March 25, 2019 • 46 mins
The clothing brand associated with preppy kids established itself early on in the 1980s but found itself floundering after focusing on more high-priced products. This is the story of how a brand nearly priced itself out of the market.
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Speaker 1 (00:04):
J Crew. From in home sales to catalog rush order,
this clothing company became a name known for peppy, preppy
quality clothes, and they were no strangers to having to
retailor their business strategies in the past whenever the brink
loomed in the distance. But in the late nineties and
early two thousand's employed dissatisfaction winning sales and the lack
(00:24):
of outlets soon had J Crew tightening its belt. Find
out how a couple of key people stepped in to
refresh this company and keep it from falling apart at
the seams, at least for a time. This is Jay
Crew on the brink. Hi, everybody, I'm Jonathan Strickland and
(00:48):
I'm Ariel Casting. Ariel, are you a J Crew lady?
You know I'm not. I am so not a J
Crew lady. No offense to the clothing that. I thought
it was immense clothing company, right, and it turns out
that's not how it even started off. Well, I also
I'm not a J Crew lady either, or a J
Crew gentleman. So J Crew Well, I always thought J
(01:11):
Crew as being that that again, like you said in
the introduction, a very preppy kind of clothing line, and
I have nothing against that. I mean, I grew up
in the eighties when the preppy look was born, right,
But I also grew up in a family with two
teachers as parents, and so the I was that was
(01:33):
sort of that was a prince out of my star.
I am in a similar though not exactly sam boat. Yeah,
so I certainly knew people who wore J Crew because
the school I went to there were a lot of
upper middle class families that had students there. Right, The
kids were from upper middle class families, And as it
(01:55):
turns out, that's precisely who they were marketing too. But
let's let's kind of dive into the genesis, the history
of J Crew and where it came from, and then
we'll we'll get to how it found itself in a
tenuous set of circumstances. Sure well, to start, like many
(02:16):
of the companies that we talked about, J Crew wasn't
originally J Crew. It was called Popular Merchandise Incorporated. And
it's start snappy name, you know, it rolls off the tongue,
And it was started in and they were sort of
like pampered chef for Avon. They did in home sales
no kind of door to door salesman, well like clothing parties.
(02:37):
What can I do to get you in these pants?
A great ju Yeah, back in the nineteen fifties, I
would have been the next Glen Gary Glenn Ross. I'm there, yes,
all right. The founders were Mitchell Senator and his cousin
Saul Charles. Yes, Senator was one of those names that
(02:59):
I had ever heard pronounced, and I'm so glad that
you hunted down the pronunciation to put it in here,
because I'm sure I would have pronounced it eighteen different ways,
all of them wrong. So shortly after starting the company,
Mitchell then ends up transitioning the control of the company
to his son Arthur, and things go pretty well for decades.
(03:20):
For decades, Uh, they did business, I should mention, not
as popular merchandise, inc. But as the popular club plan
slightly better, slightly better, slightly better. But in three after
watching some of their competitors do so, they launched their
first catalog. Catalog is what Ja cru is really known
(03:40):
for or was really known for for a very long time,
kind of like Sears Like that was whenever I hear catalog.
The two catalogs I think of at the top of
my head, or Ja cruin Sears, and they called the
catalog Jay Crude. Now, Jonathan, how did they get that name? Well,
that depends upon whom you ask, So if you ask Forbes,
they picked the name Crew because it was sort of
(04:03):
this kind of upper class concept and it could it
could go toe to toe like a rowing crew could
go toe to toe with a polo team. Clever polo
being Ralph Lauren. Yeah, so if you've got the Ralph
Lauren polo label, then you've got to have something that
that is marketed toward that same hoity toity crowd. And well,
(04:25):
they've got the horse's and the hammers all taken care of.
Let's go with boats. As for the j Forbes says
it was to make it sound more distinguished. However, the
Washington Post has a slightly different take, not completely different,
and said that Arthur took the name Crew because he
was inspired by Ivy League rowing teams so similar, and
(04:46):
he was thinking, these are the people I want to
target with my clothing line, people who are from fairly
affluent families. Basically, he was trying to take Ralph Lauren's
clientele and win them over with well made clothing at
a slightly cheaper price point. Oh, and he liked the
J because he liked the way it looked on paper
and from the word crew. If you're selling your closer catalog,
(05:08):
I suppose that is a really important thing. Yeah, but
there's no Joshua Crew that it's named after or anything
like that. No. And interestingly enough, this first catalog they made,
they did all of it in house, so selecting the photos,
writing the content, all of that instead of hiring an agency.
Arthur hired his daughter Emily to help do it, and
she became the chief designer. And Emily would end up
(05:31):
being instrumental over the course of the next several years
of J Cruz. So Arthur and Emily effectively ruled J Crew.
And we'll get into some of the stories about let's
say Arthur's peculiar managerial style. So in this catalog, they
decided they're going to focus on young, preppy, attractive people. Yeah,
(05:54):
it's just who they want to sell to exactly. They're
they're like, we want the people who fall to this
sort of tax bracket to think, I want to be
attractive and preppy, this is the place for me to go.
But they did something really really cool in my opinion,
which is they took the same piece of clothing and
showed it on multiple people, so you could get a
(06:16):
good idea of how this piece of clothing would look
on various body types or skin tones or whatnot. Yeah,
and they became known for having consistent sizes, which sounds
like all right, So I'm a dude who like I
walk in and I buy a medium shirt. First of all,
First of all, I know not all medium shirts are alike.
(06:39):
I can buy two medium T shirts, and medium for
one company is not medium for another company, and one
shirt it might be like, well I need to lose
five more pounds, and the other shirt might be huh,
I got lost in here. So the nice thing about
Jay Crew was that they had this reputation that they
were very consistent. So if you knew that a medium
(06:59):
was your size, you could be pretty darn sure that
if you were to buy a totally different article of
clothing that also was a medium, it was still going
to fit you. And that was a big deal. It
was something that was not common. It really comes down
to cost. So if you go to Old Navy, for instance,
and I go to Old Navy, all the time. So
(07:20):
this is this is no dig in any way. But
if you try on one pair of size twelve pants,
it might be too small. If you try another size
twelve pants, it might fit right. And if you find it,
try another it might be slightly too large. And that's
because cheaper clothing companies will stack their material all on
top of each other and then use a metal die
to cut it, so as it goes down through the
layers of the fabric, it spreads out, so the top
(07:42):
pieces of fabric are literally smaller than the bottom pieces
of fabric, and it would be weird to walk in
and say, I need one from the middle of the stack. Yeah,
they don't even it's not it's labeled or anything. Yeah,
I'm sure they don't track that. So this means that
Jay Crew is probably having to produce their clothing in
smaller matches. Sure, yeah, no, it makes sense. And uh.
(08:03):
They also not just focused on making sure those those
sizes were consistent. They wanted to make sure the materials
they were using were of a reputable quality, so they
weren't going to skimp on the materials. They wanted to
feature that so much that they actually put pictures of
close ups of the material in their catalogs so people
(08:23):
could see the quality. Now, they released fourteen catalogs that
were about a hundred pages each throughout the year, not
fourteen total, like I'm sending it to fourteen people, like
more than one a month. Yes, wow, Well you probably
have your Easter catalog or Christmas catalog catalog. It's just
(08:46):
to me, it's amazing because you would think, like, I
know people who are very fashion conscious. I'm sitting across
from one. I know, I know that there are different
I know in theory there are different clothings for a
different seas sens. I am not a fashion conscious person.
So I learned a lot just by reading over some
(09:06):
of the stuff that you've incorporated into these notes. Listen,
I am going to seriously Marie condo my closet soon
so I'll have three shirts. It'll be fabulous. Well, Jay
Crew was middle upper priced clothing, less expensive than Ralph Lauren,
which was rather expensive. It's still more expensive than like
your generic brands and some of your you know, some
(09:28):
of the stuff that would come later, like you mentioned
old Navy that would kind of spun off from the
gap and those those are a little further down the road. Yes,
but in five the company launched a second women's line
called Clifford and Wills. And this was cheaper clothing all right,
so the more for a budget kind of approach as
(09:48):
opposed to let's have investment pieces almost which expands our
market because someone who's buying Clifford and Wells is not
necessarily gonna invest in a Jay Crew piece. Yeah. So
in Emily Arthur's daughter becomes president of J Crew. Arthur
of course was still on board too, but now she's
named president, not chief designer. And their catalogs by had
(10:11):
over tripled their sales. Wow, and just in five years,
so pretty incredible. It shows that this was a working
market strategy at the time. I mean L L. Bean
was doing it. There were others, but LLL Bean is
the one that is coming to mind at this moment.
That was one of the big competitors. Yes, and by
(10:32):
they were up to a hundred million dollars in revenue,
but that same year their catalog sales did start losing steam.
