http://www.businessweek.com/articles/2013-11-27/j-dot-crew-in-britain-fashion-brand-takes-american-style-global

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The J.Crew Invasion


Behind this week’s coverBehind this week’s cover

Dozens of shivering British fashion bloggers, TV personalities, and socialites snake down London’s Regent Street, waiting patiently to get into the Nov. 6 opening night party for the J.Crew flagship store. Inside, bearded men like James Middleton, brother of Kate and Pippa, browse skinny ties and shrunken blazers. Women in full skirts and crop tops paw through tables of pastel cashmere. Everyone’s hair is chicly disheveled, as are their teeth. On the stairs up to the second level of the 17,000-square-foot space, the biggest of the three J.Crew stores that opened in London in November, two partyers pause. “Oh! There’s Mickey and Jenna,” one whispers reverentially, pointing at J.Crew Chief Executive Officer Millard “Mickey” Drexler and Creative Director and President Jenna Lyons. He’s playing town mayor in a navy blazer and a white button-down. She’s in sparkly green pumps and her signature oversize black glasses. There’s a photo booth and Champagne cocktails, and it’s all very fabulous and also kind of funny, because it’s just J.Crew, after all.

Minus a few British touches, such as mannequins topped with Grenadier Guard-style caps, the Regent Street store could be in Ohio or Nevada or New York. It’s artfully filled with the latest designs from Lyons’s team, the same ones sold in stores across the U.S.—women’s skinny jeans and worn-in chambray shirts, men’s vaguely vintage plaid button-downs and slim-cut chinos. Lyons says there was talk of tweaking the collection to be more British “for maybe five seconds,” but “we have a point of view. We felt good about exporting what we were currently doing.” That includes everything from hair elastics to hand-knit Fair Isle sweaters to $1,800 embellished jackets. The vibe is casually stylish, cool yet cheerful. Perfectly American. A British man in tweed stares at a baseball cap in awe.

Back in the store the next day, Drexler, sitting on a couch in the women’s shoe area, is thrilled to talk about the transformation of his company from sweater catalog to the kind of international brand that draws A-listers on a chilly London night. “The party was below-the-radar cool,” says Drexler. “They all looked good. Oh my God, if we could look like that!”

Drexler, 69, does look like that—with his gray scruff and translucent plastic glasses he resembles the preppy patriarch in a J.Crew ad, though his raspy accent is more Bronx than Martha’s Vineyard. Drexler is constantly doing his own market research and pauses to greet some VIP shoppers. “How do you like the new store?” he asks. (Everyone loves everything, which seems to disappoint him.) “The interesting thing about apparel and clothes is that it’s emotional,” he continues. “People’s emotions can change quickly. And the advantage we have in coming to London now is that it’s not J.Crew how it used to be. It’s J.Crew. It’s brand new. Oh my God!”

The J.Crew that Drexler’s referring to isn’t that new; it’s also very much a Jenna Lyons Production. Drexler took over as CEO in 2003 and plucked Lyons from relative obscurity to run all of design (she’d been at the company since 1990), promoting her to creative director in 2007. Under Lyons, who’s 45, J.Crew has become an unlikely fashion force. Her style—a quirky mix of classic pieces, vivid colors, and louder, often sparkly accents—has been copied everywhere from the Gap (GPS) to the pages of Vogue. Editor Anna Wintour is a fan, as is Michelle Obama, and since 2012, J.Crew has presented its collection at New York’s Fashion Week. With prices hovering above fast-fashion chains such as Zara (ITX:SM) and H&M (HMB:SS) but below designer lines such as Alexander Wang and Thom Browne, J.Crew has found a lucrative niche as an aspirational destination for younger shoppers and the go-to store for wealthy customers seeking wardrobe staples. “I don’t want to risk being arrogant, but I think a lot of what we’ve done has connected emotionally with America,” says Drexler.

Growth has been steady; there are now 446 stores within the J.Crew family of brands in the U.S. and Canada, and last year revenue was up 20.1 percent, to $2.2 billion, according to the company. J.Crew is finally in the black. After losing $10.5 million as recently as the second quarter of 2011, its net income over the same period in 2012 topped $22 million. Even so, Drexler says, it’s trying not to rush things. The words that Drexler and the president of the J.Crew brand, Libby Wadle (who heads merchandising and buying), use to describe the company’s international strategy are “thoughtful” and “careful.”

