Strategy & Operations

J.Crew Enters Danger Zone

J. Crew and GAPA Graveyard Resting Place for The Gap

It may be too late for Mickey (Millard “Mickey” Drexler, CEO, J.Crew). Ironically, I believe the J.Crew brand is going the way of the Gap. Drexler was at the Gap’s helm, lifting it up out of its initial ditch to become one of the most revered and powerful apparel brands in the world. As any good captain of the ship, he was still on deck as it was submerging, never to return. I have pointed out why Gap, in my opinion, will not ever return to its former pinnacle. In There is No Gap Déjà Vu, I reported that the decade-long attempts under two Gap CEO’s, and now a third that would be as futile as the first two, have not understood that once consumers mentally disconnect from a brand, it’s over — fini, the fat lady sang, period. Note: I said brand, not the failure of being off-trend or bad styling; not bad product, marketing, imaging or advertising … none of which alone would necessarily render a brand kaput. It’s a combination of all of those interconnected elements that complete a brand’s persona, and which over time indelibly and powerfully embed the brand in consumers’ minds.

Of course, in apparel, the most important brand ingredient is the product: its styling, quality, innovation, scarcity, price and overall perceived value. So over time, if the product disconnects from its consumers and they walk across the street, or tap into another website, choosing from any one of hundreds of equally compelling products, (in this over-stuffed marketplace), the product alone can bring the brand down.

Also, while it takes a long time to build a brand, it can collapse or unravel very quickly, as experienced by the Gap. I believe this downward spiral was more a result of ubiquity (a Gap on every corner) combined with product missteps. And while J.Crew is not yet as ubiquitous, this past year of severely declining sales was clearly a result of major product missteps. Therefore, as Mr. Drexler urgently reorganizes his design team and sheds jobs, the question has to be asked: Is it too late? Has product failure gone through too many cycles over time to have permanently and irretrievably damaged the brand? At the very least, in my opinion, J.Crew is indeed in a danger zone. Another irony is that unlike Drexler’s original turnaround of the Gap brand in the late 1980s, “this time is different,” to borrow an overused phrase. In this totally over-stored and over-web-sited market, offering unlimited and instantaneous access to everything imaginable, in which there are thousands of copycats and in which young consumers are brand agnostic — once they have left, there is little to no chance of getting them back.

Another Fly in The Ointment

Oh, yes, in addition to all of the usual suspects driving J.Crew into the danger zone, there’s that other thing that I know has been driving Mr. Drexler crazy for some time. It’s that pesky little race to the bottom, the insane price promoting and discounting (including the tsunami of outlet store openings) that is accelerating across all retail sectors. Of course a lot of this is being driven by e-commerce, operating on business models designed in another universe, where making money is not in the lexicon. And since there is no organic growth in retailing, these money-losers, kept alive by equally spaced-out investors, are literally able to price their goods below cost to yank consumers away from traditional, old world retailers who must grow their top and bottom lines every quarter, ironically forced by many of the same investors who are dumping billions into e-commerce and bubbling up valuations.

I digress, but with good purpose and logic. This discounting madness just adds a huge fly in Mr. Drexler’s ointment, because in the aggregate, it is out of his control. He can only react and adjust to it. Discounting is now a weapon of necessity, not choice. It can only end if the entire industry agrees to some kind of China-like manipulated marketplace, which of course, will not happen. So it’s not as if Mr. Drexler could perform his “merchant prince magic” and get the brand turned around through a styling, imaging and positioning fix alone. He’s now stuck in the quicksand of price wars.

And how is he reacting? He seems to be doubling down on what all the other lemmings are doing, as they chase each other over the cliff.

An Outlet by Any Other Name is Still an Outlet

Currently, there are close to 150 J.Crew Factory stores, roughly half the number of J.Crew full line stores. However, according to BloombergBusiness, they plan to open another 21 Factory stores this year and have an annual square-footage growth target of about 10%. The J.Crew Factory store is also online.

While the outlet store expansion strategy is the path of least resistance to faster and more profitable growth, in the case of J.Crew, it’s almost a necessity. Having backed away from an IPO in 2014 due to tanking sales, which continue to this day, they also have a huge debt burden of $1.5 billion, according to the Bloomberg article.
So what is a scrambling man like Mr. Drexler to do?

Why, double down, of course. Just a week or so ago, he opened the first J.Crew Mercantile store in Dallas. And by the way, the Mercantile stores are the same as J.Crew Factory stores, actually carrying the same merchandise.

Okay, even though J.Crew Mercantile is located in more convenient residential type locations as opposed to outlet malls, it’s still a discounted model with the J.Crew brand name attached to it. But, hey, forget the larger J.Crew brand issue for the moment. This move very quickly provides Mr. Drexler with another, more profitable revenue stream.

Down, Down, Down it Goes…Where it Ends…I Know

The brand is now entering a period of schizophrenia. J.Crew, J.Crew Factory stores and website, J.Crew Mercantile – will the real J.Crew please stand up? What is the real J.Crew product? What is the real J.Crew price? What am I supposed to believe? It’s a shell game. It’s abracadabra “fast buck” Eddie Lampert short-term tactics.

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In the long term, consumers are not stupid. And over time if they see the name J.Crew more often than not attached to lower value, J.Crew will be devalued in their minds.

Just like the Gap, the J.Crew brand will never be brought back.

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