Madewell was a stand-out success in an otherwise difficult quarter for J Crew sales.
Total sales were down by 4 per cent and, as has been the case in preceding periods, the main problems stem from the J Crew brand where total sales slipped by 7 per cent and same store sales by 9 per cent.
In contrast the Madewell brand continues to grow, with comparable sales advancing by 4 per cent off the back of a 1 per cent increase last year.
J Crew is actually a solid brand. Merchandising in its stores is now much improved and product is both reasonably innovative and of good quality. The main issue is that, in the mindset of many consumers, J Crew is a retailer of basics – albeit it superior basics.
This is evident in the design of its products which – while very smart and well produced – tend to lack the embellishments or status of a Ted Baker-type offer. The net impact is that there is a ceiling on the amount shoppers will spend at full price J Crew stores. This limits conversion rates and basket sizes and holds back growth.
This situation is exacerbated by J Crew which, rather than tweaking its design aesthetics or making slight adjustments to price points, continues to resort to blunt discounting tactics. Ultimately this cements the reputation that J Crew is a place where one should not buy at full price – something that is hampering its ability to rebuild its brand and price integrity.
The issue of price is underlined by the fact that while J Crew’s mainstream stores suffer, J Crew Factory stores are popular with more shoppers willing to buy products at a reduced price. This isn’t the position that the company would like to be in, but it is one that reflects the fact that there is much more work to do in terms of refining the brand image and the product offer so that it can attract the premium J Crew wants to charge.
J Crew’s casual and formal split is also an issue. While the casual offer looks strong in store, the formal offer reflects the price points charged: it often looks like an afterthought and is not treated seriously enough. It should not become the dominant part of the assortment, but there is potential to grow it further.
If J Crew is a problem child, its sister brand, Madewell, is the star of the show. Its more carefully defined image and its appeal to trendy younger shoppers continues to drive growth. That the brands are in very different positions has led to speculation that Madewell could be spun off. This would make sense if investors wanted to extract maximum value – however, it would also mean that the debt-laden J Crew segment would be in a much weaker position if the company could not change the trajectory of performance. That debt, now standing at $1.5 billion, is a major cause for concern. It acts as a millstone around the company’s neck and encourages it to take short term steps to generate cash flow, rather than long term corrective action.
- Neil Saunders is CEO of retail analyst Conlumino.