So they hit this peak and then slowly started to Yeah,
this was a this was something that was common not
just to J Crew, but this was like an industry thing,
not a company specific thing, because you started to see
(10:53):
a shift in consumer behavior and more of a focus
at this point on brick and mortar stores about annoying
two places to actually see the clothing in person, try
it on in a little closed off room addressing room,
and then make sure it looks good on you before
committing to it. So this was not unique to Jay Crew. No,
(11:14):
but Jay Crew did jump on board with the brick
and mortar and they opened their first one in it
is right about the time that rumors were starting to
arise that they might be selling because their catalog sales
were starting to decline. Yeah, and I said, nope, we're
going to open some brick and mortars. Let's jump on
that before it becomes a critical problem. Yes, And sadly
they didn't jump on it enough, which is part of
(11:35):
the problem, or quick enough. Yeah. Well, the first store
they open is in Manhattan, which is like, it's a
very prestigious kind of place to open in New York
is a is a fashion center. Manhattan is the the
business center of New York City. And then you think
about that as a very high profile place, but one
(11:56):
high profile brick and mortar store, as successful business does
not necessarily. Well, they quickly followed up with Massachusetts, San Francisco,
and Costa Mesa, and they had plans for a total
of forty five stores. Okay, but they were just slow
at rolling them out. And then they had ads linking
the catalog to the locations, which to me is surprising
because six of the clothes they sold in the retail
(12:16):
stores were not in the catalog, so you didn't have
necessarily one to one crossover between catalog and store inventor.
Now I think it was there were different divisions, and
I think it was to help them not compete with themselves.
Now to head up these stores, they actually looked outside
their company for somebody who had some expertise in the area, Yes,
Arnold Cohen of Gucci. Well, so by the end of
(12:43):
that year when they're starting to do this, they were
making ten million dollars in retail sales and million dollars overall,
so that was still a small portion of their overall revenue.
But then again they were just getting started with the
brick and mortar at that point. Yes, Now, by the
end of eighty nine, it still wasn't going as well
(13:04):
as they wanted. They felt they were starting to reach
market saturation for their target demographics. So you can add
all of the stores and all the catalogs and all
all of the new clothing that you want. But if
you're only selling to let's say fifty people, those fifty
people are going to buy their shirts and stop, right, Yeah,
you hit market penetration. And then people say like, yeah,
until this wears out, they don't need more. And it
(13:26):
was good quality clothing, right, And this was before they
were able to really flip the switch on the concept
of you need to update your wardrobe frequently. That will
come later, but they did start releasing new lines like
athletic wear and such and providing a wider range of prices, right.
And so then you get to that they're hitting revenues
(13:49):
of millions, so it's still on the on the right track.
You're not seeing that number start to drop yet. But
they were also running into an issue where some of
their stores were aren't doing so well. It wasn't like
every store was going like gangbusters, and that slowed them
launching their retail stores, which is a problem because if
you look at Gap, Gap has a ton of outlets, right,
(14:11):
they had a ton of bricking mortars. They had j
Crue hadn't even reached yet, So ninety one to get
a new director of marketing and they start to sell
to the Great White North, but only through catalogs. They
didn't open a store in Canada till two thousand eleven,
(14:32):
so they weren't learning their their physical location lesson too well. No, like, hey,
catalogs worked great for the United States, and we figured
Canada's at least twenty years behind us. So we're there
for a while right. Well, by the way, I don't
that's not me saying that I love you Canada. I
love you Tim Horton's. In two they hired a VP
(14:53):
of International Development to support these catalogs going to Canada
and also overseas, and this person also sted looking into
retail operations overseas and bye they had partnered with Etoschu
to open forty six stores in Japan, and then Arnold
Cohen resigned. Those two things are not necessarily directly, but
(15:13):
he was president of Jay Crew by that time. Yeah,
so this leads us up to an era in Jay
Cruse history where things start to get a little shaky.
They've already been a little shaky, Yeah, they get a
little more shaky. Yes, the ground gets more uncertain beneath
the feet of the cruisers. We get to I was
(15:36):
trying to think of what I call people that Tom
cruisers and Jay cruisers. Yeah, I was just trying to cruisers.
What would call his new works Since Jay Cruz, they're
getting to a point where when someone finally did come
in and correct their course, people were saying it was
a great turnaround. Yeah. Well we will get to that
(15:56):
in just a moment, but first let's take a quick break.
All right, we're in the early nineties. You know, we
(16:16):
got like things to really enjoy, like Jurassic Park. But
ninety four, something that Jay Crew was not enjoying was
that the cost of mailing stuff was on the rise.
The US Post Office was raising prices for postage, which
meant that sending out catalogs was getting more expensive, and
(16:39):
it meant that you were having to try and recapture
that cost. And it just meant that selling by catalog
was getting less and less effective. It was not only
bringing in fewer sales over time, it was getting more
expensive to do. So this was a turning point for
Jay Crew. Yes, so they made another retail push, this
time headed by David to Maddy, where do you come from?
(17:02):
Bana Republic? The store or like the place. I'm guessing
this store. And they did this push despite having just
a fraction of the stores. Their competitors did as we
said before the break and so at this point, Robert
Bernard becomes the president of the company, and in nineties
six they're still at around forty retail stores in the
(17:25):
United States. They were having issues with retaining employees, including
president Robert Bernard. Yeah, apparently Emily and Arthur were rumored
just being hard to work with, And I have a
couple of anecdotes about that. One story said that Arthur
once received an employee's report and he sent it back
(17:47):
because the staple was crooked by comparison with the edge
of the paper. Goodness gracious, Arthur saying that I don't
if the staple isn't right, I don't trust anything in
this report. An other story was that he walked into
a meeting and immediately walked out again because an employee
had used the abbreviation SP to stand for spring, and
(18:09):
Arthur preferred the abbreviation SPR. And he was like, this
is unacceptable and he left. This is the kind of
job where you constantly walk around with a notepad just
to make sure that you're keeping your peas and cues
in order. Yeah, so he ends up taking over the
company again, at least temporarily, so he assumes the role
of president. That'll fix the problem. Well, it didn't. Actually.
(18:34):
In Texas Specific Group Incorporated, which was an investment firm,
gained majority of the Steak in J Crew. At that point,
they had just been really owned by the Senator family. Yes,
and it was a part of a leverage buyout for
five dred and sixty million dollars. Yeah, and this is
the actual amount, And the amount of ownership ends up
(18:57):
being reported widely in different numbers, but it tends to
be somewhere between five hundred and five seventy million dollars,
and the ownership tends to be quoted anywhere from as
low as eight up to Why this is so hard
to report on remains a mystery to us. Yeah, I
don't know. Something that was pretty consistent in reporting is
(19:22):
that the biout increased J Cruise debt a lot by
about two hundred million dollars yikes. Yeah, and the company's
earnings were such that it wasn't going to cancel out
that debt anytime in the near future. So there was
there needed to be a specific strategy in place. Right,
(19:42):
You're you just spent this huge amount of money on
this company. You know that the company's sales are not
going to erase that debt in the short term. What
is your plan? You plan to take the company public? Oh? Boy,
House had so many discus questions about private versus public companies,
this is going to be another one. Yes. Sadly though,
(20:05):
about the time this sale happened, their catalog sales dropped
thirty million dollars and their operating costs went up due
to a postal strike. Yep, twelve percent drop in sales
for the fall that year. And that was a huge
problem because when I think Jay Crew, one of the
things I tend to think about our things like sweaters.
(20:26):
It's just one of those things that always popped into
my head at the time. And as it turns out,
the fall was by far the season that Jay Crew
depended upon the most for their sales. Yeah. Yeah, so
more than half of all their sales. We're traditionally in
the fall, So seeing a drop in their most popular
(20:48):
and their most important crucial season not good news, not
at all. Yeah. Some other companies that TPG invested in
around this time, just so you can kind of get
a idea for how varied this investment firm was included
del Monte Foods, Berenger Wine, and Ducatti Motorcycles. Do not
(21:09):
ride a Ducatti motorcycle if you've been drinking Berenger wine. Yes,
probably don't eat a del Monte fruit cup at the
same time. Eating at Monte fruit cup while you're traveling
ninety on a Duccatti is a bad idea. Due to
all of these mishaps, they started selling off their properties.
So they sold off Popular Club Plan which still was
(21:30):
a thing, which still apparently was a thing. They sold
it to finger Hut, and they started looking for a
buyer for Clifford and Wills. Yeah, that that bargain ladies
Ladies wine. Yeah, and uh, that was actually a real
sign that something like they were hitting some desperate measures
because that the Clifford and Wills brand wasn't suffering like
(21:54):
Jake Crew was. It actually had been doing quite well.
It had they had grown, but Jay Crew said, now
we're not selling this because we're in trouble. We just
really want to focus on our brand, on the J
Crew specific brand. Yep. So then we get someone who
(22:15):
came from a company that we had mentioned in a
previous episode about Macy's. Actually, so Howard so Call comes
in and becomes CEO, and he had originally been working
at Federated department stores. And like we said that that
was an important component in our Macy's episode. Yes, and
he had the fun job of laying off one hundred employees. Uh.
