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J Crew in 2014: Will it turn around Strategy improve Its Competitiveness?

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J Crew in 2014: Will it turn around Strategy improve Its Competitiveness?

  1. 1. J. CREWS ED?
  2. 2. Market Overview & Company Analysis Current Situation Analysis Strategies AnalysisRivals Analysis Recommendations Contents
  3. 3. • 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  Overview
  4. 4.  Key successful factors Brand name Multi-channel retailing Fashion trend Fashion revolutions Price policy Turnover speed Marketing Strategy U.S APPAREL INDUSTRY
  5. 5. U.S APPAREL INDUSTRY  10 Biggest Companies in 2014
  6. 6. U.S APPAREL INDUSTRY  Macro – Environment Analysis
  7. 7. Global - Expansion trend - Asia, Middle East growing markets - Price of imported materials (cotton) Legal Regulatory - Trade regulation elimination - Cost Reduction with offshore manufacturing - Lower tariffs with Free Trade Agreement 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 Economic driving forces increased demand & competition in the market U.S APPAREL INDUSTRY  Macro – Environment Analysis  PESTLE Analysis
  8. 8. HIGH BUYER POWER -Low switching costs -Rewards program deters switching -Trends easily imitable MEDIUM THREAT OF NEW ENTRANTS -Subsidiaries to leverage distribution channels -Word of mouth marketing strategy -High capital requirements -In-house manufacturing chances MEDIUM POWER OF SUPPLIERS - Medium pressure on prices - Low concentration: multiple manufacturers - High dependent manufacturers HIGH THREAT OF SUBSTITUTES -Increase in the usage of e-shopping -Increase in the usage of discount stores -Wide range of products - Collaborations with popular brands HIGH THREAT OF RIVALRY -Multiple competitors -Average industry growth -Fairly transparent strategies (latest trends) Mature, Fragmented Market U.S APPAREL INDUSTRY  Macro – Environment Analysis  5 Forces Analysis
  9. 9. J.CREW OVERVIEW 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  Key dates
  10. 10. J. CREW Information  Brands
  11. 11. Retail stores ENGLAND HONGKONG FRANCE JAPAN CANADA USA E- COMERCIAL WEBSITE SHIPPING TO OVER 100 COUNTRIES J. CREW Information  Distribution Channels
  12. 12. Bronx high school of science City College of New York University of Buffalo Boston University Graduate School of Management (MBA)  Management Board  Mickey Drexler, CEO - Educational Background: J. CREW Information - Management Style: https://www.youtube.com/watch?v=6lfC38NY4-E
  13. 13.  Management Board  Jenna Lyons, Creative Director J. CREW Information
  14. 14. Strengths: • Multiple sales channels • Strong & Varied product lines • Brand loyalists Weaknesses: • Geographic concentration • Overdependence on suppliers Opportunities: • Positive Outlook for Apparel Market • Growth in E-Retail • Expansion Initiatives Threats: • Rapid changes in fashion trends and consumer preferences • Fierce Competition • Rising production costs & manpower costs J. CREW Current Situation  Company Competitiveness  SWOT Analysis
  15. 15. J. CREW Current Situation  Company Competitiveness  Value Chain Analysis INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT 1.Get clothes from outsourced manufacturing suppliers to store in Lynchburg, Virginia, and Asheville, North Carolina distribution centers. 2. Enforce ethical guidelines with suppliers 1. Design clothes to meet market trends 2. Drive in-store operational efficiency 3. Increase inventory turnover ratio 1.Customize inventory carried in store 2.Operated under multiple brands – CrewCut,… 1.Multiple locations 2.Multiple channels: stores, direct channels,… 3. Role models 1. In-store customer service 2. Reduced shipping time 3. Personalized recommendations 4. Loyalty programs + Over 500 + store locations, factories + Multiple retail channels - stores, online, phone TECHNOLOGY PROCUREMENT + Partnership with FiftyOne for technical management platform (enable payment in 41 currencies in 107 countries (2012)) + Intercom system to communicate + In-store operational efficiency monitoring program + Leadership focused on operational efficiencies + Strong design team + Employee training Diversified sourcing network with multiple suppliers: + Buying agents + Trading companies + Manufacturers INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING & SALES SERVICE Value sourced from 230 vendors who operate 385 factories in 22 countries, but the bulk comes from Asia, mostly China and Hong Kong. Only 2% from the US. Top 10 vendors supplied 46% of merchandise
  16. 16. Condensed Consolidated Income Statement Unit: 1000 $ First Nine Months Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015 Net sales: Stores 1,129,769 1,199,534 1,674,424 1,542,246 J.Crew -7.89% Direct 434,167 517,795 171,683 208,470 Madewell 21.43% Other 20,882 24,711 28,248 44,151 Total revenues 1,584,818 1,742,040 1,874,355 1,794,867 Cost of goods sold, including buying and occupancy costs 845,223 988,537 1,146,957 1,135,745 Gross profit 739,595 753,503 727,398 659,122 Gross profit margin 46.70% 43.30% 38.80% 36.70% Condensed Consolidated Income Statement Unit: 1000 $ First Nine Months Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015 Selling, general and administrative expenses 527,357 540,534 609,724 605,336 As a percent of revenues 33.30% 31.00% 32.50% 33.70% Impairment losses — 673 683,985 1,380,324 Operating loss 212,238 212,296 (566,311) (1,326,538) Operating profit margin 13.40% 12.20% (30.2%) (73.9%) Interest expense, net 74,860 78,386 57,142 52,344 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
