J. Crew Group Looks Online To Cut Costs And Boost Margins
July 31 2009 - 4:00PM
Dow Jones News
J. Crew Group Inc. (JCG) is going back to its direct-sales roots
to help its bottom line.
The preppy retailer plans to focus on its catalog, how the
company was founded and its Web site more than its brick-and-mortar
outposts, management told UBS analyst Roxanne Meyer. The company
wouldn't comment for this article.
J. Crew doesn't have too big of a transition to worry about,
though - it already gets a large part of its sales direct. And only
around 10% of its leases are expiring this year, less than many of
its competitors, said Meyer.
But with customers still skittish, opening fewer stores will
save J. Crew the cost of rents, utilities, and maintenance on a
building. And selling clothes online costs even less than selling
in a catalog.
The company told Meyer that it plans to open "fewer than
expected" stores in the rest of the year. In its annual filing, J.
Crew said it planned to open 15 to 20 stores in 2009, and that it
had already "slowed the pace" of retail expansion.
J. Crew's shares have risen more than 64% over the past three
months and recently changed hands at $28.27, up slightly on the
day.
Other stores have tried to direct customers online, too. Gap
Inc. (GPS) revamped its Web site in 2008 so customers can shop
across all five of the company's brands and pay a flat $7 rate for
normal shipping.
But analysts say J. Crew has an advantage because of its
direct-sales history.
J. Crew already posts significantly more direct sales than its
competitors. In fiscal year 2008, the company earned 28.6% of its
revenue directly. In contrast, Gap and Abercrombie & Fitch Co.
(ANF) brought in about 6% and 8% of their 2008 sales through that
channel, respectively.
The company's focus online may also help it avoid the push and
pull of rent negotiations.
In J. Crew's most recent earnings call, Chief Executive Millard
Drexler spoke about the company's tug-of-war over rents.
"Unless landlords start to realize the supply and demand
balances, as our customers all around the world realize, we're not
going to accelerate store openings because we don't want to work
for the landlords," he said. "We want to be their partners. And
frankly, we're not seeing landlords being flexible and open enough
in this environment to understand that."
-By Alexandra Scaggs, Dow Jones Newswires; 212-416-2673;
Alexandra.Scaggs@dowjones.com