Business

J. Crew and the mail-order makeover

How the retailer reinvented itself as the new name in popular fashion

FRANK OUDEMAN

Mickey Drexler, known as “the Steve Jobs of retail,” once had a reputation for breakneck retail expansion. Before the native New Yorker took the helm of J. Crew in 2003, he steered the Gap through its heyday in the 1990s, helping the company grow from 450 stores to more than 2,000. The Gap, he once said, should be as ubiquitous as Coca-Cola. But this overreaching contributed to Drexler’s downfall: the Gap’s growth stalled, and after a series of bad decisions, its stock plummeted. In 2002, Drexler was fired.

At J. Crew, Drexler has taken an altogether different approach, and the company has been on a hot streak for the last few years. Between 2003 and 2008 revenues rose 107 per cent, and in 2009, after both Oprah and the first family expressed their ardour for the label, revenues rang in at US$1.57 billion, outstripping pre-recession levels. But Drexler has not responded with aggressive expansion. Instead, the CEO squeezed growth out of the existing footprint of the business (just 321 stores) through a mix of retailing strategies that have transformed the brand. Once synonymous with preppy clothes and mail-order catalogues, Drexler’s J. Crew is now one of the most creative and fashionable retailers in North America.

When the recession hit the retail industry in the U.S., and many clothing shops slashed prices and offered deep discounts, J. Crew moved into affordable luxury, mixing fashion-conscious pieces (a $1,200 cropped leather jacket) with high-quality basics (T-shirts, jeans). Richard Jaffe, retail analyst at New York’s Stifel, Nicolaus & Company, says it’s this broad appeal that has reinvigorated the 27-year-old brand. “There are people who shop at J. Crew now who spend $2,000 on a handbag and those who think T-shirts shouldn’t cost more than $5,” he says. “[J. Crew] is part of many peoples’ wardrobes.”

In perhaps its biggest gamble, J. Crew has been introducing big-name third-party brands—Levi’s, Ray-Ban, Belstaff, Barbour, to name a few—to sell side by side with its own wares.

These partners were invited to design merchandise to be sold specifically through J. Crew. “We did this because we think there are great brands and companies out there who are masters at their craft,” says one company insider (who spoke on the condition of anonymity). “We’re not going to try to be an expert in all products.” Rather than dilute the J. Crew brand, Drexler is piggybacking off the cachet of more respected labels to help raise his company’s status. Since 2007, some 40 relationships have been formed, and, Jaffe notes, “They dress up the store and create a halo effect on the rest of the products.”

J. Crew has also continued to make gains online, where overhead is low and margins are great.

The company just announced plans to open an Internet outlet store and, this May, went global through the online luxury retailer Net-A-Porter. Imran Amed, editor of the Business of Fashion blog, says the move surprised insiders. “But it was also a great endorsement from the authority in online fashion retailing and it enables J. Crew to reach a global market at minimal cost.” Plus, he adds, “It may lay the groundwork for international expansion in the future.” (Indeed, J. Crew has said it plans to open up shops in Canada, where they operate via catalogue and the Web, and in London, England.)

Meanwhile, the company has been reaching out to often-neglected male consumers, opening stand-alone J. Crew men’s shops (four since 2008). Amid the modern ski-lodge inspired decor, shoppers can find edited collections of J. Crew staples, an extensive suit shop, as well as those partnership goods, such as hard-to-find vintage Levi’s and Crockett & Jones fine English shoes. The company will not comment on its strategies or how the shops are doing. But David Ian Gray, retail analyst and principal of Vancouver-based DIG360 Consulting, anticipates that focusing on menswear will lead to future growth. “Men’s clothing tends to be overlooked because men spend less. At the end of the day, they need to buy clothing, and they have partners who will buy it for them as well.”

For now, J. Crew is in uncharted retail waters: a mostly mail-order catalogue company that also runs couture-calibre boutiques; a clothing company that’s making a name for itself by plugging other brands. Yet it’s working, says Gray. While the ideas may seem radical, the approach is still cautious. “Drexler is following a more prudent, quality-growth approach,” Gray says, “while retaining a clear drive to succeed. It’s a nice balance.”

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