S

J. CREWED?
Contents

Market Overview &

Company Analysis

Current Situation
Recommendations
Analysis

Rivals Analysis Strategies Analysis

U.S APPAREL INDUSTRY
 Overview

• Size of the market: $249 billion in 2014

• Growth rate: 2013-2014: 1.6%

2012-2013: 2.9%
2011-2012: 4.8%

• The industry is in mature stage

• Value of product shipment in US: $12.86 billion

• Imported countries: China, Vietnam, Bangladesh…

U.S APPAREL INDUSTRY
 Key successful factors

Brand name
Multi-channel retailing
Fashion trend
Fashion revolutions
Price policy
Turnover speed
Marketing Strategy
U.S APPAREL INDUSTRY
 10 Biggest Companies in 2014
U.S APPAREL INDUSTRY
 Macro – Environment Analysis
 U.S APPAREL INDUSTRY
 Macro – Environment Analysis  PESTLE Analysis
Global Legal Regulatory
- Expansion trend - Trade regulation elimination
- Asia, Middle East growing markets - Cost Reduction with offshore manufacturing
- Price of imported materials (cotton) - Lower tariffs with Free Trade Agreement

Economic driving forces increased demand &

competition in the market

Environmental
- Eco-friendly materials development & careful
material selection
- Supplier qualification monitoring processes
- “Go-Green” in supply chain, product offerings
- Brand image enhancement
Technological
- Online transaction replacement for real-time
ones
- Primary social networking marketing tools
- Ecommerce for purchasing, comparing prices
- Brand loyalty reduction with internet sales
 U.S APPAREL INDUSTRY
 Macro – Environment Analysis  5 Forces Analysis

HIGH BUYER POWER

-Low switching costs
-Rewards program deters switching
-Trends easily imitable

MEDIUM THREAT OF NEW ENTRANTS

HIGH THREAT OF RIVALRY
-Subsidiaries to leverage distribution
-Multiple competitors channels
-Average industry growth Mature, -Word of mouth marketing strategy
-Fairly transparent strategies Fragmented -High capital requirements
(latest trends) Market -In-house manufacturing chances

HIGH THREAT OF SUBSTITUTES MEDIUM POWER OF SUPPLIERS

-Increase in the usage of e-shopping - Medium pressure on prices
-Increase in the usage of discount stores - Low concentration: multiple
-Wide range of products manufacturers
- Collaborations with popular brands - High dependent manufacturers
J. CREW Information
J.CREW OVERVIEW
 Key dates
1947: Founded by Mitchell Cinader and Saul Charles under the name
Popular Sales Club

1983: Mailed out First catalog to customers

- 1989: Changed its name to J. Crew Group, Inc.

1989: Opened First flagship store at New York's South Street

Seaport

2003: Mickey Drexler joined J. Crew as chairman and CEO

2008: Jenna Lyons became J. Crew creative director

- 2011: J. Crew was acquired by TPG Capital, LP, and Leonard Green &
Partner for approximately $3.1 billion
J. CREW Information
 Brands
 J. CREW Information
 Distribution Channels

USA
ENGLAND

E-
COMERCIAL
CANADA
Retail WEBSITE
stores SHIPPING TO
FRANCE

OVER 100
HONGKONG
COUNTRIES
JAPAN
J. CREW Information
 Management Board  Mickey Drexler, CEO

- Educational Background:

Boston University
Bronx high City College of University of Graduate School
school of science New York Buffalo of Management
(MBA)

- Management Style:

https://www.youtube.com/watch?v=6lfC38NY4-E
J. CREW Information
 Management Board  Jenna Lyons, Creative Director
 J. CREW Current Situation
 Company Competitiveness  SWOT Analysis

Strengths:
Weaknesses:
• Multiple sales channels
• Geographic concentration
• Strong & Varied product lines
• Overdependence on suppliers
• Brand loyalists

Threats:
Opportunities: • Rapid changes in fashion trends and
• Positive Outlook for Apparel Market consumer preferences
• Growth in E-Retail • Fierce Competition
• Expansion Initiatives • Rising production costs & manpower
costs
 J. CREW Current Situation
 Company Competitiveness  Value Chain Analysis
Diversified sourcing network with multiple suppliers:
PROCUREMENT + Buying agents sourced from 230 vendors who operate 385 factories in 22 countries, but the bulk
+ Trading companies comes from Asia, mostly China and Hong Kong. Only 2% from the US.
+ Manufacturers Top 10 vendors supplied 46% of merchandise

