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