A Progressive Digital Media business COMPANY PROFILE J.Crew Group, Inc. REFERENCE CODE: 9F0F710F-76E3-4C08-849F-06847D88876F PUBLICATION DATE: 21 Jan 2016 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED. J.Crew Group, Inc. TABLE OF CONTENTS TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4 J.Crew Group, Inc. © MarketLine Page 2 J.Crew Group, Inc. Company Overview COMPANY OVERVIEW J.Crew Group, Inc. (J.Crew or 'the company') is a specialty retailer offering an assortment of apparel and accessories for men, women and children. The company sells its products through stores, websites and catalogs. The company primarily operates in the US. It is headquartered in New York City, New York and employed about 15,600 people as of January 31, 2015, of whom 9,900 were part-time employees. The company recorded revenues of $2,579.7 million in the financial year ended January 2015 (FY2015), an increase of 6.2% over FY2014. The operating loss of the company was $585 million in FY2015, compared to the operating profit of $249.9 million in FY2014. The net loss was $657.8 million in FY2015, compared to the net profit of $88.1 million in FY2014. KEY FACTS Head Office J.Crew Group, Inc. 770 Broadway New York City New York 10003 USA Phone 1 212 209 2500 Fax Web Address http://www.jcrew.com/ Revenue / turnover 2,579.7 (USD Mn) Financial Year End January Employees 15,600 J.Crew Group, Inc. © MarketLine Page 3 J.Crew Group, Inc. SWOT Analysis SWOT ANALYSIS J.Crew is a specialty retailer offering an assortment of apparel and accessories for men, women and children. The company operates through stores, catalogs and websites. Presence in multiple sales channels enables J.Crew to reach out to a wider customer base and earn higher revenues. However, the company faces intense competition from specialty retailers and mass merchandisers. This could lead to loss of market share and put pressure on the company's margins. Strengths Weaknesses Presence in multiple sales channels Strong internal design team Private label credit card and loyalty program Geographic concentration Dependence on third party vendors and manufacturers Opportunities Threats Growing online retail sales Growing apparel and footwear markets in the US Intense competition Increasing labor wages in the US Strengths Presence in multiple sales channels J.Crew is a vertically-integrated omni-channel specialty retailer. The company operates stores (both retail and factory stores) and websites in both domestic and international markets. Its stores network comprised 280 J.Crew retail stores (including eight crewcuts stores), 139 J.Crew factory stores and 85 Madewell stores across the US, Canada, the UK and Hong Kong as of January 31, 2015. The company opened a new store in Paris, France in March 2015. Stores help in creating brand awareness and gaining customer loyalty by bringing a personal touch. J.Crew also sells its merchandise through catalogs and the websites jcrew.com, jcrewfactory.com and madewell.com. The company’s catalogs help in branding and driving the customer traffic efficiently thereby supporting other channels of distribution. The e-commerce websites offers a wide assortment of products over the internet, including exclusive styles, extended sizes and colors that are not available in the stores. Moreover, J.Crew also accepts and fulfills the online orders from customers in more than 100 countries outside of the US and Canada through a third party. Physical stores enable customers to personally select their outfits at leisure, whereas direct channels such as websites and catalogs suit those customers with time constraint. Presence in multiple sales channels therefore enables J.Crew to reach out to a wider customer base and earn more revenues. Strong internal design team J.Crew Group, Inc. © MarketLine Page 4 J.Crew Group, Inc. SWOT Analysis One of the key strengths of J.Crew is its internal key design team. The strong internal design team supports the company to design better fabrics. The company's products are developed in four seasonal collections and are segregated for monthly product introductions in its periodic catalog mailings, websites and in retail stores. The design process begins with its designers developing seasonal collections eight to 12 months in advance. The design teams work closely with each other in order to leverage market data and ensure the quality of its products.The company's strong internal design team provides it with a competitive advantage and helps it to innovate and launch new products to enhance its market presence. Private label credit card and loyalty program The company offers a private-label credit card which is owned and operated by a third-party bank. The private label credit card program facilitates increased spending at stores and website due to various benefits such as reward points earned during the purchase. As a result, the customers owning these cards visit the company’s stores and website more frequently and spend more per visit than others. In FY2015, sales from J.Crew's credit cards accounted for approximately 15% of total net sales. Besides the private label credit card program, the company also maintains a loyalty program, which provides gift cards that can be redeemed during purchases thereby allowing the customers to earn significant benefits. J.Crew adds value to customer shopping experience through such programs. The private label credit card and loyalty program offered improve customer loyalty and result in repeat sales. Weaknesses Geographic concentration J.Crew operations are concentrated in the US. The company operates a chain of retail stores, factory stores and Madewell stores in 44 US states and the District of Columbia. Though J.Crew has expanded its presence to Canada, the UK, Hong Kong and France, it had limited presence in these markets. At the end of FY2015, the company operated 18 stores in Canada, four stores in the UK, and two in Hong Kong. In March 2015, it opened its first store in Paris, France. In comparison, the company's competitors have a diversified geographic presence. For instance, The Gap operates in the US, Canada, the UK, France, Ireland, Japan, China, Hong Kong, Taiwan and Italy through company-operated stores. It has presence in Asia, Australia, Europe, Latin America, the Middle East, and Africa through franchisee-operated stores. Geographic concentration exposes J.Crew to business risks associated with that particular region, making the company vulnerable to adverse economic developments in that market and also limits its growth prospects. Dependence on third party vendors and manufacturers J.Crew does not operate any manufacturing