+ Partnership with FiftyOne for technical management platform (enable payment in 41 currencies in 107 countries (2012))
TECHNOLOGY + Intercom system to communicate
+ In-store operational efficiency monitoring program

HUMAN + Leadership focused on operational efficiencies

RESOURCE + Strong design team
MANAGEMENT + Employee training
Value
+ Over 500 + store locations, factories
INFRASTRUCTURE
+ Multiple retail channels - stores, online, phone

1.Get clothes from outsourced

1. Design clothes to 1.Customize inventory 1.Multiple locations
manufacturing suppliers to store in 1. In-store customer service
meet market trends carried in store 2.Multiple channels:
Lynchburg, Virginia, and Asheville, 2. Reduced shipping time
North Carolina distribution centers. 2. Drive in-store 2.Operated under stores, direct
3. Personalized recommendations
2. Enforce ethical guidelines with operational efficiency multiple brands – channels,…
4. Loyalty programs
suppliers 3. Increase inventory CrewCut,… 3. Role models
turnover ratio
INBOUND OUTBOUND MARKETING &
OPERATIONS SERVICE
LOGISTICS LOGISTICS SALES
 J. CREW Current Situation
 Facing problems  Financial Performance
CondensedCondensed
Consolidated Income Statement
Consolidated Income Statement
First Nine Months
Unit: 1000 $ First Nine Months
Unit: 1000 $ Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015
Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015
Net sales:

Selling, general and administrative expenses

Stores 1,129,769 527,357
1,199,534 540,534
1,674,424 1,542,246 609,724 J.Crew 605,336
-7.89%

As aDirect
percent of revenues 434,167 33.30%
517,795 171,683
31.00% 208,470 32.50%Madewell 33.70%
21.43%

Other
Impairment losses 20,882 24,711
— 28,248
673 44,151 683,985 1,380,324

Total revenues 1,584,818 1,742,040 1,874,355 1,794,867

Operating loss 212,238 212,296 (566,311) (1,326,538)
Cost of goods sold, including
845,223 988,537 1,146,957 1,135,745
buying and occupancy costs
Operating profit margin 13.40% 12.20% (30.2%) (73.9%)
Gross profit 739,595 753,503 727,398 659,122
Interest expense, net 74,860 78,386 57,142 52,344
Gross profit margin 46.70% 43.30% 38.80% 36.70%
Loss before income taxes 137,378 133,910 (682,239) (1,378,882)

Benefit for income taxes 51,496 51,703 (55,058) (143,238)

Net loss 85,882 82,207 (627,181) (1,235,644)

 J. CREW Current Situation
 Facing problems  Financial Performance
Condensed Consolidated Balance Sheets
February 2, February 1, January
February 2, February 1, January (in thousands)
(in thousands) 2013 2014 31, 2015
2013 2014 31, 2015

Assets Liabilities and Stockholders' Equity

Current assets: Current liabilities:

Cash and cash equivalents 68,399 156,649 111,097 Accounts payable 141,119 237,019 244,367
Liquidity Ratio
Inventories 265,628 353,976 367,851 Other current liabilities 153,743 154,796 155,697

Prepaid expenses and other current assets 65,791 Current

56,434 Ratio (X)
60,734 1.26 1.38 1.32
Interest payable 18,812 18,065 5,408

Prepaid income taxes 11,620 2,782 —

Quick Asset Ratio (X) Income taxes
0.45payable 0.54 0.45 — — 3,192

Deferred income taxes, net — 11,831 19,280 12,000

Current portion of long-term debt 12,000 15,670

Total current assets 411,438

Capital Structure
581,672
Ratio
558,962
Total current liabilities 325,674 421,880 424,334
Property and equipment, net 324,111 375,092 404,452
Equity Ratio (%) Long-term31.30
debt, net 32.33 17.48
1,567,000 1,555,000 1,532,769
Favorable lease commitments, net 35,104 26,560 —
Unfavorable lease commitments and deferred
71,146 93,788 112,153
credits
Deferred financing costs, net 35,104 41,911 22,883
Deferred income taxes, net 392,984 389,403 323,767
Intangible assets, net 975,517 966,175 836,608

Other liabilities 38,419 31,729 42,566

Goodwill 1,686,915 1,686,915 1,124,715

Stockholders' equity 1,091,491 1,190,420 516,024

Other assets 1,778 3,895 3,993

Total liabilities and stockholders' equity 3,486,714 3,682,220 2,951,613

Total assets 3,486,714 3,682,220 2,951,613
 J. CREW Current Situation
 Facing problems  Poor financial Performance

