J. Crew ekes out sales rise as Madewell skyrockets

Dive Brief:

J. Crew on Wednesday said that first quarter total revenues rose 3% to $540.5 million as company-wide comparable sales rose 1%, after a decrease of 8% in the year-ago quarter.
By banner, according to a company press release, J.Crew sales fell 7% to $391.9 million as comparable sales fell 6% following an 11% decline a year ago. Madewell sales, meanwhile, rose a whopping 39% to $115.8 million and comparable sales rose 31% following the 11% increase a year ago.
Operating loss in the quarter was $0.9 million compared to $151 million in the year-ago quarter as net loss narrowed to $33.9 million from $121 million.

Dive Insight:

With numbers like these, the trick for the apparel company now is to get more customers to Madewell, and last quarter executives said they were on the case.

Their strategy is already crystal clear from the company's real estate tactics: Last year, it opened eight Madewell stores, one J. Crew location and one J. Crew factory store even as it shuttered 51 units, and CFO Vincent Zanna confirmed similar plans for this year in a conference call on Wednesday afternoon, noting the company was looking to open 10 Madewell stores and one J. Crew store, while closing 20 stores.

On the same call, J. Crew COO and President Michael J. Nicholson pinned what he called an "encouraging start to the year" on a "successful implementation of our first quarter strategy, which included driving outsized growth in our Madewell brand, increasing total digital penetration, improving gross margins through continued cost negotiations and continuing to realize cost and efficiency benefits associated with our transformation plan."

J. Crew remains the flagship, though, and the company is plotting a "relaunch" of it in September. Meanwhile, the banner is already refreshing its merchandising, with the introduction of a new line of intimates, a swimwear sub-brand dubbed "Playa," and the "Heritage Collection," which includes J. Crew classics, Nicholson said. Plans for denim-focused Madewell include further expansion of washes, fits and sizes after the successful introduction of a "curvy" fit, he also said. Nicholson also reiterated plans to increase global growth through wholesale partnerships, particularly at Nordstrom.

But it remains to be seen if J. Crew can stoke Madewell's growth quickly and effectively enough to buy the flagship more time to recuperate. And if it does, there remains the danger of the younger sibling overpowering the company — like Drexler's Old Navy has done to Gap. The brand is already encroaching on J.Crew's territory, with plans to open Madewell shop-in-shops inside six J.Crew locations in New York City, Florida, Iowa, New Hampshire and Connecticut.

It's happened, not just at Gap Inc., but also, to varying degrees, at The Limited, Abercrombie & Fitch and, to some extent, Victoria's Secret, after the introduction of younger, fresher siblings Limited Express (now Express), Hollister and Pink, according to Lee Peterson, EVP of brand strategy and design at design firm WD Partners. "Better styling, better stores, better prices, what's not to like?" he told Retail Dive in an interview. "But that used to be [the flagship's] space."