How Can J.Crew Move Forward Post-Bankruptcy?

J.Crew has always been known for its preppy sensibility, fueled by a selection of classic pieces, like cable-knit sweaters and chino shorts, mixed with a trendier touch including sequins, bows and a few ruffles. This week, J.Crew is known for becoming the first retailer to file for bankruptcy amid the Covid-19 pandemic. It indicates how far the brand has fallen. Once, it was the ideal of a mall brand: carrying high-quality items people wanted to buy, and that were fashionable enough to attract the attention of the bigwigs in the industry. In recent years, though, shoppers have complained about quality, discounts, sales so ubiquitous that consumers know to never pay full price, and styles that no longer resonate with its target audience. [kickout id="1"] "It came in and it was super hot, with great quality that blew customers' minds," said fashion writer Christina Binkley. "Then comes the huge expansion, and quality drops, prices drop. The brand has really never found its magic again since then." Bankruptcy isn't the end of J.Crew's story: Since the brand is filing for Chapter 11, it will restructure, not liquidate. J.Crew's recent bankruptcy news is more of a sign of an unmanageable debt load and the risks of a private equity-funded leveraged buyout than a tale of a brand that's lost its grip on its consumer. The brand's glory days are arguably behind it, but it has room for redemption: A loyal fanbase remains—and if social media is any indication, even more consumers are waiting in the wings to return when the company finds its footing again after three years of a rotating executive team, and perhaps with a more specialized approach to its business.[article_summary section="1"] J.Crew has always held a comfortable place in the retail hierarchy: When it started, its wares were enough of a splurge that buying them felt special, but affordable enough to still be accessible to the average American consumer. "They were like the upscale version of Gap and the downscale version of Ralph Lauren," said Bob Phibbs, CEO of the New York-based consultancy The Retail Doctor. [kickout id="2"] In the '80s, the brand launched as a catalog, which would go on to be one of its most powerful tools, depicting what appeared to be the ideal preppy lifestyle. Its first store opened in downtown Manhattan in 1989. The '90s were tougher—TPG Capital, a private equity firm, purchased a majority stake in 1997 in a bid to boost the business. Everything changed in 2003 when retail veteran Mickey Drexler, formerly of Ann Taylor and Gap, took over as CEO. He joined forces with Jenna Lyons, the vp of women’s design who would go on to be the brand's president and creative director. Over the next decade, the retailer saw its sales peak. (That's thanks in part to then-First Lady Michelle Obama, who wore J.Crew on numerous occasions.) By the mid-2010s, it hosted a presentation every season during New York Fashion Week, and Lyons had become a fashion icon, famous for her print-mixing and affinity for feathers. Lyons' own aesthetic represented the path J.Crew had taken, a decidedly more high-fashion take than the classic pieces it had built its devoted fanbase around. A prime example of the phenomenon was the debut of a line called "Collection," with items closer to couture—and at a higher price point. In that moment, "the fashion world was hands down in love with J.Crew," said Binkley. But, there was a fatal flaw to J.Crew's love affair with the fashion world. "When you looked at the numbers, it turned out that it was really only the fashion [world]," added Binkley. "It was appealing to a limited segment of very fashion-minded people." [kickout id="6"] Those who weren’t a part of that limited segment started to fall away from the brand. J.Crew's critics have been decrying its greater focus on being fashion-forward for years, longing for the days of classic, high-quality pieces. "J. Crew used to be so, so good," one user tweeted after the bankruptcy news. "Style, quality, and durability made it worth saving up my babysitting money back in the day." For the health of the business, shifts were necessary. 