Report: J. Crew contemplating major changes to survive

Dive Brief:

J. Crew Chairman and CEO Mickey Drexler is huddling with consultants at McKinsey & Co. on a strategy to turn the struggling apparel retailer around, sources with knowledge of the situation told the New York Post.
Private equity firms TPG Capital and Leonard Green & Partners own J. Crew along with Drexler, who ran Gap in the 1990s, and patience with his approach has worn thin, the report states. “I think there was a lot of deference to Drexler and that is now over,” a source told the Post.
Changes on the table include restructuring J. Crew's debt, speeding up its supply chain, emphasizing activewear over tailored clothing, closing stores and boosting e-commerce. Both TPG and J. Crew declined to comment, the Post said.

Dive Insight:

Mickey Drexler made a name for himself at Gap at a time when that retailer was at a high point — the epitome of American style, with awarding-winning ads for its khakis and knits. Drexler also launched Old Navy, Gap's lower-priced sibling brand that now is the company’s saving grace as its flagship brand has tumbled out of style and out of favor, closing stores and growing reliant on lower-priced factory stores.

At J. Crew, Drexler also brought on a lower-priced brand, Madewell, that is similarly outpacing the flagship in recent quarters. That poses the question: Are these lower-priced, lower-quality sibling brands cannibalizing sales from their once-dominant flagships?

They may very well be. And as current Gap CEO Art Peck has lamented, there are no strong trends leading consumers to replenish old styles with new ones.

The one trend that J. Crew reportedly is contemplating: Athleisure, a segment innovated by yoga wear maker Lululemon. Such a step is fraught with complications, though. Lululemon itself is bracing for the popularly of that trend to falter, as a slew of competitors, from sports gear retailers like Nike to general merchandisers like Target, have entered the space.

For J. Crew to pull off athleisure, it will likely have to compete even more directly on Lululemon’s turf, with high-end, high-tech fabrics that justify its higher price tags. It’s not clear whether J. Crew’s emphasis is on quality anymore, though: Its most loyal fans have complained that the retailer’s reputation well-made, long-lasting clothing is no longer accurate, citing recent moves toward lesser quality, more ill-fitting clothes.

J. Crew recently reported a second quarter total revenue decline of 4% down to $569.8 million amid what Drexler called a "challenging traffic environment.” Its Q2 net loss narrowed to $8.6 million, compared to $13.6 million in the year ago period. Overall Q2 same-store sales decreased 8% compared to a decrease of 11% in the second quarter last year.