J. Crew Group Inc.

FOUNDED: 1983

Contact Information:

HEADQUARTERS: 770 Broadway
New York, NY 10013
PHONE: (212)209-2500
FAX: (212)209-2666
URL: http://www.jcrew.com

OVERVIEW

The J. Crew Group is a clothing company that sells casual style clothing mainly through three mail order catalogs—J. Crew, Popular Club Plan, and Clifford Wills. After making a name in catalog sales, the New York City-based company opened 50 stores to sell its distinctive upscale look to a wider variety of shoppers throughout the United States. J. Crew also operates 60 retail units in Japan in conjunction with ITOCHU Corp., a diverse Japanese concern and the third-largest company in the world. In 1997 J. Crew posted sales totaling $850 million, although rough estimates from industry sources varied greatly for the private company. Fortune placed J. Crew among its top 500 privately held companies ranked by sales. With renewed backing by the Texas Pacific Group, J. Crew plans to open even more stores.

Credit for the initial success for the company goes to founder Arthur Cinader. But continued success belongs to his fashion-savvy daughter, Emily Woods, wife of movie producer Cary Woods. Emily Woods assumed the presidency of J. Crew in 1989 at the age of 28. She immediately launched a storefront operation to offset a steep increase in postal rates and ongoing pressures in the cutthroat catalog business. Under Woods, J. Crew broadened its product line, adding career wear and lingerie to weekender classics. To finance her vision of further growth, Woods spearheaded negotiations with the Fort Worth investment partnership.

The clothing company has not entirely folded its mail-order operations. It still prints the three catalogs: J. Crew, offering khakis, corduroys, and clothes to match the up-and-coming, button-down lifestyle of the target audience of men and women in their 30s; Clifford & Wills, offering moderately priced clothes to career women; and the Popular Club Plan, offering women's apparel, kitchen supplies, and home furnishings. Customers can also browse online through a J. Crew web site.

COMPANY FINANCES

J. Crew showed strong growth in the 1990s. While accounts vary for the privately held company, in 1995 J. Crew reportedly posted sales of $500 million from combined direct-marketing and store sales. Revenue climbed to $750 million the next year. By some accounts, in 1997 sales rose to $850 million, a 70-percent increase in revenues in just two years. Fortune placed J. Crew among its top 500 privately held companies ranked by sales.

ANALYSTS' OPINIONS

In May 1998, eight months after Texas Pacific bought the majority of J. Crew, Credit Wire issued a negative outlook for J. Crew. The forecast came after Standard & Poor lowered the ratings on the company's credit and bank loans. "First quarter revenues and margins should be flat with the prior year; however, the third and fourth quarters will be more critical indicators for any further changes in the credit rating. Should weakness continue, particularly in J. Crew's core catalog segment, the ratings could be downgraded."

Though J. Crew has performed well as a direct marketer of classic apparel items, analysts remained skeptical of J. Crew's bid to convert itself into a fashion retailer fortified by a network of retail stores. Banana Republic towers above J. Crew in its efforts to become a purveyor of vogue clothing. Banana Republic's Gap division operated 226 stores throughout the United States, whereas J. Crew ran only about 50 in 1997.

Nevertheless, observers acknowledge the company's potential to succeed because the director of J. Crew's retail units, David DeMattei, a veteran retailer with more than a decade of experience at Gap Inc. and former chief financial officer of Gap, possesses the experience and know-how needed to help the catalog retailer of traditional apparel capture a new share of the men's and women's urban-professional market. DeMattei, who joined the company in 1995, holds the responsibility of making the company's endeavors bear fruit. Furthermore, analysts responded positively to J. Crew's consideration of selling a share of the company to Texas Pacific, which gave the company extra capital required for its expansions. Unlike direct-marketing retailing, storefront retailing requires considerable investment in sites, employees, and overhead products.

HISTORY

The seeds for J. Crew were planted as far back as 1947, when Mitchell Cinader and Saul Charles founded the Popular Club Plan, a mail-order operation that sold women's apparel and home furnishings. Mitchell's son, Arthur Cinader, inherited the catalog business. Hoping to fill a niche for busy shoppers, Cinader created the J. Crew catalog in 1983. J. Crew sported casual and classic men's and women's clothing such as khakis, chinos, and oxfords. The company posted sales of $3 million in its first year.

J. Crew rolled out the Clifford & Wills catalog for career women in 1984. Also that year, Arthur's daughter, Emily Woods, joined her father. Woods—who personally favors the clean-cut Eastern Seaboard look for her lanky frame—immediately banned polyester. Next, following a widespread industry move to pump up profit margins, she decreed J. Crew would only sell its own private-label brand.

In 1989 Woods became president of J. Crew. That year, the mail-order company faced a 30-percent hike in postal rates. So J. Crew opened its first store, located in New York City, as the first step in its plan to open 50 stores in 5 years. J. Crew was following the lead of fellow mail-order houses, such as Eddie Bauer and Victoria's Secret, that opened storefronts in malls and shopping districts as the number of catalog customers declined. By 1993 J. Crew operated more than 30 stores. That same year, a troubled economy and the resignation of then-president Arnold Cohen forced Cinader to scale back his expansion efforts. Executive shuffles continued throughout the 1990s.