facilities, and is dependent upon third parties for the manufacture of all its products. A significant portion of the company's products are currently J.Crew Group, Inc. © MarketLine Page 5 J.Crew Group, Inc. SWOT Analysis manufactured by independent manufacturers primarily in Asia. In FY2015, the company sourced approximately 69% of its merchandise from foreign factories in China and Hong Kong. Since the company procures its merchandise from foreign manufacturers, it has little control over the product quality. Any failure on the part of vendor and manufacturer to achieve and maintain high manufacturing standards could result in manufacturing errors resulting in product recalls or withdrawals, delays or interruptions of production, cost overruns or other problems that could seriously harm the company's business. Over-reliance on third party vendors and manufacturers makes the company prone to top-line risks from external parties. Opportunities Growing online retail sales The online channel as a means for shopping has been gaining popularity among the customers in the US. According to the US Department of Commerce, online retail sales (adjusted for seasonal variation) in the US increased from $169.3 billion in 2010 to $297.2 billion in 2014, representing a compound annual growth rate (CAGR) of 15.1%. e-commerce sales increased 14.4% in 2014 over the previous year. Total retail sales, on the other hand, grew by only 3.6% during 2014. e-commerce sales accounted for 6.4% of total retail sales in 2014, compared to 4.4% in 2010. Furthermore, e-commerce sales for the third quarter of 2015 totaled $87.5 billion, an increase of 15.1% compared to the third quarter of 2014. J.Crew offers merchandise through its websites jcrew.com, jcrewfactory.com and madewell.com. Furthermore, it accepts and fulfills online orders from residents of over 100 countries outside of the US and Canada through a third party. The company has an opportunity to leverage the rapid growth in online sales. Increase in online sales could help J.Crew reduce its store inventory management costs, and thereby reduce its overall operational cost. Moreover, the company could target a larger customer base through the online operation which will boost its revenues. Growing apparel and footwear markets in the US The apparel industry has witnessed sluggish growth in the last few years as the demand declined due to several factors, including the economic slowdown. However, with the economic condition improving leading to an increase in consumer spending, the apparel market is expected to perform well in the next few years. In the US, the menswear market grew by nearly 1.9% in 2014 compared to 2013 according to MarketLine. This growth was due to significant price reductions on a variety of products including clothing during the Christmas season.The menswear market in the US is expected to reach a value of $147.9 billion by 2019, registering an increase of 17.8% since 2014. A similar trend was noticed in the US women's apparel market. According to MarketLine, this market increased by nearly 1.9% in 2014 compared to 2013, and is estimated to reach a value of $237 billion by 2019 (an increase of 24% since 2014). J.Crew Group, Inc. © MarketLine Page 6 J.Crew Group, Inc. SWOT Analysis In addition, the US footwear market, which accounts for 25.6% of the global footwear market value, has grown moderately in recent years. According to MarketLine, the footwear market in the US grew by 2.9% in 2014 to reach a value of $74.2 billion. Clothing, footwear, sportswear and accessories retailers account for the largest proportion of sales in the US footwear market. In 2014, sales through this channel generated nearly $45.2 billion, equivalent to 60.9% of the market's overall value. By 2019, this market is expected to reach a value of $87.5 billion, representing a CAGR of 3.3% for the five-year period 2014–19. The company can take advantage of the growth trend in the footwear and apparel markets in the US and increase its sales. Threats Intense competition J.Crew operates in a highly competitive environment. The company competes primarily with specialty retailers, department stores, catalog retailers and e-commerce retailers engaged in the retailing of women's, men's and children's apparel, accessories, shoes and other merchandise. J.Crew competes with specialty stores such as The Gap, Abercrombie & Fitch, American Eagle Outfitters and Chico’s FAS. Majority of the company's competitors are larger and have greater financial, marketing and other resources which give them a competitive advantage. Furthermore, the competition faced by the company's children concept, crewcuts, has further intensified. The children's market is price sensitive as compared with the adult market; parents want to opt for value-priced clothing as children would outgrow the sizes soon. J.Crew faces competition from mass merchants like Wal-Mart and Target which offer children's merchandise at moderate prices. J.Crew also competes with specialty retailers such as Gymboree, Gap Kids and Tween Brands in the children's merchandise category. In addition, promotional activities adopted by the competitors has been negatively impacting the company’s revenues and gross profit. Intense competition and pricing differential could lead to a loss of market share and also put pressure on the company's margins. Increasing labor wages in the US There has been an increase in labor costs in the US in the recent years. The federal minimum wage rate in the US, which remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008. It further increased to $6.55 per hour in 2009 and to $7.25 per hour in 2010. Moreover, many states and municipalities in the country have minimum wage rate even higher than $7.25 per hour due to higher cost of living. For instance, the minimum wage rate has increased in the states of Arkansas (from $7.5 in 2015 to $8 in 2016), California (from $9 in 2015 to $10 in 2016), Colorado (from $8.23 in 2015 to $8.31 in 2016), Connecticut (from $9.15 in 2015 to $9.6 in 2016), Hawaii (from $7.75 in 2015 to $8.5 in 2016), Michigan (from $8.15 in 2015 to $8.5 in 2016) and Massachusetts (from $9 in 2015 to $10 in 2016) in the recent past. Rising labor costs could increase overall costs and affect J.Crew’s margins. J.Crew Group, Inc. © MarketLine Page 7 Copyright of J.Crew Group, Inc SWOT Analysis is the property of MarketLine, a Progressive Digital Media business and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. Copyright of J Crew Group, Inc. SWOT Analysis is the property of MarketLine, a Progressive Digital Media business and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.