J.Crew rolled out shipping for online purchases in more than 100 countries last year, but the U.K. stores are its first physical outlets overseas under Drexler. He’s planning two stores in Hong Kong next spring. In addition to the Regent Street flagship, there’s a women’s boutique in the upscale shopping area of Brompton Cross, selling the higher-priced J.Crew Collection, and a men’s shop on Lambs Conduit Street that specializes in suiting. “We’re not flooding the markets. We’re not out to become a mass brand,” says Wadle, 40, who worked with Drexler at Gap and has been at J.Crew since 2004. “And so we’re putting a lot of pressure on the stores we are doing to succeed.”

Drexler and Lyons at the Nov. 6 Regent Street opening night party in LondonPhotograph by Richard Young/Rex USADrexler and Lyons at the Nov. 6 Regent Street opening night party in London

J.Crew is still small compared with the Gap’s more than 3,000 stores—but its rise points to something significant. While fashion is inherently elitist, Lyons has made it less so. “Style is for everyone,” she says. “We don’t talk down to our customers.” The ethos of J.Crew is design plus value; the cashmere is made in Italian mills, but costs less than at Bloomingdale’s. Nothing falls apart. (If it does, the salespeople will happily replace it.) The post-2008 demand for value coincided with a resurgence in buying made-in-the-USA products and supporting local manufacturing. J.Crew smartly began beefing up its In Good Company offerings, which include American heritage brands such as Sperry Top-Sider, Red Wing Shoes, Alden Shoes, and Woolrich.

Although most of J.Crew’s products are manufactured overseas, the company has come to own the Americana movement in men’s fashion—rugged button-downs, broken-in-yet-slim-fitting jeans, upscale field jackets (think chic WPA workers). Older brands such as Brooks Brothers and Ralph Lauren have profited from this trend, newer lines like Band of Outsiders have also cashed in, and larger retailers like Club Monaco are moving in that direction—hence its new $450 Varsity Jacket. And Americana has gone global. In Asia, especially, there’s huge demand for the “authentic” heritage brands that J.Crew has curated—Japanese buyers are bidding as much as $1,000 for Red Wing boots on EBay (EBAY), and Alden has opened a successful stand-alone store in Shanghai, decorated with American flags. While there’s no single “American look”—the country is too big, the concept too fuzzy—Drexler & Co. are betting that J.Crew is the closest thing to an exportable national style.
 
 
J.Crew is headquartered in a converted loft in downtown Manhattan near Cooper Square. On a warm November morning the streets are filled with New York University students in jeans and sweaters, girls wearing chunky necklaces and guys in old-school New Balance sneakers. Lyons’s influence is everywhere. Sitting at a large table in her office, which is white and airy and piled with sketches, she talks about her role at the company. “At the end of the day, all I really want is for people to be excited about clothes,” she says. She’s wearing gray slacks and a navy Comme des Garçons sweater (another of J.Crew’s In Good Company collaborations), an outfit that reflects her high-low aesthetic. Lyons is J.Crew the way Diane von Furstenberg is DVF; her own image is so intertwined with the clothes she creates that it’s hard to separate the two. Yet she says she’s not necessarily designing for herself. “You want to love what you make,” she says. “I don’t wear shorts, but we design lots of shorts. I can have a really robust dialogue about shorts!”

Of course, J.Crew has always sold shorts, but not the $425 leather kind that Lyons is talking about. The first J.Crew catalog arrived in American homes in 1983, filled with glossy photos of rosy-cheeked yuppies in ruffled blouses and pea coats. (“Crew” was chosen for its association with the Ivy League sport.) An offshoot of Popular Merchandise Inc., a privately held direct-selling catalog company, the brand targeted the Official Preppy Handbook crowd that wanted Ralph Lauren’s vision of a better life but at a lower price. J.Crew took off—in 1990, founder Arthur Cinader told the New York Times that the company had been growing at 25 percent to 30 percent a year—and by 1988, the year before J.Crew opened its first store in New York’s South Street Seaport, annual sales had reached $100 million.

By the mid-’90s, America knew its heather pine cardigans from its lilac. Crinkly brown J.Crew packages dotted suburbia’s welcome mats, and college students crowded quads in barn jackets and rollneck sweaters. But by 1997, as a result of increased postage costs and management turmoil, J.Crew was foundering. The Cinaders sold a 60 percent stake to investment firm Texas Pacific Group (TPG) for $560 million and gave up day-to-day control. The company went through three CEOs in three years.