In the mid-1990s the company tried to win new customers by diversifying its product line. In 1995 Vice Chairman and Chief of Design Woods decided to expand the company's offerings to include lingerie. Woods introduced J. Crew's intimates to the company's August catalog, hoping that they would constitute as much as 10 percent of the company's sales by the late 1990s. J. Crew also started marketing home furnishings in 1995.

In 1997 J. Crew found a buyer to finance the company's continued growth. The Texas Pacific Group (TPG) reportedly paid $527 million for an 88-percent stake in the company. (Woods retained a 12-percent stake.) As part of the leveraged buyout Woods got $20 million and her father received $5 million, according to the Daily News Record. Further shifting away from the company's mail-order roots, Woods plans to use the cash infusion to open more stores.

J. Crew has restructured under the control of TPG. The company appointed a new CEO, CFO, and COO in 1998. It cut 10 percent of its workforce, eliminating 100 workers in its mail-order division. The company sent out fewer catalogs in the first quarter of 1998, and mail-order sales for J. Crew continued to soften. But during the same period the storefronts pulled in an additional 6 percent in sales, which offset the lost catalog business.

STRATEGY

J. Crew's goal in the mid-1990s was to expand both its retail and direct-marketing divisions. The clothing retailer opened new stores throughout the United States, including one in Los Angeles and one in San Diego. Furthermore, in 1997 J. Crew took its direct-marketing campaign to the Internet, allowing customers to order its product online using its web site catalog. J. Crew planned to update the web site seasonally along with its print catalogs. The company also designed the site to provide customers with assistance and a means for ordering its print catalogs.

J. Crew also concentrates on providing quality merchandise. Known for their meticulousness attention to detail, the father and daughter team of Arthur Cinader and Emily Woods carefully inspect catalogs to assure that they stand out among other companies' catalogs and that they accurately depict J. Crew's products. Former employees report that Woods had photographs re-shot several times in order to capture subtleties of lighting that make the products look more attractive. J. Crew also emphasizes quality merchandise; therefore Emily Woods examines the fabrication and stitching of the garments the company sells.

CURRENT TRENDS

In the mid-1990s J. Crew continued to expand its retail operations. In 1996 it opened a 12,000-square-foot store as its flagship unit in New York's Soho district. A 10,000-square-foot storefront was opened in Japan in cooperation with J. Crew's partner ITOCHU. The flagship store carries many items from the J. Crew catalogs, as well as J. Crew's sophisticated J. Crew Collection line not offered via catalog. Vice chairman Emily Woods announced the company's plans to double the number of retail stores by 2000, adding 15 to 20 stores in 1997 and 1998.

PRODUCTS

J. Crew offers a complete line of men's and women's casual and professional clothing in 50 stores throughout the United States and 60 stores in Japan. On the mail-order side, the company prints three catalogs: J. Crew, offering preppie clothes for men and women in their 30s; Clifford & Wills, offering moderately priced clothes for career women; and the Popular Club Plan, offering women's apparel, kitchen supplies, and home furnishings. A J. Crew web site also lets shoppers buy via computer.

In 1997 J. Crew began to market a new array of clothing that strayed from its trademark wholesome, clean-cut, preppie look and focused more on fashionable styles. As its baby-boomer customer base began to age, J. Crew executives started to consider ways of piquing the interest of a younger group of customers. The new strategy involves some risk, however, as the company tries to reinvent itself and woo new customers, it may alienate its original customer base. These product decisions put the company in face-to-face competition with Banana Republic, a highly successful and well-monied clothing retailer.

CORPORATE CITIZENSHIP

J. Crew and other clothing retailers came under attack for contracting manufacturers in countries with poor human rights records who pay employees low wages and require them to work long hours in "sweatshop" conditions. In response to customers' insistence and a threatened boycott of J. Crew products, in 1997 the company announced it would sever its business connection with Yangon Knit Garment Manufacturing Co. in Burma.

GLOBAL PRESENCE

Through its partnership with ITOCHU J. Crew established a strong presence in Japan in the 1980s and early 1990s. However, by the mid-1990s competitors such as the Gap, Spiegel, and Eddie Bauer had penetrated the Japanese market, offering their products at lower prices than J. Crew. Consequently, J. Crew's merchandise appeared overpriced. Moreover, a recession struck the Japanese economy during that period, making consumers more interested in bargains and discount merchandise. Because of higher labor and rental costs in Japan, J. Crew typically charged more for its products in Japan than in the United States. For example, a Japanese unit would sell a wool sweater for the yen equivalent of $130, while a U.S. unit would charge only $48. Therefore, J. Crew led a campaign to lower prices in Japan and to cut costs in order to hold on to its market share.

SOURCES OF INFORMATION

Bibliography

Bongiorno, Lori. "J. Crew Plays Dress-Up." Business Week, 5 May 1997.

Bounds, Wendy. "Fashion: Dressed for Change, J. Crew Reaches Crossroads." The Wall Street Journal, 22 August 1997.

––––––. "J. Crew Catalog Retail Empire Discusses Its Own Sale to Texas Pacific." The Wall Street Journal, 21 August 1997.

Edelson, Sharon. "J. Crew Opens Soho Flagship as Prototype." WWD, 4 November 1996.

"J. Crew Sets July Debut in L.A." WWD, 4 June 1997.

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. J.Crew's primary SICs are:

2300 Apparel and other Textile Products

5651 Family Clothing Stores

5961 Catalog & Mail Order Houses