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459
– 459 –
TEACHING NOTE
CASE 14
J. Crew in 2014
Overview
In 2014, J. Crew was a $2.4 billion specialty retailer comprising 450 outlets in the U.S. and one in Canada.
J. Crew competed in the $42 million U.S. specialty retailing industry, with a focus on women’s apparel.
CEO Mickey Drexler (ex-GAP stores) was entering his second decade guiding J. Crew. Since 2003, Drexler
had masterminded J. Crew’s domestic expansion, its diversification into younger women’s apparel (Madewell),
children’s wear (Crewcuts), and wedding/special occasion wear (J. Crew Wedding). Drexler also oversaw a
turnaround in J. Crew’s direct sales via catalogue and website, which by the end of FY2013 reached $756
million, representing about 31% of company revenues. In 2011, liquidity problems and declining net income
had forced its sale to two private equity firms for $3.1 billion, including the assumption of $1.6 billion in debt.
Sales in the U.S. specialty retailing industry reached $42 billion in 2013. The industry comprised some 29,000
businesses, and anticipated a growth rate of 3.6 percent in revenues from 2013 to 2018. Demand was primarily
driven by customer demographics, disposable income, fashion trends, and brand name. The prolonged 2008
recession and lingering economic uncertainty in 2014 impacted sales and profits. Decreasing disposable income
induced consumers to purchase based on price and quality rather than on brand name, diverting sales from
specialty retailers to discounters such as Wal-Mart and Costco. Also, e-commerce retailers offered lower
prices, free shipping, and other promotions. Concentration in the industry was low, with no one retailer holding
more than an 8 percent share. The top four players—J. Crew, Ascena Retail Group, Ann, Inc., Forever 21,
and Hennes & Mauritz (H&M)—held a 20 percent share. Merger and acquisition activity began to increase
industry concentration. China and Vietnam, already major suppliers to J. Crew, were expected to manufacture
78.6 percent of all garments sold in the U.S. by 2018. Cotton, a key driver of overhead costs, had spiked in price
in 2010 due to a global shortage and stockpiling by China. As a result of these factors, competition in the market
for specialty retailing was intensifying.
Drexler and his team had reached a crossroads regarding how best to re-position the company for long-term
growth and rejuvenate interest and sales. After J. Crew changed its fashion design strategy from lines of
traditional/conservative clothing to trendier, more youthful apparel, its Fall 2013 line of women’s apparel did
not sell well, and its regular customers complained. Women’s apparel as a percentage of total revenues declined
from 58 percent in 2011 to 55 percent. J. Crew remained saddled with $1.5 billion in debt from the leveraged
buyout in 2011. At the same time, the company was reportedly about to open new stores in London, Tokyo, and
Hong Kong, places where reception of its products was not automatically guaranteed.
There’s ample detail in the case for students to evaluate:
n J. Crew’s strategy.
n The attractiveness of the company in light of recent events, its current situation and future prospects.
n The company’s financial performance.
: Will Its Turnaround
Strategy Improve Its Competitiveness?*
*This teaching note reflects the thinking and analysis of Professor Armand Gilinsky, Sonoma State University. We are most grateful
for his insight, analysis and contributions to how the case can be taught successfully.
Case 14 Teaching Note J. Crew in 2014
460
Suggestions for Using the Case
This case pairs well with material covered in Chapters 3–5. It is particularly useful for illustrating the following
concepts:
nHow to evaluate the macro- and competitive environment in which a company operates (covered in
Chapter 3)
nHow to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities
for growth and profitability (also covered in Chapter 3)
nIdentifying those competitive factors or key success factors (KSF) that most affect industry members’ ability
to survive and prosper in the marketplace: (also covered in Chapter 3)
• Strategy elements
• Product attributes
• Operational approaches
• Resources and competitive capabilities—that spell the difference between being a strong competitor
and a weak competitor—and between profit and loss.
nImproving the effectiveness of the company’s customer value proposition and enhancing differentiation:
(covered in Chapter 4)
• Best practices for quality, marketing, and customer service.
• Reallocating resources to activities that address buyers’ most important purchase criteria, which will
have the biggest impact on the value delivered to the customer
• Adopting new technologies that spur innovation, improve design, and enhance creativity.
nHow to assess a company’s internal resources and capabilities, including its value chain (also covered in
Chapter 4)
nImproving a company’s competitive position based on its generic strategy (covered in Chapter 5)
• Why some generic strategies work better in certain kinds of competitive conditions than in others.
Video for Use with the J. Crew in 2014 case. There is a 3:11 video entitled “A Cheaper J. Crew on the
Way?” that would be best viewed after students have read the case and become familiar with the industry. You
What to Tell Students in Preparing the J. Crew Case for Class. To give students guidance in what to
do and think about in preparing the J. Crew case for class discussion, we strongly recommend they master and
nProvide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the J. Crew case are
To facilitate your use of assignment questions and making them available to students, we have posted a
file of the Assignment Questions contained in this teaching note on the instructor resources section of the
Case 14 Teaching Note J. Crew in 2014
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In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe that, as fashion and clothes are quite popular with students and they are familiar with the industry, the J.