(22:37):
And he didn't last too long either. So the story
of j cru is also a story of a revolving
door at top level management. You see a lot of
people changing over over a short time. That's a problem
with a lot of companies now. So he resigns in
nine and apparently it's that old story of have issues
(23:00):
with people who are still having major ownership of the
majority of the ownership, but a sizeable stake in the
company in this case Emily yep. Well, he steps down.
Mark Savery comes in from Nestley so from food to
clothing yep. And they start trying a new marketing approach
(23:22):
to which is television commercials. But that's expensive, that's expensive
in the short term. That actually just made it harder
because it increased the costs. Yes. Now by two thousand,
Texas Pacific only owned around six of the company, the
managers had about ten, and then Arthur and Emily had
(23:44):
the rest. Yep, so they were still very much involved
in this. They did end up selling the Clifford and
Wills brand off to up You said that so beautifully.
It's every German listener out there is wishing. I would
not say that ever. Again. Now, they did do a
(24:05):
smart thing. They We're up to eighty two stores by
this time. Yes, so they were really investing in opening
up those brick and mortar locations. Yes, including some J
Crew factory outlets. So what happens in two thousand two,
Well they get another CEO so many and so little time. Yes,
they had three CEOs between and two thousand and three.
(24:27):
So Mark Sarvery is out. Who's in Ken Pilot? How long?
Four months? Yikes? Yes? Yeah. So, as you can see,
it's very hard too for any company to succeed if
you have so many quick changes in leadership. And I
mean this is not a deep insight, this is common sense. Right.
(24:47):
If you are constantly changing captains of the ship, you
can't expect the boat to stay on course, it's going
to start wandering around. You're going to have different approaches
to leadership, different ideas of what needs to be focused
on versus what needs to be dropped. And meanwhile, you
have everyone working for the company. One they don't know
if they're going to have a job the next day. Too.
(25:08):
They have no idea where the company is going because
their boss keeps changing every few months. So you can
imagine this was a really rough time at j CRUE.
In fact, you might even say the company was on
the brink. So how did they get back? We'll find
out in just a minute, but first we're gonna take
(25:30):
a quick break. So in two thousand three, things started
looking up. Yeah, yeah, can I tell you how? Oh, Mickey,
(25:51):
you're so fine, You're still fine. You blow my man,
Hey McKay trademark. Oh okay, you're right. I can't sing
on this. I can't sing either. You can say, just fine, Jonathan,
that's okay. I was about to sing the Mickey Mouse
Club anthem. All right, that's fair. So by Mickey, we
are talking about a specific person, and his name is
Millard Drexler. Yeah, the merchant Prince. Yeah, he was previously
(26:14):
the CEO of Gap. Now, this takes a quick tangent
to explain a problem that happened at Gap, and it's
important because we're gonna see some parallels when we talk
a little bit more about Jay Cruz. So, he had
been at Gap for twenty years. In two thousand two,
he quote unquote resigned from Gap. But it was the
(26:37):
kind of resigned we often see at the CEO level,
where a board of directors says, yo, you've got to resign.
Essentially you're fired, but we're going to let you say
I'm resigning. Deep. Yeah, despite his twenty years, I guess,
eighteen years of success and growing Gap and making it successful. Yeah,
(26:59):
they had two straight years of declining sales. And I said, nope. Yeah,
that was the problem. Was that he had received a
law of credit from making the Gap brand grow at
an explosive rate for the greater part of his leadership
period there. But after two years of these sales figures slipping,
which he argued weren't entirely the fault of leadership or
(27:21):
the company's overall performance or direction, he was told to go.
And then he said later on that he felt vindicated
when a month after he left, the sales figure started
to turn around, and his argument was, that's far too
early for you to credit that to a new leader.
It indicates that it was more of a market thing,
(27:42):
not a company thing. And if I had just stayed there,
you would have seen things had turned around in either case.
But there's no way to tell if that's actually true.
Hindsight is etcetera, etcetera. Yoda and Mr Miyagi moving on.
So Mickey invests ten million dollars into J Crew for
a partial stake of the company, which, according to The
(28:02):
New Yorker, by the time J Crew in public in
two thousand six, his share was worth a hundred and
thirty six million dollars. That's a pretty nice investment to
go from ten to one thirty six in three years. Uh.
And he also started to get a reputation for being
able to suss out which designs, which clothing items were
(28:25):
going to perform well in the market. And he got
a lot of credit for being able to have like this,
this really keen eye for things. He was not himself
necessarily known for being super high fashion. No, he didn't
like wearing suits, yeah, but he recognized what was going
to be popular and he was very good at guiding
(28:48):
that and honestly, he had even had a background before
he worked at Gap doing this sort of thing, because
he started off really as a buyer at another department
store at Bloomingdale's. Know, that wasn't his first job, but
that's really when he got into the clothing market, and
he stayed hands on through his entire time at Jay Crew.
He wasn't the only person picking merchandise, but he was
(29:11):
very involved in it. And he also picked somebody else
who really shaped the look of Jay Crew for better
or for worse, initially for better, Yes, and that would
be Jenna Lyons. Now, she had been at Jay Crue
since and she was in the design department for men swear. Yeah,
she was actually hired by Emily Senator herself. I read
(29:31):
an interview where it talked about her, you know, when
she walked in and she met with Emily. In fact,
both Emily and Arthur were known for taking a very
hands on approach, something that Mickey would continue into the
management style for looking at people to bring onto the team. Yes,
so she became creative director and they just updated j
(29:55):
Cruse image and the products in the company. And we're
very successful in doing so untill about two or so. Yeah,
she was given a ton of creative control. Essentially, what
she said goes like, if you liked something, it could
be on the line. She didn't like something, it got struck.
Other things they did to improve the company were like
(30:15):
focusing on improving service, taking customer feedback on their item seriously.
Something didn't fit across the board, the same way they
would take that seriously. If a customer said, this size
fourteen is not the same as this size fourteen, Yeah,
that was big. Yeah. They made they made sure that
they addressed these things and didn't just ignore them or
(30:36):
dismiss them. Yes, and they started sourcing materials globally through
craftsmen and mills and working with other brands. Uh. They
began to add new lines to their various lines of clothing,
and they started creating things like the Kid's Line, the
Bridle Line, a limited edition stuff. And you're starting to
(31:00):
probably catch onto this. These are trending toward higher end,
more expensive, almost almost luxury items. In fact, some would
argue in some cases they certainly fall into that category.
They in fact started luxury lines, and they also bought
the made Well name, so they didn't buy the company
(31:22):
made Well. Made Well was a company that made work
clothes in the thirties, like Denhim type stuff, and they
had not been in operation for a while, but Mickey
kind of took the the initiative to just buy that
name up for future use. And now there's a a
Made Well store in the very building that we're recording
(31:44):
this end. Yes, there is not recording it in a
made Well. That would be awkward. Yes, And they did
I don't know, I want to try in some Jeanes now, well,
we can do that. After the show, they did expand
to more forms of advertising, but they still use the
catalog as their main source of marketing. They spent about
forty to fifty million dollars a year on the catalog
a lot. It's a lot of money. Yeah. Uh. They
(32:07):
started also having to deal with a problem that was
hitting the entire nation, which was that you start getting
into the Great Recession, and at that point, it becomes
increasingly difficult to market these higher end luxury products to
a smaller number of people who can afford to do
(32:27):
it or feel like they can afford to do it
in the wake of a recession. Yeah, so they launch
Made Well yeah, and they start dropping prices and uh,
and they end up going public. The first day of
public trading, their stock value increased by twenty eight percent,
which is certainly a number that you want to see see.
(32:49):
You want to see that positive number there, and TPG
would sell off most of their steak in the company
at that point, thus fulfilling its purpose of being an
investment firm. That was also when Emily Senator Scott, she
had been on the board of director since it was
(33:10):
around this time that she resigned from the board. Actually,
she and her husband both resigned in two thousand and six,
her husband being Thomas Scott. A third director, Bridget Ryan Berman,
also resigned that day and the stories about the resignation
because I wanted to look into this. I was thinking,
what what was going on? Interesting because the daughter of
(33:33):
not the founder, well really the granddaughter of the founder
of the company, Why did she resign from the board.
The only thing I could find were personal reasons intriguing. Well,
in two thousand and eight, Genna Lyons becomes the executive
director of Jay Crew. She's done so well as shaping
it and a fun fact, Michelle Obama, Where's Jay Crew?
(33:55):
On the Tonight show. So the Obama is where J Crew. Now,
when the presidential family is wearing your brand, that's pretty
good market. On multiple occasions they've done this and it's
helped the brand. Yeah, And this is when Lions sometimes
starts to get criticism for some of her decisions, because
she really was molding the line after her own personal
(34:19):
sense of style, which was very you know, it had
a very strong aesthetic. It wasn't that the vision was bad,
but rather that she was pushing high end fashion during
a recession. Like when you're trying to sell an eight
hundred dollar skirt or a nine hundred dollars sweater and
the country is in an economic recession, a lot of
(34:40):
people would say that that's probably not a great business strategy.
