Consumer

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

Jenna Lyons's decision to step down as J. Crew Group's creative director provoked a slew of wistful love letters to a fashion maven who taught a generation of American women how to dress with preppy flair for 26 years. Her departure was also a reminder of the existential struggle of a brand that outfitted the First Lady at the 2013 presidential inauguration and brought affordable luxury to the masses.

Eulogies can certainly provide perspective -- as Racked put it, "Everyone's got feelings about Jenna Lyons leaving J. Crew." But more pressing for J. Crew stewards now is figuring out where to go from here. 

Great Unravelling
Three straight years of sales declines suggest J. Crew is coming apart at the seams
Source: Bloomberg

J. Crew's fall from grace has been dramatic: Ten straight quarters of sales declines. Two years of losses. Nearly $2 billion in debt. And what seems like a never-ending stream of emails to customers hawking 40 percent to 50 percent discounts, which would have been unthinkable a decade ago. 

J. Crew's smaller Madewell brand has been successful, but sales at the namesake J. Crew brand dropped by 14 percent from the year before in the first seven weeks of the current quarter. The company expects another year of sales declines even as it closes 20 poor-performing stores. 

Something has to change. 

For one, J. Crew needs to figure out who its customer is. Lyons's departure suggests management wants to veer from trendy, fashion-forward pieces that match sequined skits with denim jackets. The problem is, older customers who can afford J. Crew's higher prices have aged out of the collegiate cotton-sweater sets, while younger shoppers have abandoned J. Crew's signature preppy style for retro looks from cheaper, fast-fashion brands. And churning out fast fashion and athleisure clones hasn't been working -- shoppers can get that elsewhere for less money.

One segment J. Crew could dominate is polished clothes for the growing professional set. Department stores such as Macy's Inc. and specialty retailers such as Ann Taylor and Banana Republic have failed to deliver for women who are willing to pay up for classier dresses, slacks, and blazers they can wear to work. Not only have they fallen flat on styles and fit, they've left out big segments of the market, including clothing in plus sizes

And as the workplace turns more casual -- with people increasingly working at startups or co-working spaces -- it's getting harder to find outfits that fit a laid-back atmosphere but are still appropriate for a big meeting or your first job interview. J. Crew is well-suited to fill this gap. 

At the same time, J. Crew has to make an important choice: Either it must lower prices to match the middling quality of its clothes, or boost quality to match its prices again.

The smarter choice would be the latter -- especially considering the movement, led by startup brands such as Everlane, to use top-notch, durable materials, along with ethically and environmentally minded manufacturing practices.

For higher prices to have any integrity, though, J. Crew also must move away from the heavy discounts and outlet prices that have hurt its core brand. A recent glance at the J. Crew Factory website, its outlet business, shows a promotion for women's shorts starting at $16.95 and men's button-down shirts starting at $29.95, versus nearly $70 and $98 for similar items on its full-price website. The price discrepancy is an insult to J. Crew's customers.  

And while we're talking about e-commerce: How is it that customers can order a shirt via Amazon.com Inc. and get it within an hour or two using Prime Now, but must wait six to eight business days and pay $5 for shipping (for orders less than $150) when shopping on J. Crew's site? Surely, this can be fixed.

Of course, any progress on driving the business forward will be hindered by J. Crew's heavy debt load, taken on during its 2011 leveraged buyout by TPG Capital and Leonard Green. The company seems so afraid of default, it has already started all sorts of financial maneuvering, such as transferring intellectual property into a new subsidiary protected from creditors.

On Discount
The price of J. Crew's debt has sunk as bondholders lose confidence in the retailer
Source: Bloomberg

I'm not saying J. Crew is doing anything that violates its loan agreements -- that's for a judge to decide, in a lawsuit over the matter. But it does go to show just how desperate the company is to ease its debt pressures, an ongoing trend among retailers whose private equity owners have squeezed them too hard.

The next debt hurdle comes on May 1, when a coupon payment is due on J. Crew's 2019 notes. Instead of paying in cash, though, the company recently said it would pay in kind -- essentially swapping debt for more debt.   

Kicking the can down the road might satisfy creditors, but it certainly won't hold for customers who are wondering aloud when "their old J. Crew" will be coming back.

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

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net