2017 in particular was a year of change for the company. Sales were declining. J.Crew stopped presenting at New York Fashion Week. In rapid succession, Lyons, head of menswear design Frank Muytjens and Drexler all left their posts (though Drexler stayed on as chairman.) "Usually when you have situations at the alchemy of fashion, you've got a really great designer who has creative ideas, but behind them, you have an executive who knows how to pull all the levers," said Binkley. "If you start pulling one lever too hard and you accelerate the growth of stores too quickly or you cut prices and quality, then the magic falls apart." A new CEO, James Brett, of furniture label West Elm, joined in 2017, too. He brought prices down and started selling J.Crew wares on Amazon, but by November of 2018, he had left—his departure statement hinted at disagreements with the board, on which Drexler remained. J.Crew was without a CEO for over a year until early 2020, when former Victoria's Secret chief Jan Singer joined. [kickout id="7"] All that executive turmoil paints a picture of a brand in crisis, unsure of what it is. But while J.Crew's bankruptcy can be blamed in part on its shifting identity, it also showcases the dangers of a leveraged buyout: The company was taken private in 2011 by private equity firms TPG Capital and Leonard Green & Partners in a $3 billion leveraged buyout that saddled the company with an enormous debt load. In today's retail climate, being profitable is already a challenge—being profitable enough to maintain a business and pay off a mountain of debt is near impossible. "You can't escape the leveraged buyout," said Phibbs. "There's only so much that leveraged buyouts can eke out of a brand, especially in this market." The plan to deal with that debt load was previously to IPO Madewell, J.Crew's sister brand, which has been the company's top performer for years now, and secure refinancing through that avenue. However, bankruptcy may have been inevitable, even if some years off, according to Kalinda Ukanwa, assistant professor of marketing at the University of Southern California's Marshall School of Business. "They already were struggling for years and had several changes in their executive suite, which also creates some instability," said Ukanwa. "Covid-19 just accelerated what was already happening." Increasingly, retail has become an industry defined by two prototypes: the massive giants that can offer low prices, free, fast shipping and endless options, such as Amazon and Walmart, and in the fashion sector, ASOS and H&M. Then there are the brands like Everlane, smaller, digitally native companies that with recognizable products—even if the selection is more limited—revolve around online communities rather than a large brick-and-mortar presence. J.Crew sits between those two prototypes. "We are moving out of the land of mass market," said Phibbs. "The smart brands are going to understand how that plays out. If it can be knocked off and commoditized and there's nothing unique about it, it won't resonate with people's wallets." [kickout id="4"] There's something of a disconnect, between what people believe J.Crew's offerings to be and what they actually are. Yes, there are a lot of bows, ruffles and sequins. But the staple items remain. "While some of the collection has deviated, J.Crew still makes classic pieces," said Carly Heitlinger, an influencer who runs the website Carly the Prepster. "They may not be in the window displays—where you're more likely to find a head-to-toe emerald green jacquard printed outfit—but they're there. It's still my go-to for stripes, cable-knit sweaters, flattering denim, and classic coats, and I think it's a go-to for many people." And in recent years, J.Crew has made concrete efforts to recreate what people loved so much about the brand, bringing back past favorites and naming them after the year they were originally created, like the 1984 rugby shirt or the 1988 rollneck sweater. The latter, Heitlinger said, is the "epitome of a closet staple and a J.Crew classic," and is one of the top products sold on her blog for two years running. Perhaps leaning further into its past is where J.Crew could find success. Shoppers who felt isolated by the fashion-first approach could feel comfortable in its wares again. That, and finding an identity that's more in line with what a modern retailer looks like. J.Crew will never be an Amazon—but it could be a brand built on community. Rather than being a ubiquitous mall retailer with an expensive brick-and-mortar footprint, it could transition to being a bit more of a niche player, leaning further into ecommerce and styles that can survive waves in trends. "Move away from the kitsch and flash and go back to the classics," said Heitlinger. "A woman in Brooklyn may be wearing silk pants that look like pajamas with a matching silk top, but what is someone in North Carolina or Illinois wearing to lunch with friends in their suburban towns?"[article_summary section="3"] And J.Crew may already be in position of its most powerful tool: It has over 30 years of catalogs to serve as inspiration.

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J.Crew's Glory Days May Be Key to Its Resurrection

After a bankruptcy filing, the brand is looking at a new start

Diana Pearl

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Diana Pearl