J. Crew’s Pre-Black Friday Sale: Itself


Another tony luxury brand has changed hands, with today’s $3 billion acquisition of J. Crew by a consortium of private equity firms. Yes, the house that Mickey Drexler built and Jenna Lyons (seen above in a Fall ’10 preview) designed, now has new owners.[more]

Wall Street is reacting favorably to the news — with the stock price up reports the Wall Street Journal — that the iconic fashion brand has new owners in Bloomberg, TPG Capital and Leonard Green & Partners (and Drexler, who maintains his stake) for about $2.8 billion.

In going private, the new ownership team will have to deal with sagging sales. J. Crew posted earnings of $1.58 billion in the year ended January, but in August, the company lowered its full-year earnings forecast. Its stock has fallen 16% this year and 14% in its fiscal third quarter earnings reported today.

The retail fashion brand, whose high-profile fans include Michelle Obama and her daughters, expanded over the years from selling quality clothing via catalog in 1983 to opening its first store (at New York’s South Street Seaport) in 1989, to more than 250 retail locations today. With this fresh infusion of cash, presumably the brand will proceed with its just-announced expansion to Canada next year.

It’s been led by Chairman and CEO Millard “Mickey” Drexler since 2003, who is widely credited with pushing J. Crew’s service, quality and innovation to the next level. Millard, one of the brand’s biggest shareholders, will stay on after the transaction has been completed — although it’s not a done deal yet, as other interested parties will be watching holiday sales closely and have until Jan. 15 to file a competing bid.

Jenna Lyons, a 20-year J. Crew veteran who was promoted from creative director to president in July, will stay on as long as Drexler does. Lyons has spearheaded successful brand extensions including a children’s clothing line in crewcuts, plus J. Crew Weddings & Parties and J. Crew Collection, featuring pricier and limited-edition pieces with couture-level details — also the focus of the brand’s new 769 line, named after the Madison Avenue address where it’s exclusively carried.

J. Crew’s recent retail expansion includes a series of new specialty boutiques such as the men’s collection housed at Liquor Store in New York’s Tribeca district. In 2006, the company introduced a completely separate brand in Madewell, “a modern-day interpretation of an American denim label founded in 1937” that targets women ages 18 to 40.
We’ve noted previously that J. Crew has made excellent use of product placement (not to mention tie-ins with other elite brands) to promote its own brand. Indeed, this is a brand that has always managed to connect itself with the latest in style and sophistication.

It’s one of those labels that seems to command a premium price with consumers. But with sales down 16%, the new owners will be pushing hard for design and marketing innovations to get back on top.

Today’s sale is somewhat reminiscent of the Phillips Van Heusen acquisition of Tommy Hilfiger, another iconic preppy American fashion brand, earlier this year. Speculation, naturally, now turns to other fashion/luxury brands that might be an M&A target.

Nomura analyst Paul LeJuez tells the New York Times that he sees Abercrombie & Fitch and Ross Stores as possibilities, with Lululemon and Tiffany as longer shots.


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