Crew case is quite well-suited for written assignments and oral team presentations. Our suggested assignment
questions are as follows:
nMickey Drexler, CEO of J. Crew, has employed you as a consultant to assess the company’s overall
situation and recommend a set of actions to improve its future prospects. Please prepare a report to J. Crew
management that includes: (1) an evaluation of J. Crew’s current strategy, (2) an assessment of J. Crew’s
strengths, weaknesses, opportunities and threats, (3) an assessment of the primary components of J. Crew’s
nPrepare a brief 1–2 page report to J. Crew CEO Mickey Drexler outlining the 3–4 top priority issues that
J. Crew management needs to address. Make explicit the actions you thinks management should initiate to
address these issues and sustain J. Crew future growth and profitability. Your report should contain detailed
Assignment Questions
1. How strong are the competitive forces confronting J. Crew in the market for specialty retail? Do a five-forces
analysis to support your answer.
2. What does your strategic group map of the specialty retail industry look like? Is J. Crew well positioned?
Why or why not?
3. What do you see as the key success factors in the market for specialty retailers?
4. What does a SWOT analysis reveal about the overall attractiveness of J. Crew’s situation?
5. What are the primary components of J. Crew’s value chain?
6. What are the key elements of J. Crew’s strategy?
7. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that J. Crew is employing?
Case 14 Teaching Note J. Crew in 2014
462
8. What do the data in case Exhibit 1 and 2 reveal about J. Crew’s financial and operating performance?
9. What 3–4 top priority issues do CEO Mickey Drexler and J. Crew management need to address?
10. What recommendations would you make to J. Crew CEO Mickey Drexler? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in question 9.
Teaching Outline and Analysis
1. How strong are the competitive forces confronting J. Crew in the market for specialty
retailers? Do a five-forces analysis to support your answer.
to
Rivalry
Among
Competing
Competitive pressures coming from the
Competitive pressures coming
Substitutes
for Specialty
Retailers
Threat of New
that shop at
stemming
stemming
The case provides an opportunity to introduce or review the five-forces model of competition for specialty
retailing companies that primarily but not exclusively serve the women’s fashion apparel segment.
nRivalry among competing specialty retailers—a moderate to strong competitive force
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Rivalry is growing more intense in the $42 billion specialty retailing industry.
• The industry is mature; revenues are forecasted to grow by 3.6 percent from 2013–2018
• The number of stores is forecasted to grow at 2.3 percent per year from 2013–2018, from about
54,600 to 61,200 outlets in the U.S.
Rivalry is centered on three main factors:
• Relative price
Students should be pressed to identify several rivalry-related competitive pressures at work in specialty
• Efforts of rivals to expand their product lines and offer a broader selection of apparel, primarily to
• Active efforts on the part of the specialty retailers to build and strengthen the appeal of their product
• The prospects for increased consolidation via acquisition and merger; Ascena Retail Group
• The top four players held about 20 percent of the market.
• Rivals needed to be at the forefront of fashion trends and also anticipate what consumers’ demands
Factors that are acting to moderate industry rivalry:
• Differentiation that exists among the different brands of specialty retail chains (as concerns product
selection, brand image, quality, design, celebrity customers, and styling)—such differentiation
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• Globalization offering higher growth opportunities to the chains because there should be sufficient
untapped demand in international markets to enable each rival to grow sales/market share without
On the whole, we believe it is fair to say that the competitive pressures associated with rivalry among the
specialty retail chains are moderate to strong and growing stronger. Class members should recognize that
the case indicates the competitive pressures associated with rivalry are so potent as to make it difficult for
nCompetitive pressures associated with the threat of new entry into the specialty retailer market—a
strong competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.5 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify the threat of entry:
• There are low barriers to entry.
• Access to prime locations such as a shopping malls or a freestanding building that provides good
visibility, curb appeal, and accessibility is generally available.
• Access to domestic and global markets via e-commerce direct sales is potentially unlimited.
Factors that are acting to moderate or weaken the threat of entry:
• Due to cultural and physiological differences among consumers in many nations, customer
acquisition costs are rising as the market for specialty apparel brands globalizes
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On the whole, we believe it is fair to say that the competitive pressures that impact the threat of entry into
the specialty retail industry are strong.
nCompetitive pressures associated with substitutes for specialty retailer operators—a strong
competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.6 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify competitive pressures due to substitution threats:
• During the height of the 2008–09 global economic recession, many consumers turned to deep
• Consumer access to specialty apparel via e-commerce direct sales is virtually unlimited.
• At the high end of the market, there are numerous designers whose collections are available at
• At the budget-conscious end, there is always the do-it-yourself (DIY) option.
We do not think there are many factors that act to moderate or weaken competitive pressures due to
substitution threats to specialty retailing, therefore, the threat of substitutes is a potent force.
nCompetitive pressures associated with the bargaining power of suppliers to specialty retailers—a
weak to moderate competitive force
In assessing this competitive force, students should draw upon the information in Figure 3.7 in Chapter
3 (and the related text discussion).
