Slumping sales. Dissatisfied customers. Corporate layoffs.
The company: J. Crew.
The year: 1998.
If the scenario sounds familiar, that’s because it is. Flash forward 17 years and the retail giant is once again going through the same pains.
On Wednesday, J. Crew Group announced it was cutting 175 — or roughly 10 percent — of its corporate staff. It also announced creative changes, replacing its head of women’s design.
The moves come amidst a flurry of fierce criticism and troubling financial reports. Same-store sales at J. Crew are down ten percent from a year ago. Cash reserves and profit margins are both dwindling. And the company rang up a net loss of $657.8 million for the most recent fiscal year, compared to a profit of $88.1 million in 2013.
Customers aren’t just abstaining from buying the company’s famously preppy clothes, however. They are publicly criticizing J. Crew’s alleged style and quality shortcomings on blogs and on social media. Using the Twitter hashtag #revivejcrew, disgruntled customers are doffing their cashmere gloves and airing their complaints in 140 characters or less.
J. Crew, some would have you believe, is in a death spiral.
But a little perspective is in order. The company was in a similar place back in 1998 and, after a five year rough patch, went on to flourish for a decade. The fashion business, like fashion itself, can be a bit cyclical, with brands soaring for stretches before bad business decisions or bold competitors knock them down. J. Crew could come back from the brink once again.
In other words, don’t burn that Tilly sweater quite yet.
J. Crew’s current troubles have made headlines in recent days, and for good reason. The company faces serious financial challenges stemming, at least in part, from its controversial 2011 decision to go private. At the time, J. Crew was going through a golden era. But the company’s success started to unravel shortly after the $3 billion deal, which led to lawsuits from shareholders and at least $500 million in new debt.
By last year, business analysts had grown worried about the chain. In a June 5, 2014 article titled “Trouble is brewing for J. Crew,” Business Insider’s Haley Peterson spotted trouble on the horizon: ballooning inventory, cash shortages and customers abandoning ship.
“It’s getting attacked from all angles,” analyst Brian Sozzi told her. “Bottom line, like Abercrombie & Fitch, J. Crew has not found the magic potion on how to infuse emotion into its product yet remain true what it is known for by consumers.”
In recent months, those consumers have gone from grumbling to open revolt.
— Kelly (@mrslack3) June 11, 2015
Pea coat lost five buttons during the first two weeks I owned it #reviveJCrew
— John W. Dixon (@johndixonsays) June 11, 2015
I was only able to wear my hot pink crop pants twice before they completely ripped in the butt and two of my shirts have holes #reviveJCrew
— Khloe D (@khloed) June 11, 2015
The #revivejcrew campaign was kicked off by the Capitol Hill Style blogger Belle. In a post on her Web site, she argued the company’s free fall was more than bad brand management. It was soaring prices and plummeting quality.
“We’re tired of buying poorly made pieces that need to be discounted to ’40-percent-off sale price’ before we feel like they’re a good value,” she wrote on March 31. ” J.Crew is a business, so of course it wants to increase profits. But when they obliterate quality construction to lower costs, they cut themselves off at the knees by turning off loyal shoppers.
“Almost every reader who shopped at J.Crew in the 2006-2010 era talks about how much better the quality was then. Their evidence is anecdotal, but if a buyer feels that their seven-year-old suit is better made than the one they bought last year, they’re going to shop elsewhere. If we want ‘fast fashion,’ we’ll shop at H&M.”
J. Crew isn’t just facing increased competition from H&M and Zara. The rise of “athleisure” clothes, like the now ubiquitous Lululemon pants, has thrown a curve ball at classic brands. Old Navy has adapted.
J. Crew has not. The company’s revenue declined 2 percent last quarter.
“We’ve made some mistakes,” J.Crew Chairman and CEO Millard “Mickey” Drexler said this spring. Among those mistakes: “missteps in our iconic classics.”
Cue this week’s cuts and creative changes.
“We are making meaningful and strategic changes across our organization to better position us for future growth,” Drexler announced on Wednesday. “While many of these decisions were difficult, they are necessary.”
But Wednesday’s shakeup isn’t necessarily a death rattle for the brand. After all, the company was here before.
In October 1997, private investment group Texas Pacific Group purchased an 88 percent stake in J. Crew for $500 million. It was a cut price deal: same-store sales were down 13.6 percent and the company had just lost $9 million to a UPS strike. The brand was battered. Customers were confused by the clothing company’s direction.
So what did it do? It slashed corporate headquarter positions by 10 percent. Then it hired Drexler, the man widely credited with turning the Gap into a global powerhouse, in 2003. The headline in the New York Times: “Chief Seeks to Revive J. Crew’s Preppy Heyday.”
Six months later, profits were up (primarily due to lower costs). And by June 2004, the Times’ headline was cheerier: “A Leaner J. Crew Is Showing Signs Of a Turnaround.”
This was the beginning of what Capitol Hill Style and many other die-hard J. Crew customers consider the company’s golden era: a decade of classic but at times quirky clothes that appealed to middle-class working women, including future First Lady Michelle Obama, to this day a J. Crew devotee.
So the good news is that there is hope for J. Crew. The company has been here before and come through it with flying pastel colors. “J.Crew was once a closet staple with loyal devotees,” Belle the Capitol Hill Style blogger wrote, “and it could be again.”
The bad news is that it took a solid six years.
The fashion business may be somewhat cyclical, but that doesn’t mean this fall’s collection is going to be to die for.
You might check back in 2021.