  17. 17. J. CREW Current Situation  Facing problems  Financial Performance Condensed Consolidated Balance Sheets (in thousands) February 2, 2013 February 1, 2014 January 31, 2015 Assets Current assets: Cash and cash equivalents 68,399 156,649 111,097 Inventories 265,628 353,976 367,851 Prepaid expenses and other current assets 65,791 56,434 60,734 Prepaid income taxes 11,620 2,782 — Deferred income taxes, net — 11,831 19,280 Total current assets 411,438 581,672 558,962 Property and equipment, net 324,111 375,092 404,452 Favorable lease commitments, net 35,104 26,560 — Deferred financing costs, net 35,104 41,911 22,883 Intangible assets, net 975,517 966,175 836,608 Goodwill 1,686,915 1,686,915 1,124,715 Other assets 1,778 3,895 3,993 Total assets 3,486,714 3,682,220 2,951,613 (in thousands) February 2, 2013 February 1, 2014 January 31, 2015 Liabilities and Stockholders' Equity Current liabilities: Accounts payable 141,119 237,019 244,367 Other current liabilities 153,743 154,796 155,697 Interest payable 18,812 18,065 5,408 Income taxes payable — — 3,192 Current portion of long-term debt 12,000 12,000 15,670 Total current liabilities 325,674 421,880 424,334 Long-term debt, net 1,567,000 1,555,000 1,532,769 Unfavorable lease commitments and deferred credits 71,146 93,788 112,153 Deferred income taxes, net 392,984 389,403 323,767 Other liabilities 38,419 31,729 42,566 Stockholders' equity 1,091,491 1,190,420 516,024 Total liabilities and stockholders' equity 3,486,714 3,682,220 2,951,613 Liquidity Ratio Current Ratio (X) 1.26 1.38 1.32 Quick Asset Ratio (X) 0.45 0.54 0.45 Capital Structure Ratio Equity Ratio (%) 31.30 32.33 17.48
  18. 18. J. CREW Current Situation  Facing problems  Poor financial Performance • Weak profitability • High inventory • High debt capital structure (More borrowings under the Asset Based Leading Facility: 20,000October 31, 2015) • Tilly sweater failure • Expansion policy
  19. 19. J. CREW Current Situation  Facing problems  Customer loyalty decrease http://www.businessinsider.com/jcrew-decline-jenna-lyons-sales-fashion-low-sales-2015-6
  20. 20. J. CREW Current Situation  Facing problems  Customer loyalty decrease  Inconsistent Design  Low Quality  High Price
  21. 21. 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
  22. 22. • 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 competitive advantage pursued linked to low costs or product differentiation? Is the firm’s market target broad or narrow? Key factors that distinguish one strategy from another J. CREW Strategies Evaluation  Why different strategies?
  23. 23. J. CREW Strategies Evaluation  5 Generic Competitive Strategies
  24. 24. Low-Cost Provider Striving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers. Broad Differentiation Differentiating the firm’s product offering from rivals’ with attributes that appeal to a broad spectrum of buyers. Focused Low-Cost Concentrating on a narrow price-sensitive buyer segment and on costs to offer a lower-priced product. Focused Differentiation Concentrating on a narrow buyer segment by meeting specific tastes and requirements of niche members Best-Cost Provider Giving customers more value for the money by offering upscale product attributes at a lower cost than rivals J. CREW Strategies Evaluation  5 Generic Competitive Strategies
  25. 25. J. CREW Strategies Evaluation Focused Differentiation • Premium price • High quality • Classic, preppy style • Upper-middle class customers  5 Generic Competitive Strategies  J. Crew decision
  26. 26. J. CREW Strategies Evaluation  5 Generic Competitive Strategies  Features
  27. 27. J. CREW Strategies Evaluation  5 Generic Competitive Strategies  Features
  28. 28. J. CREW Rivals Evaluation  Focused differentiation  High price for high quality  Sustainability  Broad differentiation  Different strategies for different brands
  29. 29. J. CREW Rivals Evaluation Rival Brand value Revenue Global Supply chain Quick Turnover Price Policy Trendy Clothing Zara $ 9.4b $ 14.8b x x Budget-consious consumer x H&M $ 15.3b $ 21.2b x x Affordable price x Ascena Retail $ 4.8b x Moderate price Ann Inc $ 2.5b x Upper-moderate pricw Forever 21 $ 4.4b x x Budget-consious consumer x J.Crew
  30. 30. Improve Value Position with Customers Industry Recommendations  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
  31. 31. 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?
  32. 32. 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
  33. 33. 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
  34. 34. 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 February 17, 2016, from http://fortune.com/2015/03/19/jcrew-madewell-outlets-overseas/
  35. 35. L/O/G/O

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