Maybe not, but in two thousand nine, revenues had increased
by hundred and seven percent from when Mickey Drexler first joined. Yep,
they're worth a one point five seven billion dollars. Yes,
and they started opening specialty stores like men's specific clothing stores.
(35:03):
Y since to have men's general clothing stores. And then
in Drexler names Lyons the president of JA Crew from
executive director. So she's continuing her climb and then um,
there was also something else going on at and this
is one of the elements of our story that raised
a lot of eyebrows. Yeah. Apparently Mickey Drexler was looking
(35:26):
at doing a leverage buyout for Jay Crew to make
it a private company again, and he did this by
gathering bids to buy it from Texas Pacific Group. But
he didn't tell the board of directors. Yeah, which typically
you would keep the board of directors informed about this
(35:47):
stuff and get their consent unless you're doing like a
hostile takeover and he's working from inside the company. It's
not like someone from outside the company coming in to
try and take over. And it also means that the
shareholders are upset because they have less say in their
share prices. And they did agree eventually on forty three
dollars and fifty cents per share, but investors were kind
(36:09):
of telling them that wasn't a great deal. They were it. Yeah,
they felt that they could have asked for a higher
per share price for the buyout. But the buyout happens.
It's worth around three billion dollars and Mickey came away
with around two hundred million dollars in cash. Yeah, and
eight point of the new company. You know, when you
walk away from a deal with two hundred million dollars
(36:31):
in cash, there are some questions about how carefully you
negotiated on behalf of the rest of the company. Yeah,
but j Crew also makes it into Fashion Week, which
is a great prestige moment for the company. Yes, certainly.
And in two thousand eleven, as we said, they opened
their first international store in Canada, so now they have
(36:53):
more than just catalogs and the buyout is finished. And
and then in two thousand twelve they started offering their
product globally, so not just Canada to over a hundred companies,
but through online shopping yep. And then between and twenty sixteen,
the number of stores they have almost doubles, So we're
seeing them really invest in opening up these physical stores that,
(37:17):
by the way, is not just Jake cru stores, also
includes the Madewell stores, UM and Jay Crew factory as well.
And this is all on an effort to widen their
customer base, so it's not just the preppy kids with
all the cash. In two thousand and fourteen, getting closer
to current day, things started looking back again. They reported
(37:41):
a loss of six hundred and seven point eight million dollars.
It's more than a little bad. Yes, and their previous
net had been thirty five point four million dollars, so
they report a loss of more than half a billion
dollars and their higher end clothing is is causing a
rift with their core customers. Yeah, here's a great story.
(38:05):
It's one that if you followed along on you know,
if you paid attention at the time, you may have
even seen this because it went viral in an illustrator
named Tricia Luvar penned an open letter on a website
the Hairpin, and the open letter was addressed to General Lions.
It was an illustrated open letter and it criticized lions
(38:26):
focus on expensive clothing. She had said that J Crew
had completely lost track of what its core customer base
wanted and could afford, saying, yeah, your clothing lines are pretty,
but your average person where I live isn't going to
spend dollars on a pair of shoes. The criticism ends
up going viral and others would back up what Luvar
(38:48):
had said. Mark Cohen of the Columbia Business School concluded
that Lions had been pushing her own style long after
customers had grown tired of that aesthetic, and he said
the J Crew customers had and rejecting the brand as
a result over the course of years. Yes, in two
thousand and sixteen they had a net loss of one
point to four billion dollars and in two thousand seventeen
(39:09):
a net loss of two point three five billion dollars. Yikes,
that is astronomical. So what do they do well, they say,
no weddings for you. Yes, they just continue their bridle line.
In two thousand and sixteen, and Drexler takes a note
from Jeff bezos Is book and tells customers that they
(39:30):
can email him directly. Yeah, and he hands out his
own email address. Whether or not he had one made
specifically for the complaints department that I don't know, but
he definitely gave people the email addressed to getting in
touch with him. Yes. Now, Ja Cruz women were was
not doing well at this time, but made Well was
doing well, which just further drives home the point that
(39:52):
they were charging too much for J Crew. Yeah, and
then you see Lions and Drexler both make an exit
from J A crew in this was a big deal.
It was also around the same time that there was
a possible chance for J Crew items to be carried
(40:12):
in Amazon's online store. But that was a deal that
Drexler ultimately decided to walk away from. Not that it
mattered in the long run. No, he thought it would
water down the brand. But he stepped out and James
Britt stepped in in two thousand eighteen, and he decided
to accept the Amazon deal. Yeah. Now, Drexler, while he
had stepped away as CEO, he was still chairman of
(40:34):
the board, and he would remain chairman of the board
for about a year more. This is where we start
seeing another big, drastic cutback at the company. They terminated
two d fifty jobs, including a hundred fifty full time
positions and one hundred open positions. Drexler said in a
very revealing interview with The Wall Street Journal. Here's a
(40:57):
direct quote. We became a little too elitist in our attitude.
We gave a perception of being a higher priced company
than we were in our catalog, online and in our
general presentation. Very big mistake, and Jay Crew pulls out
of Fashion Week and in two thousand seventeen, a little
tiny bit of a backtrack. Arthur Senator passed away at
(41:19):
age ninety, So unlike the owner of Toys r Us,
who was unaware when his company hit the decline, Yeah,
Senator had lived to see this. Uh yeah, but he
he obviously had not had a direct hand in Jay
Crew for many years at that point. Yeah. Now James
Brett stepped down from CEO after just a year and
(41:41):
common story j Crew at this point, Yeah, and Jacus
kind of back on the lists of companies that might
go bankrupt rules soon. Yeah. So again you might say
that it was on the brink, it came back from
the brink, and now it's on the brink again. And
you could argue that again, like I said, with Drexler
and his experience with Gap, that you might have seen
a similar case with Jay Crew where you have this
(42:03):
initial booming period where things are going really well and
it seems like the company has turned around, and then
things start to fall apart. And I've seen a lot
of criticism aimed at Drexler saying that he's very good
at certain parts of his job, but other very key
components of being a leader are things that he may
(42:24):
fall short on. I don't think I'm qualified to make
that kind of judgment myself, but I've certainly seen some
of those criticisms and it is interesting. They also had
some bad press over the last few months, like on
Black Friday, their website crashed and that was really bad news. Uh.
(42:44):
It was down for several hours, and analysts said they
estimated that it cost the company something like seven thousand
dollars in sales just from being down for a few hours.
That's not great, that's not so. We do have some
fun facts about J Crew after leaving it on this
kind of died note. One of them is that Drexler
(43:08):
really liked to have this open dialogue with his employees,
so much so that he set up a loudspeaker in
the J Crew headquarters. Yes that everybody could hear. Was
so he could communicate directly. He could even call in
from his cell phone and his assistant would patch him
through thoughts. Answer your emails, Hey, we're getting this new item.
(43:28):
Did you know that the panto and color of the
year is purple? I had Chinese for lunch, and Drexler's
from the Bronx, so he has a distinct accent that
people said was very entertaining to hear over the loud speaker.
He was also so picky about who he worked with
that he interviewed every potential J crew employee. Yeah, so,
(43:52):
like I said, very hands on, just like Arthur and
Emily were known to be. Oh and um, here's a
fun bit of trivia to close out this episode. He
was also in an episode of Breaking Bad back in
the fifth season. The final season of Breaking Bad, he
was in an episode called Confessions. Um, and he plays
(44:12):
a customer of the car wash. I'm gonna have to
go back and watch that episode. Apparently. I think he
has one line and he said, it took nine takes
to get it right. It's it's it's tough, man, it is.
I mean, it's a hard gig, right, like leading a
billion dollar company. That's that's peanuts compared to TV. Baby, listen,
those one liners are the worst. Well, that wraps up
(44:36):
our conversation about Jay Crew, and uh, again, a very
interesting story. I didn't know most of this before we
did this episode. I certainly didn't know about the merry
go round of executives at J Crew. So I don't
know that there any lessons we can pull from this
other than again, like stable leadership is so important. It's
(45:02):
It's so basic an idea it feels silly to even
say it because obviously that's the case. Right you can, oh,
you know, it doesn't really matter who your leader is.
We'll do just fine. That that is clearly not the case.
Um so will Jay Crew still be around for us
to do a follow up episode in the future. That
remains to be seen. But I never want to see
a business just collapse and go away. I know that
(45:24):
people's livelihoods depend upon it, and the Jay Crew line
has a long storied history of innovation and fashion quality
and quality, So you don't want to see that go
away either. Even if I the shlove that I am,
I am not likely to wear Jay Crew. You know,
I might go try on a J Cruz sweater. Yeah,
just for the heck of it, I might. I might
(45:47):
troll through the thrift stores and see if there's a
J Crew sweaters. All right, Well, that wraps this up.
