. Accessories brought in the remainder of the retailer's total sales.
J. Crew's two main clothing brands are J. Crew and Madewell, with the J. Crew-branded clothing accounting for 89% of the retailer's total sales in FY2015. The company's fast-growing Madewell line offers women's apparel, including a new line of suits, that is priced 20% to 30% lower than J. Crew merchandise. As of March 2015, the company operated 282 J. Crew retail stores, 85 Madewell stores, and 139 factory stores, mostly in the US.
The American retailer sourced about 98% of its merchandise from foreign factories in FY2015; 69% of which were sourced from China and Hong Kong.
New York-based J. Crew boasts more than 500 stores in 44 states and the District of Columbia, with nearly half of its stores located across the states of California, New York, Florida, Texas, Massachusetts, New Jersey, and Pennsylvania. The US market accounts for essentially all of the retailer's sales.
Beyond the US, it operates two stores in Paris; 18 stores in three Canadian provinces: Alberta, British Columbia, and Ontario; and four stores in London. J. Crew's e-commerce site is active in 100 countries.
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. The company spent $47.3 million on catalog advertising in fiscal 2015 (ended January 30), compared to $51.6 million and $44.5 million in fiscal 2014 and 2013, respectively.
Beyond the book, the company relies on online, print, and outdoor advertising. The retailer also offers a private-label credit card that accounts for about 15% of its total net sales. The chain's customers are affluent, college-educated, professional and style-conscious women and men.
The retailer sources its products either through buying agents or by purchasing merchandise directly from trading companies and manufacturers within the US and overseas.
J. Crew credits its on-target fashion sense and lean inventories for its strong sales growth in recent years (though an informal endorsement by the First Lady Michelle Obama probably hasn't hurt business, either). Sales have also been getting a lift from the retailer's growing e-commerce business and Madewell brand expansion.
The retailer's revenue ended higher for a fourth straight year in fiscal 2015 (ended January 30), jumping by 6% to $2.58 billion for the year. J. Crew's annual sales were driven by a combination of higher men's apparel sales (specifically shirts, suiting, and knits) and higher women's apparel sales (specifically knits, jackets, and pants). Despite a 0.7% decrease in comparable store sales, e-commerce sales grew by 9% to $826.2 million, while Madewell sales swelled by 35% during the year, helping to boost the retailer's top line.
Despite higher revenue in FY2015, J.Crew suffered a net loss of $657.77 million for the year, mostly because of heavy impairment losses (totaling $710 million) that stemmed from lowered profitability expectations for its stores and falling brand value, as its sales of women's apparel and accessories began to soften. The retailer also suffered from higher selling, general, and administrative expenses from increased hiring, a $59 million loss after refinancing some of its long-term debt, and a decrease in gross margins resulting from increased markdowns during the year. Lower cash earnings also caused the retailer's cash from operations to fall by more than 30% during the year.
J. Crew has been aggressively expanding its store network across the US, adding 53 new retail, factory, and Madwell stores in fiscal 2015 after opening 50 locations during the prior year. Indeed, from 2012 through 2014, the retailer grew its total store base by 25%, from 401 to 504 stores. As part of this expansion, J. Crew has been introducing more of its Madewell and factory stores for price-sensitive shoppers as consumers have become more thrifty in recent years.
To continue to boost sales, J. Crew has also been expanding its direct and retail store businesses internationally. The chain opened its first two J. Crew stores in Paris in 2015 after opening stores in Hamilton Place and London in 2014 and 2013, respectively, and looks to expand to other countries in Europe and Asia.
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. The two new owners retained J.Crew's CEO Mickey 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.