Businessweek Archives

J. Crew Plays Dress Up


Marketing: RETAILING

J. CREW PLAYS DRESS-UP

But will trendier togs and new stores do the trick?

It seems an odd location: To build its flagship store, cataloger J. Crew Group Inc. chose the hip SoHo section of New York City. While track lighting, high ceilings, and black-nylon hip-hugger pants are de rigueur for the neighborhood, they are certainly not for J. Crew. Spandex outfits hardly conjure up images of wholesome Crew models clad in chambray shirts and chinos. But these days, a shopping trip to J. Crew doesn't feel much different from one to Calvin Klein or Banana Republic.

Then again, it isn't supposed to. J. Crew is in the process of reinventing itself for a new generation of urban professionals. Easing away from the preppy, button-down casuals that originally brought the cataloger its fame, Crew is remaking itself into a purveyor of trendy, retro-style clothes. And that's not all. To go along with its fashionable new look, Crew is rapidly expanding its small retail empire.

Trying to forge a new style would be risky for even the most seasoned retailers. But that's particularly true for the privately-held J. Crew. By straying from its trademark look, it risks alienating loyal customers. And J. Crew faces other complications. Under founder and Chairman Arthur Cinader, its executive suite has been troubled for years. Indeed, as it embarks on its major building spree, the president's post remains empty. By positioning itself as an alternative to the much larger Banana Republic, it is also taking on one of the savviest and best-financed retailers in the U.S., Gap Inc. Although Crew's move into retail is a natural expansion, many in the retail trade question whether the company has the management, financing, or design concept to pull it off. "I would not recommend this as a strategy," says Isaac Lagnado, president of Tactical Retail Solutions Inc., a New York consulting firm. "I think they bring very little to the party."

Cinader refused to comment, despite repeated requests for interviews. Yet the 14-year-old J. Crew appears to have little choice but to follow this strategy. With many of its boomer customers aging, it needs to draw in younger buyers. The growth of Crew's catalog sales has also slowed in recent years. So Cinader has revived plans to develop an extensive chain of Crew stores. By the end of 2000, the Manhattan-based company wants to add 60 stores in major metropolitan areas.

Crew's first stab at selling through stores began in 1989. Although Cinader added about 30 more stores over the next few years, he was forced to slow down expansion plans in 1993 because of a tough retailing climate and the resignation of the plan's chief proponent, Crew President Arnold Cohen. Today, with 41 stores, retail still brings in only a modest slice of Crew's estimated $650 million in annual receipts.

"A REAL GAMBLE." So far, Crew's retail operation has been relatively successful. According to Crew, store sales per square foot are at least 1.5 times the industry average of $354. But most of these outlets are styled after the old Crew; the updated clothes have only been available for a little over a year. And as the company hones its fashion makeover, some question whether J. Crew is becoming too trendy. "It's a real gamble on their part," says Alan Millstein, a New York retail consultant. "They have a core customer who likes those classic knits and chinos."

Moreover, Crew's new look isn't very different from Banana Republic's. With 1996 sales of $750 million and 226 stores nationwide, the Gap unit dwarfs Crew. And customers seem satisfied with what they're getting. "I keep coming back to Banana Republic," says a 39-year-old graphic designer who left a J. Crew store in Manhattan empty-handed. "Crew is a little more faddish and younger."

Still, Crew's most immediate problem could be filling the gaps in its executive roster. To pull off its overhaul, many in retailing say Crew needs a high-ranking executive with strong merchandising skills. That had been the job of Crew's president, but since Robert Bernard left the post six months ago, it has been empty. Crew says it is not looking for a replacement. Nor is it the first time J. Crew has been without a president. Bernard filled the vacancy, left open for the bulk of a year, created when then-President Cohen quit in 1993.

Cohen says he left to pursue other opportunities and later became head of London Fog Industries Inc. Bernard refused comment. But problems attracting and retaining executives at Crew are nothing new. Ex-executives and others familiar with Cinader say he has a tough, in-your-face management style that has frequently led to rough relations with top Crew executives--and has caused candidates to refuse to take a job there. "He has a hard time retaining quality, capable talent," says one former executive.

At one meeting, roughly two years ago with a high-ranking computer industry executive who was interviewing for Crew's chief information officer job, Cinader badgered the applicant relentlessly, say several sources familiar with the incident. Midway through, the beleaguered exec left in a huff, saying he was no longer interested in the job. "You say black, and Arthur says white," explains one source close to the company. "He loves to challenge you, to the point of exhaustion." J. Crew denies that Cinader's style has created any management problems. A spokesperson notes that more than 40% of Crew managers have more than five years on the job.

TOUGH SELL. The job of making the strategy work has fallen to David DeMattei, the head of Crew's retail unit. DeMattei joined Crew in May, 1995, after running Banana Republic. Although his background seems well-suited for the task, he spent most of his dozen years at Gap working in finance, ultimately as its chief financial officer. While his operational and financial skills are widely praised, he spent less than one year as president of Banana Republic before leaving as part of a restructuring.

To pull off its expansion, observers estimate it could cost Crew upwards of $90 million. Though a Crew spokesperson wouldn't be specific, she says the company is confident about financing. According to one banker, a syndicate is now forming to lend Crew money. Still, some investment bankers and ex-executives familiar with Crew believe that it will eventually need to raise equity financing or sell a division to fund its plans.

That may not be an easy sell: One investment banker familiar with Crew's financials agrees that "it's a good concept" but says he wouldn't invest. "Not with Cinader in there," he says. It's just one more nagging doubt that could continue to hang over Crew's expansion plans for some time to come.By Lori Bongiorno in New YorkReturn to top


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus