What J.Crew's Q3 report means to shoppers

J.Crew released their Q3 earrings report this last week and showed a big increase in earnings. I love seeing one of my favorite brands doing so well but this success also made me wonder…what does this mean for consumers? Are inventory levels really low? Will we see any great holiday sales? Will the current Jenna Lyons style reign on?
I combed through the J.Crew investor’s conference call to find out what we can expect…

Quick note: The info here from J.Crew is NOT word for word. If you have ever heard Mickey answer questions on the fly, you know he may come out with 10 answers all jumbled up in one sentence. I edited to get straight to the point and give you an easier read LOL.

INVENTORY:
Merchandise margin performance was significantly better than anticipated resulting from a substantial increase in full price sell-through.
Inventories at the end of the third quarter were $224 million representing a 10% decrease versus the last year and were down 17% on a per square foot basis.
Right now we are thinking about flat invetory levels and then increases would be for Q3 of next year.

PROMOS
On promotional events, our mission in our dream, is no promotions. As you can see we are in a relatively good inventory condition, we have 17% less per square foot than we did a year ago We have always had friendly priced items throughout the year particularly in men’s, because men’s get much more value fourth quarter when buy a gift quickly get out and don’t spend too much money. So we have done that.

But unlike the promotions of the century last year, we have no over arching promotions that are meaningful and for us the environment is about so being focused on the right assortments, the right pricing upfront. I hope this doesn’t change in two or three weeks. We are also everyday looking at what the consumer is seeing out there

In terms of Cyber Monday, it’s an opportunity for us this year because last year we had a lot of difficulty. We were down for about six hours on Cyber Monday last year, so we see, obviously, an opportunity this year

CARD HOLDERS PROMOS
The royalty program currently is tied to our J. Crew credit card, but our focus has been and always will be on our favorite customers whether they are just a J. Crew credit card or our top spenders. Either through the rewards program or also just one-time gifts that come from Mickey and make the customer feel special with us. So the royalty program is tied to the credit card, but our overall appreciation with our favorite customers is not necessarily. It comes from our entire customer file.

WHY SALES ARE UP

Well, I’m going to give you a same old answer here. At the end of the day, it’s about the design and creativity factor in this company has grown dramatically. If you look at successful companies around the world, they are moving forward, they are creating and not moving back. So I think first and foremost, last year said to us we need to move forward. We need to not buy things we don’t love. That are old and safe, because in this environment there’s so many great quick merchants who get it out there, they get it quickly, they put a price on it and a lot of them are really doing well.

When you look at the prices today everything has been adjusted in prices and I am not sure apparel has been adjusted the same way. Stock prices have been, homes have been, et cetera. So, they are looking at value, they are looking at the integrity and quality, we keep talking about, the mills we do business with. If you walk in and you start to see things that we make and it takes a long time. No company gets built in a year or two or three.

We’re trying to figure out where its going and it’s important to start to bring in high integrity products from not only our make and design, but from anyone around the world. I think when you start surrounding your merchandise online and in stores with other like merchandise the customer desires and when you edit it like crazy, when you select it, when you pick it and pretty much the people in this room here, the ones that pick, select and meet with all the vendors or pick all the goods, I think at the end of the day and it takes time to come from where we’ve been. We’re passionate. We want the best and no detail is too small for us to pay attention to.

EXPANDING PRODUCTS
Well, jewelry will continue. Our new versions, we think, I don’t want to say will continue. If the customers change their mind, it won’t continue. Our new versions of Art tees we’ve kind of created a whole new world of business. Blazers we I think we kind of hit the right trend on jackets and blazers for women’s. We are expanding our dress presence because it’s one of the feedbacks we get because we just never have enough. The Men’s slimmer fit shirts, Women’s ruffled blouses. Men’s suit is going to be very important. We are building an incredible shirt franchise in men’s. Jewelry as mentioned, we are really going to see expanding that business. We also are really going after the business of handbags and shoes, online.

To add to that, developing the relationships we have with our customers. We have this weird thing. We think we are very small company. We think each of us is in fact responsible for every customer e-mail letter and we also think that over time you do good things to your customers. They in kind like us for that. Now of course if the goods aren’t right, they leave you quite quickly. But that all being said, as we have enormous intensive effort to continue to connect personally and emotionally with our customers through, Jenna’s picks, Jack knows best.. I (Mickey) have my own picks, but they are all private to my friends, and things we think they should buy.

