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J.Crew to Double Down on Madewell as J.Crew Sales Continue to Decline

Will 2018 be the year it turns itself around?
Photo: Instagram @jcrew

Photo: Instagram @jcrew

After years of dwindling sales, J.Crew spent the better part of 2017 trying to get itself back on track, and it made some pretty weighty moves in the process, starting with the exits of former CEO Mickey Drexler and President/Creative Director Jenna Lyons, and significant layoffs and store closures.

From exploring wholesale and introducing new categories (like lingerie) and pricing (like inexpensive swimwear) to bringing back classic styles, J.Crew has been in full turnaround mode ever since, led by new CEO Jim Brett. So has it paid off? Not yet.

On Tuesday afternoon, the J.Crew Group, Inc. released its fourth-quarter and fiscal 2017 earnings. For the year and company as a whole, total revenue decreased 2 percent to $710.6 million, while comparable revenue decreased 6 percent. The comparable sales decrease in the fourth quarter alone was slightly less: 3 percent.

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Broken down by brand, Madewell once again excelled, outpacing J.Crew significantly: While J.Crew's comparable sales decreased 10 percent, Madewell's were up 13.

Given that Madewell routinely offsets J.Crew's declining numbers, the company announced plans to double down on the hip, younger brand by accelerating its expansion. "We will scale Madewell more rapidly, building upon its proven and consistent record of growth, through strategic investments with highly profitable returns," said Brett in a statement. Madewell may be performing well, but it's still much smaller than J.Crew and thus makes less of an impact to its bottom line; right now it makes up about 18 percent of the overall business. So, the company's hope is that Madewell will turn into even more of a cash cow for the company, and perhaps buy J.Crew brand a little more time to turn itself around, which it clearly needs.

With J.Crew, the company plans to continue improving omnichannel capabilities and building its wholesale business following a successful partnership with Nordstrom. COO and President Michael J. Nicholson also said in a conference call that the brand will focus on diversifying, meaning new categories, products and even "sub-brands," with Playa being one example, presumably, and offer options at a wider variety of price points. It also smartly plans to introduce "more inclusive sizing."

If all goes well, J.Crew Group, Inc. could have two growing brands under its belt, not just one.

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