• Increases in outsourcing to China and Vietnam—forecasted to provide 78.6 percent of apparel to
specialty retailers by 2018
• Cotton price spikes, as in 2010 when China cornered the market, causing a shortage of this vital raw
material in apparel and ratcheting up retailers’ overhead costs
Factors that are acting to moderate or weaken competitive pressures due to the bargaining power of
suppliers to specialty retailers:
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On balance, we view the bargaining power of suppliers as being moderate to low.
nCompetitive pressures associated with the bargaining power of buyers from specialty retailers—a
strong competitive force, depending on the location of buyer
In assessing this competitive force, students should draw upon the information in Figure 3.8 in Chapter
3 (and the related text discussion).
Factors that are acting to intensify competitive pressures due to the bargaining power of specialty retail
customers:
• Buyers have many choices among specialty retailers, and switching costs are non-existent.
• Price and image and design are the main determinants of purchasing behavior, followed by location
and breadth of product line.
A factor that acts to weaken competitive pressures from customers for specialty retailers:
• Although people can choose to make their own apparel at home, despite the relative ease of entry into
Conclusions concerning the Overall Strength of All Five Competitive Forces in specialty
retailing: The collective strength of the five competitive forces facing J. Crew, Ann Inc., Ascena, Forever
2. What does your strategic group map of the specialty retail industry look like? Is J. Crew
well positioned? Why or why not?
Strategic group maps are beneficial for determining relative company placement in the industry. A good
Students can choose among any of several strategic variables or dimensions to divide the specialty retail
Based on the information about the four main rivals provided in the case, we have chosen to employ image/
fashion focus (timeless/conservative vs. youthful/trendy) price point (i.e., low, moderate or upper tier) and
scope of used by specialty retailers. Other possibilities for axes might include: geographic coverage (i.e.
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Note: It is not possible nor necessarily desirable to include Wal-Mart and Costco, prominent deep discount
rivals mentioned in the case, due to the limited information provided not to mention their vastly broader
product lines, larger scale, and expanded scope of operations relative to the specialty retailers under focus.
To set the stage and help students provide some context and data for creating a strategic group map using
TABLE 1. Operating Highlights and Key Strategies of the Major Rivals
in the Specialty Retail in 2013
—FY 2013—
Company
Key
brands
Total
# stores
Rev.
($ billion)
Oper.
inc.
($ million)
Market
share,
%
Strategy
elements
Ann Inc. Ann Taylor, Loft,
Factory
1,000 $2.6 $189 5.6%
•
New stores
•
New trendy lines
•
Upper moderate price
Ascena
Retail
Group
Lane Bryant
Dress Barn,
Justice, Catherine,
Charming Shoppes
3.900 3.4 101 7.1%
•
Diversified portfolio
•
Merger & acquisition
•
Moderate price
•
Trendy lines
Notes
(1) U.S. revenues for Forever 21 approximately 50% of this total, or $1.5 billion.
(2) H&M’s U.S. revenues only.
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Figure 1 presents a representative strategic group map for the specialty retailing industry.
FIGURE 1. A Representative Strategic Group Map of the Specialty
Retailing Industry
Forever
21
High
Relative Price
Image/Fashion
Focus
Low
Youthful/
Trendy
Timeless/
Conservative
H & M
J. Crew
Ann
Ascena
Once students have come up with a map, then we think you should press them for their evaluation of what
we learn from the map. Any of the following questions can be posed to help draw out their views:
nHow well is J. Crew positioned?
The point here is that students should not stop their analysis with just drawing a strategic group map. The
most important part of strategic group mapping is to draw some conclusions about the story the map tells.
On the whole, we find J. Crew’s position on the map to be a mixed blessing:
nIts image, product offerings, and distribution channel strategy are relatively distinct from those of its key
rivals.
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nJ. Crew caters to several segments besides women’s apparel—notably, children and weddings. Yet those
• Most children’s clothing is purchased in summer during back-to-school promotions and to a lesser
nAlthough rival chains have brand-name reputations and brand-name recognition, their price points tend
to be either higher or lower than J. Crew.
nJ Crew has shifted away from timeless, conservative apparel to more youthful, trendy lines, where
Despite its catalog sales and direct e-commerce sales growth, J. Crew, by contrast to its rivals, has had
apparent problems maintaining its fashion focus on preppy, conservative clothing.
3. What do you see as the key success factors in the market for specialty retail apparel?
Listing industry Key Success Factors (KSFs) should be an enjoyable part of the class discussion—we like
to have students help generate the list and then remind them that they are unlikely to remember more than
TABLE 2. Key Success Factors in the Specialty Retail Industry
KEY SUCCESS FACTOR
Relative price
Brand image
Fashion design
Location
Narrowing down the list of priority factors is often subject to debate, but students tend to agree that relative
price and brand image are vital for all players in the market, typically followed by a debate as to