• Weak profitability • Tilly sweater failure

• High inventory • Expansion policy

• High debt capital structure
(More borrowings under the Asset
Based Leading Facility:
20,000October 31, 2015)
 J. CREW Current Situation
 Facing problems  Customer loyalty decrease

http://www.businessinsider.com/jcrew-decline-jenna-lyons-sales-fashion-low-sales-2015-6
J. CREW Current Situation
 Facing problems  Customer loyalty decrease
 Inconsistent Design
 Low Quality
 High Price
 J. CREW Current Situation
 Upcoming Plan
1. Expanding Madewell chain: 20 new more this year (current fleet of 85), bringing
Madewell past the 100-store count in 2015

2. Opening more J.Crew discount outlet stores: 21 new outlets to current fleet of 139
discount locations in 2015

3. Running more international stores: 6 new international stores with current 14 (6 in

Canada, 5 in the U.K., 2 in Hong Kong, and 1 in France.)

4. Fixing women’s fashions: Somsack Sikhounmuong will take over the J.Crew brand
women’s line immediately, replacing Tom Mora, turn back to classic style

5. Launching a new, lower priced chain: J.Crew Mercantile - “a collection of value-driven

merchandise with classic J.Crew style for women, men and children” - features the same
products specifically designed for and sold at J. Crew’s factory locations.

 HIGH ADAPTABILITY
 J. CREW Strategies Evaluation
 Why different strategies?

• A firm’s competitive strategy deals are its efforts to position in

the market, please customers, fight against competitors, and
achieve a particular competitive advantage.

Is the firm’s market target

broad or narrow?
Key factors that
distinguish one strategy
from another
Is the competitive advantage
pursued linked to low costs
or product differentiation?
J. CREW Strategies Evaluation
 5 Generic Competitive Strategies
 J. CREW Strategies Evaluation
 5 Generic Competitive Strategies
Low-Cost Striving to achieve lower overall costs than rivals on
Provider products that attract a broad spectrum of buyers.

Broad Differentiating the firm’s product offering from rivals’ with

Differentiation attributes that appeal to a broad spectrum of buyers.

Focused Concentrating on a narrow price-sensitive buyer

Low-Cost segment and on costs to offer a lower-priced product.

Focused Concentrating on a narrow buyer segment by meeting

Differentiation specific tastes and requirements of niche members

Best-Cost Giving customers more value for the money by offering

Provider upscale product attributes at a lower cost than rivals
 J. CREW Strategies Evaluation
 5 Generic Competitive Strategies  J. Crew decision

Focused Differentiation

• Premium price

• High quality

• Classic, preppy style

• Upper-middle class customers

J. CREW Strategies Evaluation
 5 Generic Competitive Strategies  Features
J. CREW Strategies Evaluation
 5 Generic Competitive Strategies  Features
 J. CREW Rivals Evaluation

 Focused differentiation  Broad differentiation

 High price for high quality  Different strategies for
 Sustainability different brands
 J. CREW Rivals Evaluation
Brand Global Supply Quick Trendy
Rival Revenue Price Policy
value chain Turnover Clothing

Budget-consious
Zara $ 9.4b $ 14.8b x x x
consumer

H&M $ 15.3b $ 21.2b x x Affordable price x

Ascena
$ 4.8b x Moderate price
Retail

Ann Inc $ 2.5b x Upper-moderate pricw

Budget-consious
Forever 21 $ 4.4b x x x
consumer

J.Crew
 Industry Recommendations
Improve Value Position with Customers
 Better communicate refreshed brand image
• Improve social networking site
• Offer frequent promotions
• Increase online advertising
• Offer in-store networking/product launch events
 Build customer relationships
• Track customer engagement

Leverage Core Competencies and Resources

 Partner with supply chain management firm
• Provides company with new process knowledge
• Diversifies sourcing risk
• Identify higher quality materials
 Broaden customer segment
• Fast growing market with high discretionary income
• Leverage resources to achieve expansion
 J. CREW Recommendations

• Develop Madewell, J. Crew Factory and J. Crew men’s line

• Invest in advertising (celebrity endorsements, new campaigns…)

• Enhance uniqueness

– Concept

– Designs

Is it time for a new creative director?

