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J.Crew Comeback Starts Now

New creative director Brendon Babenzien released his first collection of J.Crew menswear this week. It may the best opportunity for J.Crew to regain sales momentum. Babenzien comes to the company after co-founding the Noah street-wear line.

J.Crew was led by Mickey Drexler for many years after he left the Gap
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. When Mickey left J.Crew (he stepped down as CEO in 2017 and remained chairman until early 2019), two separate management teams tried to run the company; it was only when Libby Waddle took charge as CEO that some fresh new dynamics started to emerge. Waddle had successfully run Madewell for several years before stepping into this new role in late 2020. Now Babenzien has taken charge of men’s apparel and Olympia Gayot is in charge of women’s apparel.

Since March 2021, J.Crew has seen 16 consecutive months of sales growth by targeting millennials and GenZ customers. The company has seen more customer traffic, since the fashion look has improved overall for all customers. Importantly, customer sentiment has been overwhelmingly positive.

Babenzien’s objective is to bridge the gap between older and younger customers by designing the very best products. His vision, as seen in the fall collection, is to reduce the influence of street-wear and develop a new American look. He believes people want something new. “A lot of guys got into men’s clothing because of J.Crew”, he said “either from the catalogues in the 90’s or in the 2010’s when a modern look to the brand took the fashion industry by storm”.

It is very exciting to see a new designer revitalize the company. I am certain, after seeing some of the designs, that the fresh, new approach is needed at this time. However, the industry is facing a difficult times. Many stores are heavily stocked, maybe overstocked, and rising prices are making sale events less attractive to customers. I expect big sale events to reduce inventory levels – I have already seen, in recent weeks, Black Friday sales by Macy’s and Best Buy
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– and such promotional activity will pose a challenge to J.Crew. It will not help J.Crew when it is trying to create a new customer base if everything screams sale around them.

We see these high inventory levels creating issues across the industry. The inventory problems at the retailers follow nearly two years of strong sales and profits during the pandemic, when consumers flush with government checks, were loading up on electronics and home improvement items. With no more government checks and high inflation, customers have pulled back on discretionary spending. As a result, retailers have been struggling with rising inventory levels since Spring.

Last month, Target
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warned that the profits would be lower because of inventory markdowns. Even at Walmart, these issues have taken a toll as management announced it will cut prices and likely see it impact profits. The profit warning is a rare moment for Walmart. Even before the pandemic, Walmart had consistently been increasing profits as it expanded its on-line presence and redesigned its store network.

POSTSCRIPT: While I applaud J.Crew’s apparent recovery with a new team of talented and dedicated people leading the charge, it is important to note that Walmart’s warning could influence the broader retail industry. That will make it more difficult for a re-energized business like J.Crew or any new young company to attract customers. We hope that the environment will not be too severe and that the lower sales and lower earnings will be a passing pain.