Drexler, meanwhile, was turning the Gap into the largest apparel chain in the world. Under Drexler, Gap acquired Banana Republic, launched Old Navy, and made khakis hip. He took the company from $400 million in revenue to more than $14 billion but by 2002 had made a series of strategic errors, most notably trying to make Gap more fashion-forward (the low-rider jeans were not a hit). That led to losses for 29 consecutive months and his dismissal from the company.

That same year, J.Crew posted a loss of more than $40 million. The brand had become uncool, too reminiscent of Friends. When the J.Crew board approached Drexler to take over—“a great name with a better fashion image than Gap,” as he said—he couldn’t resist. Drexler took J.Crew public in 2006, then in 2010 oversaw the sale of the company back to TPG and Leonard Green & Partners for almost $3 billion. The deal was controversial: There were reports that Drexler had been courting buyers without the board’s knowledge and that he ignored bidders other than TPG. He won’t talk about it except to say that, “fashion, by its nature, is not a straight-up business, and most shareholders in the public market have a very short view.” In November, J.Crew issued bonds worth $500 million to pay a dividend to its owners, leading to talk of a possible initial public offering or sale within the next two years. Drexler won’t comment but said in an earlier conversation, “Being private is much more fun.”

Since 2010, Drexler has increasingly empowered Lyons as the company’s visionary. “When we’re thinking about an item, with Mickey it’s never just, ‘is it the right price, and how many units should we buy?’ It’s ‘do we love it, is it beautiful, is it the thing we want?’ ” says Lyons. J.Crew’s headquarters houses both the design and business sides of the company, and the areas look pretty indistinguishable. Racks of J.Crew clothes are everywhere, and Drexler’s voice pipes over a loudspeaker for everyone to lovingly roll their eyes at. The 4,900 employees, mostly women, channel Lyons—fresh-faced, well-accessorized J.Crew soldiers. In 2006 it bought the name of defunct clothing line Madewell to use for a stand-alone denim brand aimed at young women that now has 64 stores. That same year it restarted Crewcuts, J.Crew’s children’s brand, which features $88 bejeweled dresses for girls and $65 boys’ hoodies.

A few years ago, the top executives started thinking about London, but “there was never a moment of, like, ‘It’s time to go on a big international expansion!’ ” says Wadle. She says J.Crew is still growing in the U.S. but is focusing more on specialty stores—and that the brand felt particularly relevant, so the London move made sense. “We certainly weren’t a pioneer coming here,” says Drexler. “We did our own brand research, and then it became an easy decision.” Wadle agrees, with reservations: “Am I worried? I’m not worried,” adding wryly, “I’m anxious, of course.”
 
 
“Historically, overseas expansion in fashion has been tricky,” says Howard Davidowitz, chairman of retail consulting firm Davidowitz & Associates. “Go ask Abercrombie & Fitch (ANF),” he says. Abercrombie, which made a big push into Europe starting in 2007, opening seven flagships and 62 Hollister stores, has struggled abroad. Last year comparable store sales internationally were down 8 percent, and the company announced plans to close all of its stand-alone Gilly Hicks stores, both abroad and in the U.S. “The worst thing you can do is open a bunch of stores to big fanfare and then have to retrench,” says Allen Adamson, managing director of brand consultant Landor Associates.

The Regent Street megastore, one of three J.Crew outlets that opened in London in NovemberCourtesy J.CrewThe Regent Street megastore, one of three J.Crew outlets that opened in London in November

J.Crew is part of a pack of retailers that expects to succeed in London. Mass American brands such as Victoria’s Secret (LTD) and Banana Republic have recently increased their presence in the city, and high-end labels like 3.1 Phillip Lim, Rag & Bone, and Opening Ceremony have opened stores there in the past year. “London is a good place to start an international rollout,” says Adamson. “It’s very cosmopolitan and open to brands from other parts of the world succeeding. Unlike Paris, which is very hard.”

