J. CREW S ED?

Market Overview &

Company Analysis

Current Situation Analysis

Strategies AnalysisRivals Analysis

Recommendations

Contents

• 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

Key successful factors

Brand nameMulti-channel retailing

Fashion trendFashion revolutionsPrice policy

Turnover speedMarketing Strategy

U.S APPAREL INDUSTRY

U.S APPAREL INDUSTRY 10 Biggest Companies in 2014

U.S APPAREL INDUSTRY Macro – Environment Analysis

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

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

J.CREW OVERVIEW1947: 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

J. CREW Information Brands

Retail stores

ENGLAND

HONGKONG

FRANCE

JAPAN

CANADA

USA

E-COMERCIAL

WEBSITE SHIPPING TO

OVER 100 COUNTRIES

J. CREW Information Distribution Channels

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

“Jenna Lyons, the Woman Who Dresses America”

Management Board Jenna Lyons, Creative Director

J. CREW Information

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 SituationCompany Competitiveness SWOT Analysis

J. CREW Current SituationCompany 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

LOGISTICSMARKETING &

SALESSERVICE

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

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 SituationFacing problems Financial Performance

J. CREW Current SituationFacing 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

J. CREW Current SituationFacing 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

J. CREW Current SituationFacing problems Customer loyalty decrease

http://www.businessinsider.com/jcrew-decline-jenna-lyons-sales-fashion-low-sales-2015-6

J. CREW Current SituationFacing problems Customer loyalty decrease

Inconsistent Design Low Quality High Price

J. CREW Current SituationUpcoming 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

• 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 advantagepursued 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 EvaluationWhy different strategies?

J. CREW Strategies Evaluation5 Generic Competitive Strategies

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 Evaluation5 Generic Competitive Strategies

J. CREW Strategies Evaluation

Focused Differentiation

• Premium price

• High quality

• Classic, preppy style

• Upper-middle class customers

5 Generic Competitive Strategies J. Crew decision

J. CREW Strategies Evaluation5 Generic Competitive Strategies Features

J. CREW Strategies Evaluation5 Generic Competitive Strategies Features

J. CREW Rivals Evaluation

Focused differentiation High price for high quality Sustainability

Broad differentiation Different strategies for

different brands

J. CREW Rivals Evaluation

RivalBrand value

RevenueGlobal Supply

chainQuick

TurnoverPrice Policy

Trendy Clothing

Zara $ 9.4b $ 14.8b x xBudget-consious

consumerx

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 xBudget-consious

consumerx

J.Crew            

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

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?

ReferencesAnn 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

February 17, 2016, from http://fortune.com/2015/03/19/jcrew-madewell-outlets-overseas/

L/O/G/O