J. Crew to Put Outlet Savings Online
By Tom Ryan
J. Crew Group plans to put its factory outlet sales online in September
in a bid to make its deals more accessible for cash-strapped consumers. Becoming
one of the first to sell outlet clothing on the internet, the retailer risks
cannibalizing its full-price stores.
Crew’s outlet prices for most items
are about 30 percent lower than the chain’s regular store’s although
the majority of the merchandise is made exclusively for the factory division.
move comes after Crew delivered nearly double-digit earnings gains in the second
quarter but lowered its second half outlook.
"[Consumers] are deferring, they are waiting, they’re comparison-shopping
and people are a little nervous," said Mickey Drexler, J. Crew’s CEO,
on an analyst call last week. "Now, why not if you read newspapers? Why
not if you listen to the news?"
At the same time, Crew is finding "superior,
superior returns in factory and online," according to Mr. Drexler. He
also noted the wide majority of customers, even many buying designer clothes,
are discount buyers.
"We do our own internal research all the time, and we said, ‘Why [have
them] drive 50 miles to 60 miles to get goods they want?’ We knew how many
people were calling everyday into our factory stores to order on the phone,
and more importantly, we looked at what everyone else was doing, and we’re
saying, ‘Wow! There’s
a big world out there that’s playing the low price game or lower price
game.’ So we said, ‘We have as good as low price assortment as anyone, why
not make it accessible?’"
As far as cannibalization issues, Mr. Drexler
said the assortment will be edited with any "continuity item at J. Crew" taken
out of the factory online mix. The online format for factory goods will also
when similar cannibalization concerns arrived after he launched Old Navy as
head of Gap Inc., "All it did was put huge numbers on the board
in the regular division and it put huge numbers on the lower price division."
Mr. Drexler said putting its outlet items online should provide "a
hugely larger reach for J. Crew" to reach value-conscious consumers.
"You’d be shocked to see the price points goods in America sell at," said
Mr. Drexler. "It’s so much lower than you think they are. We’re
just saying we’re not in the game. We’re very successful when you
drive 50 miles, but the world is not about driving 50 miles anymore."
Discussion Questions: What do you think of J. Crew’s move to sell its outlet
clothes online? How do you weigh the cannibalization risks for Crew versus the
opportunity to reach more value-conscious consumers?
- J. Crew Q2 2010 Earnings Call Transcript – Seeking Alpha
- J. Crew Dims Outlook; Outlet Sales Go Online – The Wall Street Journal