Where can they reach us? Well, if you have comments
about the show, you want to tell us that you
love us, or you have suggestions for future episodes, you
can email us at Feedback at the Brink podcast dot
show Yes, or you can visit our website. That's the
(46:08):
Brink podcast dot show that has all the archived episodes
there and information about US and UH in case you've
forgot who we are. I have been Jonathan Strickland, and
I have been aerial casting
J Crew. From in home sales to catalog rush order,
this clothing company became a name known for peppy, preppy
quality clothes, and they were no strangers to having to
retailor their business strategies in the past whenever the brink
loomed in the distance. But in the late nineties and
early two thousand's employed dissatisfaction winning sales and the lack
(00:24):
of outlets soon had J Crew tightening its belt. Find
out how a couple of key people stepped in to
refresh this company and keep it from falling apart at
the seams, at least for a time. This is Jay
Crew on the brink. Hi, everybody, I'm Jonathan Strickland and
(00:48):
I'm Ariel Casting. Ariel, are you a J Crew lady?
You know I'm not. I am so not a J
Crew lady. No offense to the clothing that. I thought
it was immense clothing company, right, and it turns out
that's not how it even started off. Well, I also
I'm not a J Crew lady either, or a J
Crew gentleman. So J Crew Well, I always thought J
(01:11):
Crew as being that that again, like you said in
the introduction, a very preppy kind of clothing line, and
I have nothing against that. I mean, I grew up
in the eighties when the preppy look was born, right,
But I also grew up in a family with two
teachers as parents, and so the I was that was
(01:33):
sort of that was a prince out of my star.
I am in a similar though not exactly sam boat. Yeah,
so I certainly knew people who wore J Crew because
the school I went to there were a lot of
upper middle class families that had students there. Right, The
kids were from upper middle class families, And as it
(01:55):
turns out, that's precisely who they were marketing too. But
let's let's kind of dive into the genesis, the history
of J Crew and where it came from, and then
we'll we'll get to how it found itself in a
tenuous set of circumstances. Sure well, to start, like many
(02:16):
of the companies that we talked about, J Crew wasn't
originally J Crew. It was called Popular Merchandise Incorporated. And
it's start snappy name, you know, it rolls off the tongue,
And it was started in and they were sort of
like pampered chef for Avon. They did in home sales
no kind of door to door salesman, well like clothing parties.
(02:37):
What can I do to get you in these pants?
A great ju Yeah, back in the nineteen fifties, I
would have been the next Glen Gary Glenn Ross. I'm there, yes,
all right. The founders were Mitchell Senator and his cousin
Saul Charles. Yes, Senator was one of those names that
(02:59):
I had ever heard pronounced, and I'm so glad that
you hunted down the pronunciation to put it in here,
because I'm sure I would have pronounced it eighteen different ways,
all of them wrong. So shortly after starting the company,
Mitchell then ends up transitioning the control of the company
to his son Arthur, and things go pretty well for decades.
(03:20):
For decades, Uh, they did business, I should mention, not
as popular merchandise, inc. But as the popular club plan
slightly better, slightly better, slightly better. But in three after
watching some of their competitors do so, they launched their
first catalog. Catalog is what Ja cru is really known
(03:40):
for or was really known for for a very long time,
kind of like Sears Like that was whenever I hear catalog.
The two catalogs I think of at the top of
my head, or Ja cruin Sears, and they called the
catalog Jay Crude. Now, Jonathan, how did they get that name? Well,
that depends upon whom you ask, So if you ask Forbes,
they picked the name Crew because it was sort of
(04:03):
this kind of upper class concept and it could it
could go toe to toe like a rowing crew could
go toe to toe with a polo team. Clever polo
being Ralph Lauren. Yeah, so if you've got the Ralph
Lauren polo label, then you've got to have something that
that is marketed toward that same hoity toity crowd. And well,
(04:25):
they've got the horse's and the hammers all taken care of.
Let's go with boats. As for the j Forbes says
it was to make it sound more distinguished. However, the
Washington Post has a slightly different take, not completely different,
and said that Arthur took the name Crew because he
was inspired by Ivy League rowing teams so similar, and
(04:46):
he was thinking, these are the people I want to
target with my clothing line, people who are from fairly
affluent families. Basically, he was trying to take Ralph Lauren's
clientele and win them over with well made clothing at
a slightly cheaper price point. Oh, and he liked the
J because he liked the way it looked on paper
and from the word crew. If you're selling your closer catalog,
(05:08):
I suppose that is a really important thing. Yeah, but
there's no Joshua Crew that it's named after or anything
like that. No. And interestingly enough, this first catalog they made,
they did all of it in house, so selecting the photos,
writing the content, all of that instead of hiring an agency.
Arthur hired his daughter Emily to help do it, and
she became the chief designer. And Emily would end up
(05:31):
being instrumental over the course of the next several years
of J Cruz. So Arthur and Emily effectively ruled J Crew.
And we'll get into some of the stories about let's
say Arthur's peculiar managerial style. So in this catalog, they
decided they're going to focus on young, preppy, attractive people. Yeah,
(05:54):
it's just who they want to sell to exactly. They're
they're like, we want the people who fall to this
sort of tax bracket to think, I want to be
attractive and preppy, this is the place for me to go.
But they did something really really cool in my opinion,
which is they took the same piece of clothing and
showed it on multiple people, so you could get a
(06:16):
good idea of how this piece of clothing would look
on various body types or skin tones or whatnot. Yeah,
and they became known for having consistent sizes, which sounds
like all right, So I'm a dude who like I
walk in and I buy a medium shirt. First of all,
First of all, I know not all medium shirts are alike.
(06:39):
I can buy two medium T shirts, and medium for
one company is not medium for another company, and one
shirt it might be like, well I need to lose
five more pounds, and the other shirt might be huh,
I got lost in here. So the nice thing about
Jay Crew was that they had this reputation that they
were very consistent. So if you knew that a medium
(06:59):
was your size, you could be pretty darn sure that
if you were to buy a totally different article of
clothing that also was a medium, it was still going
to fit you. And that was a big deal. It
was something that was not common. It really comes down
to cost. So if you go to Old Navy, for instance,
and I go to Old Navy, all the time. So
(07:20):
this is this is no dig in any way. But
if you try on one pair of size twelve pants,
it might be too small. If you try another size
twelve pants, it might fit right. And if you find it,
try another it might be slightly too large. And that's
because cheaper clothing companies will stack their material all on
top of each other and then use a metal die
to cut it, so as it goes down through the
layers of the fabric, it spreads out, so the top
(07:42):
pieces of fabric are literally smaller than the bottom pieces
of fabric, and it would be weird to walk in
and say, I need one from the middle of the stack. Yeah,
they don't even it's not it's labeled or anything. Yeah,
I'm sure they don't track that. So this means that
Jay Crew is probably having to produce their clothing in
smaller matches. Sure, yeah, no, it makes sense. And uh.
(08:03):
They also not just focused on making sure those those
sizes were consistent. They wanted to make sure the materials
they were using were of a reputable quality, so they
weren't going to skimp on the materials. They wanted to
feature that so much that they actually put pictures of
close ups of the material in their catalogs so people
(08:23):
could see the quality. Now, they released fourteen catalogs that
were about a hundred pages each throughout the year, not
fourteen total, like I'm sending it to fourteen people, like
more than one a month. Yes, wow, Well you probably
have your Easter catalog or Christmas catalog catalog. It's just
(08:46):
to me, it's amazing because you would think, like, I
know people who are very fashion conscious. I'm sitting across
from one. I know, I know that there are different
I know in theory there are different clothings for a
different seas sens. I am not a fashion conscious person.
So I learned a lot just by reading over some
(09:06):
of the stuff that you've incorporated into these notes. Listen,
I am going to seriously Marie condo my closet soon
so I'll have three shirts. It'll be fabulous. Well, Jay
Crew was middle upper priced clothing, less expensive than Ralph Lauren,
which was rather expensive. It's still more expensive than like
your generic brands and some of your you know, some
(09:28):
of the stuff that would come later, like you mentioned
old Navy that would kind of spun off from the
gap and those those are a little further down the road. Yes,
but in five the company launched a second women's line
called Clifford and Wills. And this was cheaper clothing all right,
so the more for a budget kind of approach as
(09:48):
opposed to let's have investment pieces almost which expands our
market because someone who's buying Clifford and Wells is not
necessarily gonna invest in a Jay Crew piece. Yeah. So
in Emily Arthur's daughter becomes president of J Crew. Arthur
of course was still on board too, but now she's
named president, not chief designer. And their catalogs by had
(10:11):
over tripled their sales. Wow, and just in five years,
so pretty incredible. It shows that this was a working
market strategy at the time. I mean L L. Bean
was doing it. There were others, but LLL Bean is
the one that is coming to mind at this moment.
That was one of the big competitors. Yes, and by
(10:32):
they were up to a hundred million dollars in revenue,
but that same year their catalog sales did start losing steam.