THE CATALOG
The catalog is very important to us and I think what we’re seeing it as, it’s a place where you can see what we’re about both in style, design, what we’re loving. We no longer see ourselves though in the catalog business, it is a marketing vehicle and hopefully when you get the catalog and you page through it, you’re going to see those things we love. We’re excited about. What we want to buy and we’ll tell the story about our products.

COLLECTION
What’s happening is where kind of collection merges a bit into the normal assortment, because you know we started collection a number of years ago, there’s was big dichotomy between normal J. Crew goods and collection. I think overtime with the intensive creative efforts, they’ve merged a bit. We’re really excited about that. So you are seeing more and more what it does for us and as importantly, what the catalog and online do.

BRAND COLLABORATIONS
Some of the very prestigious brands that kind of sell themselves that we carry in our best stores and online really drive a level of high expectation and then deliver what we need customers to expect. So I think for us again we are not giving up opening price points, we are not giving up friendly, but we also are chasing an expansion of our existing base. People are buying more carefully and I think that helps us.

COMPETING WITH LUXURY RETAILERS
I don’t think the customer really leaves someone but she joins someone else.
We think at the end of the day, if you have good service, good delivery, integrity and pricing, some scarcity and not huge over assortments, you’re going to take business from whoever is not doing it as well.

PRICES
I think the goal is going to be to maintained prices. We don’t see it going much lower, but I think to keep them flat would be a real accomplishment. Well, we price based on how many we buy. We price based on uniqueness. We price based on scarcity. We price based on how many we might want to sell. We price based on price. But no, we don’t look to take prices up, we look to price goods competitively.

But everything we look at we say, fill in the blank what does so and so sell that for? What is so and so retail? What is our retail? What is their quality? Perception of quality of a company drives so much retail today. You dissect a lot of very expensive clothes and you will find if you did it clinically that could be a lesser make, a lesser fabric, a fancier label and lo and behold, the price is higher.We are battling that always. But we take apart our products, we take apart theirs and I think we have to continue to earn our stripes with high integrity. More of the best goods at fair retails, will get us more customers. We’ll then get more business because hopefully they trust us and like us.

COULD J.CREW HAVE DONE BETTER
We probably didn’t want to own as many wool coats as we owned. Less corduroy jeans. Yes, there are always things that we didn’t have enough of. We could have done a heck of lot more jacket business in Madewell this year. We sold out real fast. We could have done lot more jacket business at J. Crew. We sold out real fast and so we’re going to fix it, but the only thing we’ll not do which we’ve learned is, don’t buy last year’s hot items next year.

That’s a thing I think the design elements in our company really prevents, because of Jenna and the team, newness with evolving and sharpening edge on what’s been right.
The Pixie pant, the Minnie pant has become for us an iconic pant. It’s an amazing pant. It makes every women look good. We blew out of the better version of the Minnie at a $168 and we are learning that the customers will pay a lot more money than we used to think they pay for our goods at the better levels because there is a trust factor. We sold that for $168 whatever, that trapper hat, sold out like overnight online. So we keep learning.

ON INTERNATIONAL EXPANSION

I don’t see many examples over the last many years of international specialty fashion retailers in fact increase appropriate with the investment and time spent.
Canada I don’t include as international but we have no plans to go there.

We are not wholesalers nor do we really understand how to be both. You can not buy J. Crew any place else but in our stores or online, we control our distribution and our pricing that is so critical to us in our business today that I don’t know if we are getting share or not, but I do know that if you sell a product that sold in other places today, you better be prepared to meet prices or lose customers.

MADEWELL
I think what we’ve done over the last six months to a year is we’ve got rid of, I’ll call the so-called classic Tee shirt category as a major investment, which you have to do today or else the cheaper people will take it away from you, that’s the game going on.
But right now we’re selling a lot more fashion which is kind of a funny name, but its fashion, its Plaid and Chambrey shirts, silk tops, its embellished knits, Denim Leggings, our famous Rail Straight Jeans, jewelry has really been fantastic. So we’re pretty pleased about where it’s going. I think very importantly getting online has been a huge negative force that we haven’t been there.

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You can read the complete Conference call transcirpt HERE or listen to it at J.Crew.com