 References
Ann Inc. profile (2015). Retrieved February 17, 2016, from http://www.vault.com/company-profiles/retail/ann-
inc/company-overview.aspx
Avella, J. (2015, June 23). The ugly secret behind why J. Crew's sales have tanked. Retrieved February 17,
2016, from http://www.businessinsider.com/jcrew-decline-jenna-lyons-sales-fashion-low-sales-2015-6
Constable, S. (2015, June 15). J. Crew or J. Screwed? Retrieved February 17, 2016, from
http://www.forbes.com/sites/simonconstable/2015/06/15/j-screwed/#d70246222643
Creative director Jenna Lyons on creating J. Crew's unique look (2012). Retrieved February 17, 2016, from
https://www.youtube.com/watch?v=igoV4UML0WY
Eliza (2015). How to fix J. Crew - a request from a longing customer. Retrieved February 17, 2016, from
http://www.howtofixjcrew.com/
Forever 21 on Forbes lists (2015). Retrieved February 17, 2016, from http://www.forbes.com/companies/forever-
21/
Friedman, V. (2015, June 11). Can a new designer (not Jenna Lyons) fix J. Crew? Retrieved February 17, 2016,
from http://www.nytimes.com/2015/06/12/fashion/somsack-sikhounmuong-of-madewell-becomes-
womens-wear-designer-at-j-crew.html?_r=0
Holmes, E. (2015, May 26). Dear J. Crew, what happened to us? We used to be so close. Retrieved February
17, 2016, from http://www.wsj.com/articles/dear-j-crew-what-happened-to-us-we-used-to-be-so-close-
1432661954
 References
J. Crew and the man who dresses America. (2015). Retrieved February 17, 2016, from http://www.cnbc.com/j-crew-
the-man-who-dressed-america/
J. Crew brought low by a cropped sweater (2015, June 15). Retrieved February 17, 2016, from
http://www.datamyne.com/blog/imports/j-crew-brought-low-by-a-cropped-sweater/
J. Crew Group, Inc. announces third quarter fiscal 2013 results (2013, December 04). Retrieved February 17, 2016,
from http://www.prnewswire.com/news-releases/jcrew-group-inc-announces-third-quarter-fiscal-2013-results-
234480221.html
J. Crew Group, Inc. announces third quarter fiscal 2014 results (2014, December 04). Retrieved February 17, 2016,
from http://www.prnewswire.com/news-releases/jcrew-group-inc-announces-third-quarter-fiscal-2014-results-
300005184.html
J. Crew Group, Inc. announces third quarter fiscal 2015 results and appoints Michael J. Nicholson President, Chief
Operating Officer and Chief Financial Officer (2015, December 03). Retrieved February 17, 2016, from
http://www.prnewswire.com/news-releases/jcrew-group-inc-announces-third-quarter-fiscal-2015-results-and-
appoints-michael-j-nicholson-president-chief-operating-officer-and-chief-financial-officer-300187904.html
J.Crew vs. Anthropologie: Competitive brand analysis (2015). Retrieved February 17, 2016, from
http://info.crimsonhexagon.com/hubfs/Downloads/Case-Study--JCrew-vs-Anthropologie.pdf
Lu, S. (2015). 2015 US Fashion Industry Benchmarking Study. Retrieved February 17, 2016, from
https://www.usfashionindustry.com/pdf_files/USFIA-2015-Fashion-Industry-Benchmarking-Study.pdf
 References

Mickey Drexler CNBC Documentary - J. Crew and the man who dressed America (2012). Retrieved February 17,
2016, from https://www.youtube.com/watch?v=6lfC38NY4-E
Rupp, L., Klein, J.X. (2015, November 25). Why J. Crew is unraveling. Retrieved February 17, 2016, from
http://www.bloomberg.com/news/articles/2015-11-25/with-its-bonds-at-25-5-cents-j-crew-is-now-in-lots-of-
trouble
Thompson, A., Strickland, J., Gamble, J. (2016). Crafting & Executing Strategy: The Quest for Competitive
Advantage: Concepts and Cases. McGraw-Hill Publisher.
Trefis, T. (2015, July 15). Gap Inc. is gradually losing its share in the U.S. apparel market to fast-fashion
counterparts. Retrieved February 17, 2016, from
http://www.forbes.com/sites/greatspeculations/2015/07/15/gap-inc-is-gradually-losing-its-share-in-the-u-s-
apparel-market-to-fast-fashion-counterparts/#47aad05a7817
Wahba, P. (2015, July 10). J.Crew is about to launch a new, lower priced chain. Retrieved February 17, 2016,
from http://fortune.com/2015/07/10/j-crew-discount/
Wahba, P. (2015, March 29). J.Crew’s Drexler bets on Madewell, outlets, and overseas to fix business. Retrieved
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L/O/G/O