J. Crew to Put Outlet Savings Online

Aug 31, 2010

By Tom Ryan

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.

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.

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."

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?

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11 Comments on "J. Crew to Put Outlet Savings Online"

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Charlie Moro
Charlie Moro
11 years 8 months ago

The issue to me is more of providing options and value for consumers. And at the end of the day, to be the preferred destination; hopefully for both. There will always be a hybrid consumer looking for the newest color or fashion change at the beginning of every season and J.Crew can do that well. That same consumer later in the buying cycle looking to fill in or looking for end of season is not provided an additional option with their preferred apparel destination which only should reinforce the cycle and grow the relationship.

Anyone can Bing “sweaters,” the key is to bring them directly to J.Crew because that is the hook.

David Biernbaum
11 years 8 months ago

I like J.Crew’s concept for putting outlet savings online. However, time will tell if its useful to the retailer and consumer, or not:

1. Will fees for shipping and handling off set the savings for the average consumer?
2. Will the savings be primarily on oddball sizes and styles not applicable to most consumers?
3. Will the online business feature the same variety as what is typically found in a real factory outlet store?

John Boccuzzi, Jr.
John Boccuzzi, Jr.
11 years 8 months ago
The move by J.Crew to make factory outlet items available online is a smart move as long as they do the following: 1) Have a limited assortment that does not overlap their general merchandise at regular stores and on-line. As with most factory outlet divisions today, many of the items are made specifically for the factory outlet stores. Mr. Drexler stated that was going to be the approach.2) The on-line store becomes a treasure hunt site with limited quantities and rotating lines. By creating an online outlet store like this you will encourage consumers to not wait to make a purchase. You will also create a site that increases visits by shoppers since there are always new items with limited quantities. 3) You create an easy way for shoppers to enter the regular on-line store from the on-line outlet store. This will encourage shoppers to visit the regular on-line store when they can’t find their size, color or style on the outlet store. Factory outlet stores and regular stores, whether online or brick and mortar,… Read more »
Gene Detroyer
11 years 8 months ago

“Crew is finding ‘superior, superior returns in factory and online.'”

Of course. For factory, rent is less, labor is less, store build out is almost non-existent, inventory has less value. Depending on the pricing, factory will beat main line every time. The problem is that factory stores generally can’t operate in normal retail destinations. Therefore locations are limited and out of the way.

For online, the same situation exists except it is available to anyone, anywhere and will generate higher turns. Overhead is substantially lower; so low that brick and mortar can not compete as a retail business model.

With regard to cannibalization, does it matter? To be ridiculous, if every sale were moved from main line to factory and online, J.Crew would be considerably more profitable. The reality is that J.Crew will expand its revenue base considerably without investing in expensive new stores. And every sale to that expanded base will be more profitable than the sale to their current base.

Dan Berthiaume
Dan Berthiaume
11 years 8 months ago

Outlet items online is a great idea. Many consumers may live hundreds of miles from their nearest outlet, and full-priced J.Crew stores are not even that accessible compared to the footprint of other higher-tier apparel retailers such as Macy’s. And since most outlets are grouped in large destination areas, outlet store sales will likely not be cannibalized too badly as consumers will still make their outlet pilgrimages and visit the J. Crew store while they are there.

Lee Peterson
11 years 8 months ago

It’s not really cannibalization, it’s the creation of a discount (off price?) chain for J.Crew. Really smart if you ask me and about time someone became more direct about it anyway. The article states, and we all know, that “the majority of the products are exclusive to the outlet stores,” so, why not?

Even still, if you offer the same merchandise at a little less, perhaps you’ll just sell more of them while keeping your top-line stores free of clutter and markdowns. The whole idea is a win-win.

Joan Treistman
11 years 8 months ago

I’m in favor of J.Crew’s online outlet initiative. And I can see that everyone else is too. Rather than repeat what has been said, I’ll just add that J.Crew recognizes their competitive landscape as the universe. It’s not just store vs. store or website vs. website. And it isn’t about like priced items either. Have you noticed the many examples of combining a J.Crew top with an haute couture skirt? Within that context J.Crew’s strategy is spot on.

Bill Bittner
Bill Bittner
11 years 8 months ago
This is an interesting call on the part of J.Crew. I don’t think anyone can really predict what will happen, but the bigger picture is that we all have to learn to live with greater uncertainty. Whether it is because things are moving faster or the world is getting smaller, if there is nothing else we learn from 9/11 it is that the US is not isolated from the rest of world. Whether it is economics, weather, religion, or politics, we must now be able to adjust our plans as events we may have never expected evolve. For a manufacturer, what better way is there to adjust to changing demand than to have a robust return policy that encourages retailers to get non-selling merchandise out of the main retail channels? If slow moving merchandise in the main channels can be replaced with fast movers it is a win/win for everyone. Retailers get the slow stuff out of the store and price sensitive consumers become walking advertisements for the full price merchandise. As traditional forecasting methods… Read more »
Carlos Arámbula
11 years 8 months ago

I believe J.Crew loyalists will recognize the factory brands as such and will look at the line as an additional resource, not a replacement for their current J.Crew products.

Factory products are an effective way to bring new entries into the J.Crew franchise. The new entries will remain at the entry point or migrate to the non-factory products. Gap already does this with their Banana Republic brand and they have found a way to co-exist the two lines without cannibalization.

Ted Hurlbut
Ted Hurlbut
11 years 8 months ago

To me, it really comes down to the value customers place on the J.Crew brand. It seems to me that they, like many similar brands, have found that the customer has bid down the value of the brand, despite their best efforts otherwise. Average selling prices have fallen, margins have narrowed, and the only way to make up those dollars is to sell more at lower prices.

They can spin it any way they’d like, but this is what so much of the apparel industry is experiencing. They are doing nothing more than positioning the brand to do business in channels and at price points that the customer will support. It’s the new normal.

Justin Time
11 years 8 months ago

J.Crew is testing uncharted waters with this venture.

I really think they will see negative results in certain urban locations away from their largest markets, especially in tax free clothing states like Pennsylvania, as well as in their factory outlets. It would be like A&P selling their famous Jane Parker fruit cake online for less than it retails in their stores. I’d revisit this strategy if I was J. Crew.


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