So they hit this peak and then slowly started to Yeah,
this was a this was something that was common not
just to J Crew, but this was like an industry thing,
not a company specific thing, because you started to see
(10:53):
a shift in consumer behavior and more of a focus
at this point on brick and mortar stores about annoying
two places to actually see the clothing in person, try
it on in a little closed off room addressing room,
and then make sure it looks good on you before
committing to it. So this was not unique to Jay Crew. No,
(11:14):
but Jay Crew did jump on board with the brick
and mortar and they opened their first one in it
is right about the time that rumors were starting to
arise that they might be selling because their catalog sales
were starting to decline. Yeah, and I said, nope, we're
going to open some brick and mortars. Let's jump on
that before it becomes a critical problem. Yes, And sadly
they didn't jump on it enough, which is part of
(11:35):
the problem, or quick enough. Yeah. Well, the first store
they open is in Manhattan, which is like, it's a
very prestigious kind of place to open in New York
is a is a fashion center. Manhattan is the the
business center of New York City. And then you think
about that as a very high profile place, but one
(11:56):
high profile brick and mortar store, as successful business does
not necessarily. Well, they quickly followed up with Massachusetts, San Francisco,
and Costa Mesa, and they had plans for a total
of forty five stores. Okay, but they were just slow
at rolling them out. And then they had ads linking
the catalog to the locations, which to me is surprising
because six of the clothes they sold in the retail
(12:16):
stores were not in the catalog, so you didn't have
necessarily one to one crossover between catalog and store inventor.
Now I think it was there were different divisions, and
I think it was to help them not compete with themselves.
Now to head up these stores, they actually looked outside
their company for somebody who had some expertise in the area, Yes,
Arnold Cohen of Gucci. Well, so by the end of
(12:43):
that year when they're starting to do this, they were
making ten million dollars in retail sales and million dollars overall,
so that was still a small portion of their overall revenue.
But then again they were just getting started with the
brick and mortar at that point. Yes, Now, by the
end of eighty nine, it still wasn't going as well
(13:04):
as they wanted. They felt they were starting to reach
market saturation for their target demographics. So you can add
all of the stores and all the catalogs and all
all of the new clothing that you want. But if
you're only selling to let's say fifty people, those fifty
people are going to buy their shirts and stop, right, Yeah,
you hit market penetration. And then people say like, yeah,
until this wears out, they don't need more. And it
(13:26):
was good quality clothing, right, And this was before they
were able to really flip the switch on the concept
of you need to update your wardrobe frequently. That will
come later, but they did start releasing new lines like
athletic wear and such and providing a wider range of prices, right.
And so then you get to that they're hitting revenues
(13:49):
of millions, so it's still on the on the right track.
You're not seeing that number start to drop yet. But
they were also running into an issue where some of
their stores were aren't doing so well. It wasn't like
every store was going like gangbusters, and that slowed them
launching their retail stores, which is a problem because if
you look at Gap, Gap has a ton of outlets, right,
(14:11):
they had a ton of bricking mortars. They had j
Crue hadn't even reached yet, So ninety one to get
a new director of marketing and they start to sell
to the Great White North, but only through catalogs. They
didn't open a store in Canada till two thousand eleven,
(14:32):
so they weren't learning their their physical location lesson too well. No, like, hey,
catalogs worked great for the United States, and we figured
Canada's at least twenty years behind us. So we're there
for a while right. Well, by the way, I don't
that's not me saying that I love you Canada. I
love you Tim Horton's. In two they hired a VP
(14:53):
of International Development to support these catalogs going to Canada
and also overseas, and this person also sted looking into
retail operations overseas and bye they had partnered with Etoschu
to open forty six stores in Japan, and then Arnold
Cohen resigned. Those two things are not necessarily directly, but
(15:13):
he was president of Jay Crew by that time. Yeah,
so this leads us up to an era in Jay
Cruse history where things start to get a little shaky.
They've already been a little shaky, Yeah, they get a
little more shaky. Yes, the ground gets more uncertain beneath
the feet of the cruisers. We get to I was
(15:36):
trying to think of what I call people that Tom
cruisers and Jay cruisers. Yeah, I was just trying to cruisers.
What would call his new works Since Jay Cruz, they're
getting to a point where when someone finally did come
in and correct their course, people were saying it was
a great turnaround. Yeah. Well we will get to that
(15:56):
in just a moment, but first let's take a quick break.
All right, we're in the early nineties. You know, we
(16:16):
got like things to really enjoy, like Jurassic Park. But
ninety four, something that Jay Crew was not enjoying was
that the cost of mailing stuff was on the rise.
The US Post Office was raising prices for postage, which
meant that sending out catalogs was getting more expensive, and
(16:39):
it meant that you were having to try and recapture
that cost. And it just meant that selling by catalog
was getting less and less effective. It was not only
bringing in fewer sales over time, it was getting more
expensive to do. So this was a turning point for
Jay Crew. Yes, so they made another retail push, this
time headed by David to Maddy, where do you come from?
(17:02):
Bana Republic? The store or like the place. I'm guessing
this store. And they did this push despite having just
a fraction of the stores. Their competitors did as we
said before the break and so at this point, Robert
Bernard becomes the president of the company, and in nineties
six they're still at around forty retail stores in the
(17:25):
United States. They were having issues with retaining employees, including
president Robert Bernard. Yeah, apparently Emily and Arthur were rumored
just being hard to work with, And I have a
couple of anecdotes about that. One story said that Arthur
once received an employee's report and he sent it back
(17:47):
because the staple was crooked by comparison with the edge
of the paper. Goodness gracious, Arthur saying that I don't
if the staple isn't right, I don't trust anything in
this report. An other story was that he walked into
a meeting and immediately walked out again because an employee
had used the abbreviation SP to stand for spring, and
(18:09):
Arthur preferred the abbreviation SPR. And he was like, this
is unacceptable and he left. This is the kind of
job where you constantly walk around with a notepad just
to make sure that you're keeping your peas and cues
in order. Yeah, so he ends up taking over the
company again, at least temporarily, so he assumes the role
of president. That'll fix the problem. Well, it didn't. Actually.
(18:34):
In Texas Specific Group Incorporated, which was an investment firm,
gained majority of the Steak in J Crew. At that point,
they had just been really owned by the Senator family. Yes,
and it was a part of a leverage buyout for
five dred and sixty million dollars. Yeah, and this is
the actual amount, And the amount of ownership ends up
(18:57):
being reported widely in different numbers, but it tends to
be somewhere between five hundred and five seventy million dollars,
and the ownership tends to be quoted anywhere from as
low as eight up to Why this is so hard
to report on remains a mystery to us. Yeah, I
don't know. Something that was pretty consistent in reporting is
(19:22):
that the biout increased J Cruise debt a lot by
about two hundred million dollars yikes. Yeah, and the company's
earnings were such that it wasn't going to cancel out
that debt anytime in the near future. So there was
there needed to be a specific strategy in place. Right,
(19:42):
You're you just spent this huge amount of money on
this company. You know that the company's sales are not
going to erase that debt in the short term. What
is your plan? You plan to take the company public? Oh? Boy,
House had so many discus questions about private versus public companies,
this is going to be another one. Yes. Sadly though,
(20:05):
about the time this sale happened, their catalog sales dropped
thirty million dollars and their operating costs went up due
to a postal strike. Yep, twelve percent drop in sales
for the fall that year. And that was a huge
problem because when I think Jay Crew, one of the
things I tend to think about our things like sweaters.
(20:26):
It's just one of those things that always popped into
my head at the time. And as it turns out,
the fall was by far the season that Jay Crew
depended upon the most for their sales. Yeah. Yeah, so
more than half of all their sales. We're traditionally in
the fall, So seeing a drop in their most popular
(20:48):
and their most important crucial season not good news, not
at all. Yeah. Some other companies that TPG invested in
around this time, just so you can kind of get
a idea for how varied this investment firm was included
del Monte Foods, Berenger Wine, and Ducatti Motorcycles. Do not
(21:09):
ride a Ducatti motorcycle if you've been drinking Berenger wine. Yes,
probably don't eat a del Monte fruit cup at the
same time. Eating at Monte fruit cup while you're traveling
ninety on a Duccatti is a bad idea. Due to
all of these mishaps, they started selling off their properties.
So they sold off Popular Club Plan which still was
(21:30):
a thing, which still apparently was a thing. They sold
it to finger Hut, and they started looking for a
buyer for Clifford and Wills. Yeah, that that bargain ladies
Ladies wine. Yeah, and uh, that was actually a real
sign that something like they were hitting some desperate measures
because that the Clifford and Wills brand wasn't suffering like
(21:54):
Jake Crew was. It actually had been doing quite well.
It had they had grown, but Jay Crew said, now
we're not selling this because we're in trouble. We just
really want to focus on our brand, on the J
Crew specific brand. Yep. So then we get someone who
(22:15):
came from a company that we had mentioned in a
previous episode about Macy's. Actually, so Howard so Call comes
in and becomes CEO, and he had originally been working
at Federated department stores. And like we said that that
was an important component in our Macy's episode. Yes, and
he had the fun job of laying off one hundred employees. Uh.
(22:37):
And he didn't last too long either. So the story
of j cru is also a story of a revolving
door at top level management. You see a lot of
people changing over over a short time. That's a problem
with a lot of companies now. So he resigns in
nine and apparently it's that old story of have issues
(23:00):
with people who are still having major ownership of the
majority of the ownership, but a sizeable stake in the
company in this case Emily yep. Well, he steps down.
