In the end, not even Christy Turlington could save Mickey Drexler, widely regarded as one of the most talented apparel merchants in US retail history.
Drexler, 72, stepped down as the chief executive of J Crew last week after 14 years at the helm. His departure came shortly after the exit of the company’s highly regarded creative director, Jenna Lyons, who joined the firm in 1990 and helped shape it into a consumer phenomenon, a temple of cut-price, high-quality preppy wear.
J Crew is struggling, like many retailers, with an unprecedented tech-led transition from bricks-and-mortar retailing to online, which currently represents about 30% of sales. In 2016, company sales stood at $2.4bn, down 6% after dropping 8% in 2015.
But there were other problems, including a questionable foray into the Brooklyn hipster aesthetic and, crucially, a level of corporate debt that industry analysts say no apparel company can sustain in a fast-paced and highly competitive environment.
And up on Madison Avenue, under the advertising gaze of Turlington, the supermodel, and images signalling an invitation for customers to enter J Crew’s realm of “curated” stores and “capsule” collaborations, Manhattan’s lunch-break customers said they weren’t finding what they needed – the basics of an American wardrobe – as reliably as they once had done.
While Lyons was celebrated for her own quirky style, that may not have been what the middle American shopper was looking for. Even in New York last week, shoppers expressed mixed feelings.
“Fifty per cent of their styles, they get right. Fifty per cent are too out there,” said a woman who gave her name as Andrea. She, like many shoppers, confessed to using the store as a showroom to buy online later, when items may be discounted.
Sonia Brauw, 35, said she enjoyed J Crew’s classic styles – but said the quality was declining. “Back in the day, you could come for exactly what you needed and it carried a certain style for the professional person. But then they focused their design for younger women. How many pairs of jeans and striped shirts can a middle-aged woman wear?”
For a time, though, Lyons tapped into a certain aesthetic. She appeared on HBO’s Girls and dressed Michelle Obama for a 2008 TV interview. Drexler, a veteran of retailing success stories including Ann Taylor and Gap, tapped into a merchandising trend that included mixing vintage styles with J Crew’s back-to-basics sweaters and T-shirts.
But the J Crew Group, which operates about 600 stores in the US, UK, Canada and across the world, is carrying more than $2bn of debt and has less than $150m in cash. Its past three interest payments have been made by issuing new debt. In April, the company cut 250 jobs.
“It wasn’t so much that they were doing the wrong thing, it was just that the market changed,” says Simon Collins, the former dean of fashion at New York’s Parsons design school and the founder of the Fashion Culture Design conference. “They had a brilliantly stylish vision from Jenna and brilliant merchandising from Mickey. Both were leaders in their field and greatly respected.”
But, he added: “That was before Amazon became the biggest retailer in the US.”
The crisis at J Crew is in many ways typical of the retailing picture, says the retail consultant Howard Davidowitz. “The apparel chain business in the United States is a disaster. It’s the worst segment of retail, and bankruptcies are being announced weekly. “
Analysts tend to place the blame at the door of online retailing. The basic styles the chain offered can be purchased online less expensively elsewhere and at a higher quality. Consumers have begun to “showroom” – going shopping and then ordering online.
Last week, even shoppers at J Crew stores were apprised of the company’s dilemma. “Online shopping is becoming such a behemoth that it’s hard to have a store on Fifth Avenue,” said Sunny Somaiya.
In an interview with the Wall Street Journal last week, Drexler conceded he hadn’t anticipated how much upheaval technology would bring to retail. “I’ve never seen the speed of change as it is today. Frankly, it’s not a fun time in the retail world.”
J Crew marketers found that its customers were not as interested in fashion and style as its design team had anticipated. Collins points to its collaboration with the UK company Barracuda as a case in point. “J Crew was selling Barracuda, but I wasn’t sure the J Crew customer wanted that; they wanted a Barracuda knock-off $150 cheaper. It didn’t translate.”
Moreover, Collins points out, a customer looking for fashionable knock-offs is likely to go to Zara or H&M. “When I look at some of the big retailers, I can’t help but think the story is coming to an end,” says Collins. “Zara and H&M are cool experiences. But J Crew fell between the two. It wasn’t a department store, but it wasn’t quite exciting enough to be H&M or one of the designer stores.”
J Crew’s merchandising issues played into fundamental structural problems stemming from the company’s deal to be taken private by the private equity groups TPG and Leonard Green & Partners for $3bn.
That deal, struck in 2011, loaded the company with debt repayments. “This was a leveraged buyout, so J Crew, a little, teeny company, was sitting there in a highly competitive environment burdened with billions in debt,” says Davidowitz. “It’s just not viable.”
But Davidowitz said the failure should not be placed with Drexler, who came to J Crew after turning around Gap and launching that company’s Old Navy division. Drexler remains J Crew’s chairman and has invested $100m in the company.
“There’s no one with a better record. Mickey Drexler saw that the department stores, with their fancy, designer brands, are dramatically over-priced. So he positioned a business to undercut them. But then online came along, and suddenly it didn’t work any more.”
Drexler is passing the chief executive officer role to James Brett, the 48-year-old president of the home furnishings chain West Elm, who will take over efforts to restructure the company’s financing. Drexler will oversee the company’s overall direction.
But as retailing transitions to algorithm-based websites, analysts of the brick-and-mortar retail business find reasons for optimism hard to come by.
“J Crew is caught in a gigantic mess, and it’s carrying billions in debt,” says Davidowitz. “The debt killed [Drexler], and he didn’t have the time to do what he needed to do.”
The US, Davidowitz points out, has five times the amount of store space per person as the UK, Japan or France.
“We have too much of everything, and the only growth is online. It’s a big, complex problem. We’re in the second phase of a major restructuring, and a lot more stores, malls and companies will close, and lots more jobs will be lost before it’s over.”
