Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Even J. Crew doesn't think its signature brand amounts to much these days. 

Fashion Miss
Percent Change In Sales at Established J Crew Stores, Year Over Year
Source: Bloomberg

The fashion retailer reported deepening losses of $760 million in the third quarter, 25 percent worse than a year earlier, as it struggles to attract customers back into its stores for its trademark cashmere sweaters and ballet flats. Sales at its established stores dropped by another 11 percent, marking its fifth consecutive quarter of declines. 

But perhaps the most telling news to come out of the release is an admission that its "J. Crew" brand name doesn't carry the cachet it once did.

J. Crew's goodwill, a measure of the premium paid for a company in an acquisition, was measured at $1.7 billion as of April 30, 2011, the first time it reported financial results under private equity owners TPG Capital and Leonard Green & Partners.

The retailer slashed this figure last December. In March, it said $1 billion would be allocated to J. Crew and $108 million to its hipper, newer Madewell brand. By June, the company cut the value ascribed to J.Crew by some 34 percent to $676 million. Late Thursday, it decided to scrap that down to zero, saying:

There is no remaining goodwill attributable to the J.Crew reporting unit.

The company said the move has no impact on its operations, liquidity, financial covenants, or management’s long-term strategy to grow the brands. 

But it's a telling sign of just how deep the problems go at the preppy chic retailer, which not too long ago was contemplating a decision to go public. Now, investors are growing concerned that CEO Mickey Drexler, long christened a "retail legend", is failing to live up to his superstar reputation.

Prices on its benchmark bonds have sunk to a level that suggests a debt restructuring is afoot as the retailer comes to grips with an identity crisis: Its older customers -- the only ones who can afford its high price points -- have aged out of its casual collegiate wear, and its younger shoppers have moved on from the preppy style to cheaper, fast-fashion brands like H&M and Zara. 

Like other soured boom-era buyouts, J. Crew's travails don't bode well for its private-equity owners, who may end up ceding control to lenders if a turnaround isn't nigh. 

Still, J.Crew is technically worth something. The company's intangible assets, which measure the value of its brand names, loyalty program and favorable lease commitments, are now worth $465 million, down from $639 million last quarter. And $380 million of that is directly linked to J.Crew's trade name, down from $550 million in the prior quarter. Intangible assets are less than half of what they were worth at the time of the buyout. And it might not be long before a red pen is taken to those numbers again. 

Discount Debt
A $1.5 billion tranche of the retailer's term loans are getting cheaper by the day.
Source: Bloomberg

With J.Crew's website hawking up to 50 percent off tweed blazers and floral pants this week, there's no sign the company is taking the steps needed to return to the brand to its former glory.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shelly Banjo in New York at
Gillian Tan in New York at

To contact the editor responsible for this story:
Mark Gongloff at