Mark Savery comes in from Nestley so from food to
clothing yep. And they start trying a new marketing approach
(23:22):
to which is television commercials. But that's expensive, that's expensive
in the short term. That actually just made it harder
because it increased the costs. Yes. Now by two thousand,
Texas Pacific only owned around six of the company, the
managers had about ten, and then Arthur and Emily had
(23:44):
the rest. Yep, so they were still very much involved
in this. They did end up selling the Clifford and
Wills brand off to up You said that so beautifully.
It's every German listener out there is wishing. I would
not say that ever. Again. Now, they did do a
(24:05):
smart thing. They We're up to eighty two stores by
this time. Yes, so they were really investing in opening
up those brick and mortar locations. Yes, including some J
Crew factory outlets. So what happens in two thousand two,
Well they get another CEO so many and so little time. Yes,
they had three CEOs between and two thousand and three.
(24:27):
So Mark Sarvery is out. Who's in Ken Pilot? How long?
Four months? Yikes? Yes? Yeah. So, as you can see,
it's very hard too for any company to succeed if
you have so many quick changes in leadership. And I
mean this is not a deep insight, this is common sense. Right.
(24:47):
If you are constantly changing captains of the ship, you
can't expect the boat to stay on course, it's going
to start wandering around. You're going to have different approaches
to leadership, different ideas of what needs to be focused
on versus what needs to be dropped. And meanwhile, you
have everyone working for the company. One they don't know
if they're going to have a job the next day. Too.
(25:08):
They have no idea where the company is going because
their boss keeps changing every few months. So you can
imagine this was a really rough time at j CRUE.
In fact, you might even say the company was on
the brink. So how did they get back? We'll find
out in just a minute, but first we're gonna take
(25:30):
a quick break. So in two thousand three, things started
looking up. Yeah, yeah, can I tell you how? Oh, Mickey,
(25:51):
you're so fine, You're still fine. You blow my man,
Hey McKay trademark. Oh okay, you're right. I can't sing
on this. I can't sing either. You can say, just fine, Jonathan,
that's okay. I was about to sing the Mickey Mouse
Club anthem. All right, that's fair. So by Mickey, we
are talking about a specific person, and his name is
Millard Drexler. Yeah, the merchant Prince. Yeah, he was previously
(26:14):
the CEO of Gap. Now, this takes a quick tangent
to explain a problem that happened at Gap, and it's
important because we're gonna see some parallels when we talk
a little bit more about Jay Cruz. So, he had
been at Gap for twenty years. In two thousand two,
he quote unquote resigned from Gap. But it was the
(26:37):
kind of resigned we often see at the CEO level,
where a board of directors says, yo, you've got to resign.
Essentially you're fired, but we're going to let you say
I'm resigning. Deep. Yeah, despite his twenty years, I guess,
eighteen years of success and growing Gap and making it successful. Yeah,
(26:59):
they had two straight years of declining sales. And I said, nope. Yeah,
that was the problem. Was that he had received a
law of credit from making the Gap brand grow at
an explosive rate for the greater part of his leadership
period there. But after two years of these sales figures slipping,
which he argued weren't entirely the fault of leadership or
(27:21):
the company's overall performance or direction, he was told to go.
And then he said later on that he felt vindicated
when a month after he left, the sales figure started
to turn around, and his argument was, that's far too
early for you to credit that to a new leader.
It indicates that it was more of a market thing,
(27:42):
not a company thing. And if I had just stayed there,
you would have seen things had turned around in either case.
But there's no way to tell if that's actually true.
Hindsight is etcetera, etcetera. Yoda and Mr Miyagi moving on.
So Mickey invests ten million dollars into J Crew for
a partial stake of the company, which, according to The
(28:02):
New Yorker, by the time J Crew in public in
two thousand six, his share was worth a hundred and
thirty six million dollars. That's a pretty nice investment to
go from ten to one thirty six in three years. Uh.
And he also started to get a reputation for being
able to suss out which designs, which clothing items were
(28:25):
going to perform well in the market. And he got
a lot of credit for being able to have like this,
this really keen eye for things. He was not himself
necessarily known for being super high fashion. No, he didn't
like wearing suits, yeah, but he recognized what was going
to be popular and he was very good at guiding
(28:48):
that and honestly, he had even had a background before
he worked at Gap doing this sort of thing, because
he started off really as a buyer at another department
store at Bloomingdale's. Know, that wasn't his first job, but
that's really when he got into the clothing market, and
he stayed hands on through his entire time at Jay Crew.
He wasn't the only person picking merchandise, but he was
(29:11):
very involved in it. And he also picked somebody else
who really shaped the look of Jay Crew for better
or for worse, initially for better, Yes, and that would
be Jenna Lyons. Now, she had been at Jay Crue
since and she was in the design department for men swear. Yeah,
she was actually hired by Emily Senator herself. I read
(29:31):
an interview where it talked about her, you know, when
she walked in and she met with Emily. In fact,
both Emily and Arthur were known for taking a very
hands on approach, something that Mickey would continue into the
management style for looking at people to bring onto the team. Yes,
so she became creative director and they just updated j
(29:55):
Cruse image and the products in the company. And we're
very successful in doing so untill about two or so. Yeah,
she was given a ton of creative control. Essentially, what
she said goes like, if you liked something, it could
be on the line. She didn't like something, it got struck.
Other things they did to improve the company were like
(30:15):
focusing on improving service, taking customer feedback on their item seriously.
Something didn't fit across the board, the same way they
would take that seriously. If a customer said, this size
fourteen is not the same as this size fourteen, Yeah,
that was big. Yeah. They made they made sure that
they addressed these things and didn't just ignore them or
(30:36):
dismiss them. Yes, and they started sourcing materials globally through
craftsmen and mills and working with other brands. Uh. They
began to add new lines to their various lines of clothing,
and they started creating things like the Kid's Line, the
Bridle Line, a limited edition stuff. And you're starting to
(31:00):
probably catch onto this. These are trending toward higher end,
more expensive, almost almost luxury items. In fact, some would
argue in some cases they certainly fall into that category.
They in fact started luxury lines, and they also bought
the made Well name, so they didn't buy the company
(31:22):
made Well. Made Well was a company that made work
clothes in the thirties, like Denhim type stuff, and they
had not been in operation for a while, but Mickey
kind of took the the initiative to just buy that
name up for future use. And now there's a a
Made Well store in the very building that we're recording
(31:44):
this end. Yes, there is not recording it in a
made Well. That would be awkward. Yes, And they did
I don't know, I want to try in some Jeanes now, well,
we can do that. After the show, they did expand
to more forms of advertising, but they still use the
catalog as their main source of marketing. They spent about
forty to fifty million dollars a year on the catalog
a lot. It's a lot of money. Yeah. Uh. They
(32:07):
started also having to deal with a problem that was
hitting the entire nation, which was that you start getting
into the Great Recession, and at that point, it becomes
increasingly difficult to market these higher end luxury products to
a smaller number of people who can afford to do
(32:27):
it or feel like they can afford to do it
in the wake of a recession. Yeah, so they launch
Made Well yeah, and they start dropping prices and uh,
and they end up going public. The first day of
public trading, their stock value increased by twenty eight percent,
which is certainly a number that you want to see see.
(32:49):
You want to see that positive number there, and TPG
would sell off most of their steak in the company
at that point, thus fulfilling its purpose of being an
investment firm. That was also when Emily Senator Scott, she
had been on the board of director since it was
(33:10):
around this time that she resigned from the board. Actually,
she and her husband both resigned in two thousand and six,
her husband being Thomas Scott. A third director, Bridget Ryan Berman,
also resigned that day and the stories about the resignation
because I wanted to look into this. I was thinking,
what what was going on? Interesting because the daughter of
(33:33):
not the founder, well really the granddaughter of the founder
of the company, Why did she resign from the board.
The only thing I could find were personal reasons intriguing. Well,
in two thousand and eight, Genna Lyons becomes the executive
director of Jay Crew. She's done so well as shaping
it and a fun fact, Michelle Obama, Where's Jay Crew?
(33:55):
On the Tonight show. So the Obama is where J Crew. Now,
when the presidential family is wearing your brand, that's pretty
good market. On multiple occasions they've done this and it's
helped the brand. Yeah, And this is when Lions sometimes
starts to get criticism for some of her decisions, because
she really was molding the line after her own personal
(34:19):
sense of style, which was very you know, it had
a very strong aesthetic. It wasn't that the vision was bad,
but rather that she was pushing high end fashion during
a recession. Like when you're trying to sell an eight
hundred dollar skirt or a nine hundred dollars sweater and
the country is in an economic recession, a lot of
(34:40):
people would say that that's probably not a great business strategy.
Maybe not, but in two thousand nine, revenues had increased
by hundred and seven percent from when Mickey Drexler first joined. Yep,
they're worth a one point five seven billion dollars. Yes,
and they started opening specialty stores like men's specific clothing stores.