The Regent Street megastore followed J.Crew’s more guerrilla-style entry, the men’s shop on Lambs Conduit. It’s a wisp of a spot, about the size of the large closet of a very wealthy hipster. It resembles the Liquor Store, the Partners & Spade-designed J.Crew outpost in New York’s Tribeca that opened in 2008, the same year Lyons tapped designer Frank Muytjens as head of menswear. Muytjens brought a distressed yet tailored sensibility to the men’s line, inspired by vintage American workwear. (Muytjens is from Amsterdam, but he spent the early part of his career at the very American Polo.) He fixed the pants fit—no more pleats, nothing oversize—and also introduced higher-end fabrics. A men’s magazine darling, Muytjens managed to do for J.Crew’s menswear what Lyons did for women: make it accessibly, authentically cool.

In the back section of the Lambs Conduit store, decorated with Jasper Johns prints and Brian Eno posters, is a wall of Ludlow suits. At about $800, it’s J.Crew’s answer to mid-priced, stylish suiting. A common sight in Brooklyn, Los Angeles, or East Austin, Tex., is a framed wedding photo in which the entire bridal party is outfitted in Ludlow suits and J.Crew bridesmaid dresses.

“This is not a store for college kids anymore. That woman over there—look,” Drexler says, pointing at a middle-aged shopper in the shoe section of the Regent Street flagship. “She’s buying three pairs of £375 leather ankle boots. They’re made in Italy, and designed by us. We take it from our costs directly, so there isn’t a double markup. These would be twice as much at a department store,” he says. The gray boots, with their sleek shape and pointed toe, do look a lot like a Manolo Blahnik version that sells at Barneys New York for $1,055. But to buy the same J.Crew shoes in America, customers pay only $375. Many items in the Regent store and on the U.K. website are priced the same in pounds as in U.S. dollars. With the exchange rate at $1.60 to the pound, cute ballet flats cost 40 percent more in the U.K.

Drexler has gotten some flak for the jacked-up British prices: “Shoppers shocked as Michelle Obama’s favourite brand J.Crew lands in UK … at double the price!” read a Nov. 8 headline in the Daily Mail. “Prices are different from country to country. I’ve been coming to Europe for decades, and it’s always been that way,” says Drexler. The bad press doesn’t bother him. “Opening international stores enormously helps your domestic business. Because then customers will buy even more when they come to America, because it’s cheaper,” he says.

Drexler may sound breezy, but Lyons and Wadle are more forthcoming about the challenges of J.Crew’s British invasion. “Everything’s different over there, from the labeling to compliance to legal issues,” says Lyons, who manages all aspects of marketing and store design. “Stuff you wouldn’t think of. The lighting wattage you’re allowed in London is lower, which we didn’t know, and so we spent the night before the opening changing all the light bulbs. We were like, ‘It’s dark over there, it’s dark over there!’ ” she says. There were also staffing issues. J.Crew prides itself on “store experience,” as Wadle puts it, and finding the right salespeople has been harder than expected. Says Lyons: “When someone’s in the dressing room saying, ‘This isn’t really working,’ where we excel is having the salesperson say, ‘We have these three other things, or this option online.’ ” To help, the team has imported staff from America to train British employees.

J.Crew is deep into its leasing negotiations for the two planned Hong Kong stores. The brand has some experience in the city—last year, it began a collaboration with upscale department store Lane Crawford, displaying J.Crew merchandise in a store-within-a-store format. Drexler says that venture “did really well, though I can’t tell you the numbers, ’cause then you’d have to report them.” His executives, however, seem more measured about J.Crew’s move into Asia.

“The U.K. really connects well with America,” says Wadle, who was promoted to her current position in April. “It’s much more of a mall culture in Hong Kong,” she says, “and the biggest difference is the size of store. They’re smaller, and rents are much higher.” The merchandising team is working on editing down J.Crew’s collection for the reduced square footage while still maintaining the brand identity. They’re also researching Asian sizing. “You go in with the impression that everything would have to be smaller, but we’re seeing that that’s not necessarily the case,” says Wadle. Lyons was surprised by how many size medium sweaters were selling at Lane Crawford. “I don’t know if that’s expats or people wearing them slouchy. I have no idea,” she says.

Asian customers have historically gravitated toward logos and the it-costs-more-so-it-must-be-better mentality, as Drexler puts it, and luxury brands like Prada, Coach, and Burberry have profited accordingly. So far, based on online sales, Lyons isn’t worried about J.Crew’s understated vision succeeding in Hong Kong, but “China proper? That will be a different conversation,” she concedes.

Rosenblum_190
Rosenblum is the Etc. editor for Bloomberg Businessweek.

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