(35:03):
Y since to have men's general clothing stores. And then
in Drexler names Lyons the president of JA Crew from
executive director. So she's continuing her climb and then um,
there was also something else going on at and this
is one of the elements of our story that raised
a lot of eyebrows. Yeah. Apparently Mickey Drexler was looking
(35:26):
at doing a leverage buyout for Jay Crew to make
it a private company again, and he did this by
gathering bids to buy it from Texas Pacific Group. But
he didn't tell the board of directors. Yeah, which typically
you would keep the board of directors informed about this
(35:47):
stuff and get their consent unless you're doing like a
hostile takeover and he's working from inside the company. It's
not like someone from outside the company coming in to
try and take over. And it also means that the
shareholders are upset because they have less say in their
share prices. And they did agree eventually on forty three
dollars and fifty cents per share, but investors were kind
(36:09):
of telling them that wasn't a great deal. They were it. Yeah,
they felt that they could have asked for a higher
per share price for the buyout. But the buyout happens.
It's worth around three billion dollars and Mickey came away
with around two hundred million dollars in cash. Yeah, and
eight point of the new company. You know, when you
walk away from a deal with two hundred million dollars
(36:31):
in cash, there are some questions about how carefully you
negotiated on behalf of the rest of the company. Yeah,
but j Crew also makes it into Fashion Week, which
is a great prestige moment for the company. Yes, certainly.
And in two thousand eleven, as we said, they opened
their first international store in Canada, so now they have
(36:53):
more than just catalogs and the buyout is finished. And
and then in two thousand twelve they started offering their
product globally, so not just Canada to over a hundred companies,
but through online shopping yep. And then between and twenty sixteen,
the number of stores they have almost doubles, So we're
seeing them really invest in opening up these physical stores that,
(37:17):
by the way, is not just Jake cru stores, also
includes the Madewell stores, UM and Jay Crew factory as well.
And this is all on an effort to widen their
customer base, so it's not just the preppy kids with
all the cash. In two thousand and fourteen, getting closer
to current day, things started looking back again. They reported
(37:41):
a loss of six hundred and seven point eight million dollars.
It's more than a little bad. Yes, and their previous
net had been thirty five point four million dollars, so
they report a loss of more than half a billion
dollars and their higher end clothing is is causing a
rift with their core customers. Yeah, here's a great story.
(38:05):
It's one that if you followed along on you know,
if you paid attention at the time, you may have
even seen this because it went viral in an illustrator
named Tricia Luvar penned an open letter on a website
the Hairpin, and the open letter was addressed to General Lions.
It was an illustrated open letter and it criticized lions
(38:26):
focus on expensive clothing. She had said that J Crew
had completely lost track of what its core customer base
wanted and could afford, saying, yeah, your clothing lines are pretty,
but your average person where I live isn't going to
spend dollars on a pair of shoes. The criticism ends
up going viral and others would back up what Luvar
(38:48):
had said. Mark Cohen of the Columbia Business School concluded
that Lions had been pushing her own style long after
customers had grown tired of that aesthetic, and he said
the J Crew customers had and rejecting the brand as
a result over the course of years. Yes, in two
thousand and sixteen they had a net loss of one
point to four billion dollars and in two thousand seventeen
(39:09):
a net loss of two point three five billion dollars. Yikes,
that is astronomical. So what do they do well, they say,
no weddings for you. Yes, they just continue their bridle line.
In two thousand and sixteen, and Drexler takes a note
from Jeff bezos Is book and tells customers that they
(39:30):
can email him directly. Yeah, and he hands out his
own email address. Whether or not he had one made
specifically for the complaints department that I don't know, but
he definitely gave people the email addressed to getting in
touch with him. Yes. Now, Ja Cruz women were was
not doing well at this time, but made Well was
doing well, which just further drives home the point that
(39:52):
they were charging too much for J Crew. Yeah, and
then you see Lions and Drexler both make an exit
from J A crew in this was a big deal.
It was also around the same time that there was
a possible chance for J Crew items to be carried
(40:12):
in Amazon's online store. But that was a deal that
Drexler ultimately decided to walk away from. Not that it
mattered in the long run. No, he thought it would
water down the brand. But he stepped out and James
Britt stepped in in two thousand eighteen, and he decided
to accept the Amazon deal. Yeah. Now, Drexler, while he
had stepped away as CEO, he was still chairman of
(40:34):
the board, and he would remain chairman of the board
for about a year more. This is where we start
seeing another big, drastic cutback at the company. They terminated
two d fifty jobs, including a hundred fifty full time
positions and one hundred open positions. Drexler said in a
very revealing interview with The Wall Street Journal. Here's a
(40:57):
direct quote. We became a little too elitist in our attitude.
We gave a perception of being a higher priced company
than we were in our catalog, online and in our
general presentation. Very big mistake, and Jay Crew pulls out
of Fashion Week and in two thousand seventeen, a little
tiny bit of a backtrack. Arthur Senator passed away at
(41:19):
age ninety, So unlike the owner of Toys r Us,
who was unaware when his company hit the decline, Yeah,
Senator had lived to see this. Uh yeah, but he
he obviously had not had a direct hand in Jay
Crew for many years at that point. Yeah. Now James
Brett stepped down from CEO after just a year and
(41:41):
common story j Crew at this point, Yeah, and Jacus
kind of back on the lists of companies that might
go bankrupt rules soon. Yeah. So again you might say
that it was on the brink, it came back from
the brink, and now it's on the brink again. And
you could argue that again, like I said, with Drexler
and his experience with Gap, that you might have seen
a similar case with Jay Crew where you have this
(42:03):
initial booming period where things are going really well and
it seems like the company has turned around, and then
things start to fall apart. And I've seen a lot
of criticism aimed at Drexler saying that he's very good
at certain parts of his job, but other very key
components of being a leader are things that he may
(42:24):
fall short on. I don't think I'm qualified to make
that kind of judgment myself, but I've certainly seen some
of those criticisms and it is interesting. They also had
some bad press over the last few months, like on
Black Friday, their website crashed and that was really bad news. Uh.
(42:44):
It was down for several hours, and analysts said they
estimated that it cost the company something like seven thousand
dollars in sales just from being down for a few hours.
That's not great, that's not so. We do have some
fun facts about J Crew after leaving it on this
kind of died note. One of them is that Drexler
(43:08):
really liked to have this open dialogue with his employees,
so much so that he set up a loudspeaker in
the J Crew headquarters. Yes that everybody could hear. Was
so he could communicate directly. He could even call in
from his cell phone and his assistant would patch him
through thoughts. Answer your emails, Hey, we're getting this new item.
(43:28):
Did you know that the panto and color of the
year is purple? I had Chinese for lunch, and Drexler's
from the Bronx, so he has a distinct accent that
people said was very entertaining to hear over the loud speaker.
He was also so picky about who he worked with
that he interviewed every potential J crew employee. Yeah, so,
(43:52):
like I said, very hands on, just like Arthur and
Emily were known to be. Oh and um, here's a
fun bit of trivia to close out this episode. He
was also in an episode of Breaking Bad back in
the fifth season. The final season of Breaking Bad, he
was in an episode called Confessions. Um, and he plays
(44:12):
a customer of the car wash. I'm gonna have to
go back and watch that episode. Apparently. I think he
has one line and he said, it took nine takes
to get it right. It's it's it's tough, man, it is.
I mean, it's a hard gig, right, like leading a
billion dollar company. That's that's peanuts compared to TV. Baby, listen,
those one liners are the worst. Well, that wraps up
(44:36):
our conversation about Jay Crew, and uh, again, a very
interesting story. I didn't know most of this before we
did this episode. I certainly didn't know about the merry
go round of executives at J Crew. So I don't
know that there any lessons we can pull from this
other than again, like stable leadership is so important. It's
(45:02):
It's so basic an idea it feels silly to even
say it because obviously that's the case. Right you can, oh,
you know, it doesn't really matter who your leader is.
We'll do just fine. That that is clearly not the case.
Um so will Jay Crew still be around for us
to do a follow up episode in the future. That
remains to be seen. But I never want to see
a business just collapse and go away. I know that
(45:24):
people's livelihoods depend upon it, and the Jay Crew line
has a long storied history of innovation and fashion quality
and quality, So you don't want to see that go
away either. Even if I the shlove that I am,
I am not likely to wear Jay Crew. You know,
I might go try on a J Cruz sweater. Yeah,
just for the heck of it, I might. I might
(45:47):
troll through the thrift stores and see if there's a
J Crew sweaters. All right, Well, that wraps this up.
Where can they reach us? Well, if you have comments
about the show, you want to tell us that you
love us, or you have suggestions for future episodes, you
can email us at Feedback at the Brink podcast dot
show Yes, or you can visit our website. That's the
(46:08):
Brink podcast dot show that has all the archived episodes
there and information about US and UH in case you've
forgot who we are. I have been Jonathan Strickland, and
I have been aerial casting
Business on the Brink News
Hosts And Creators
Jonathan Strickland
Ariel Kristen Kasten
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