Determined to become a global brand, J. Crew Group Inc. will expand distribution to 107 countries, from the 29 nations the brand currently ships.
The company considers online direct sales a gauge to determine where there’s enough demand to warrant launching stores, and has begun scouting sites in Europe and Asia. It’s most keen on the U.K., Hong Kong and China.
J. Crew is sounding a different tune from a few years ago, when its chairman and chief executive officer Millard “Mickey” Drexler expressed reservations about international expansion just as retailers such as Gap Inc., Abercrombie & Fitch Co. and Wal-Mart Stores Inc., among others, were mounting aggressive overseas strategies.
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However, with those and other retailers experiencing mixed success abroad, J. Crew is taking a cautious route. In most cases, retailers have led with stores first, e-commerce later. But J. Crew says it stands apart by leading its international growth with e-commerce, which is less costly and risky than operating stores. As J. Crew treasurer Stuart Haselden said Tuesday in a conference call, taking online orders internationally is “a low capital investment way to see where the demand is globally.…It’s a front-runner to bricks-and-mortar.”
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To gear up for the international drive, infrastructure has grown, including distribution capacity. The retailer just added another 155,000 square feet to its 262,000-square-foot company-owned facility in Lynchburg, Va., and also leases a 63,700-square-foot facility in Lynchburg. The facilities have call centers and conduct order fulfillment.
Furthermore, Drexler has successfully expanded the scope of the J. Crew brand beyond its original all-American prep appeal so it now sells more categories to wider audiences. It’s developed more of a European flair by partnering with fine European mills and fabric houses.
Last year, J. Crew crossed borders for the first time by launching international shipping, partnering with Net-a-porter, and opening a store in the Yorkdale Shopping Centre in Toronto, marking the first brick-and-mortar move in its international expansion plan. Ultimately, Canada is seen accounting for about 10 percent of J. Crew’s overall business in North America and selling J. Crew through all channels — retail stores (25 to 30 estimated), outlets and online.
To facilitate e-commerce abroad, J. Crew has partnered with FiftyOne, a technology company specializing in global e-commerce that tailors U.S. Web sites to be country-specific. For example, a J. Crew Web site in another country will be in that country’s currency, and would have the relevant terminology like VAT versus sales tax. Offers that could be only for U.S. customers would be eliminated.
Also, FiftyOne handles all currency exchange rates and price conversions, calculates import duties and local taxes, and enables consumers in different countries to see the landed cost in their local currency so there are no hidden fees. FiftyOne also has a tracking system so shoppers can check on the status of their order and delivery date.
To spur international shopping online, J. Crew will offer introductory free shipping and returns as well as duty free shopping for a limited time. J. Crew products will be available in 41 currencies.
In a Securities and Exchange Commission filing this week, J. Crew did underscore the challenges of going global. “We do not have experience operating in these regions and we will face established competition in most of these markets,” the filing said. “Many of these countries have different operational requirements, including but not limited to employment and labor, transportation, logistics, real estate and local reporting or legal requirements. Consumer tastes and trends may differ from country to country and there may be seasonal differences, which may result in lower sales and/or margins for our products.”
The filing also noted that J. Crew’s success abroad could be adversely impacted by the global economy, fluctuations in foreign currency exchange rates, changes in diplomatic or trade relationships, political instability and foreign government regulation.
At one time, there were 65 licensed J. Crew stores in Japan, which were closed years ago. A return to Japan is likely, as is entry into China for the first time in the near future.
In the U.K., J. Crew is considering opening up to nine freestanding stores in the next several years, though Drexler has said getting the desired real estate without paying through-the-roof rents is difficult.
Last fall, J. Crew online launched in France, Germany, Italy and Ireland, and was previously shipping to online customers in Canada and Japan.
In an interview with WWD last year, Drexler explained why there had been a delay in going international. He said when he first joined the business in 2003, “There was so much to do in America in terms of building our products, our quality, our culture, the right store designs. Then we had start-ups, Madewell, Crewcuts, online. We had to focus there before we had the time and the people to go beyond our borders. I didn’t want to compromise what we were doing in America. You can’t just be rushing out and distracting the team. We also knew from past experiences [referring to J. Crew in Japan] it’s not just a matter of going out and opening a store. You have to have the right real estate, the right partners and an organization to take on the work. We did not have the critical mass or the team to do that.”
He also said the international demand is evident from J. Crew’s “huge international clientele” in New York, south Florida and California, and from Canadians who shop J. Crew in Buffalo, N.Y.
On another front, J. Crew’s Madewell brand has been turning a corner. Madewell has 32 stores currently and plans to open 15 this year, primarily in the Atlanta, Pasadena, Calif., and Denver markets. Madewell will also be venturing further into the Midwest to gauge interest in that part of the country. In addition, Madewell will be expanding its digital marketing and launching a social media outreach program this spring. The Madewell ramp-up is expected to accelerate after 2012.
Last year, the core J. Crew brand experienced some difficulty in its women’s business, but the officials said that in the fourth quarter, the trends improved, although the most comp-store growth was in men’s and accessories. This spring also has seen improvement in women’s selling. According to Libby Wadle, executive vice president, retail and factory, increased fashion and color in the assortment, as well as J. Crew’s “franchise” categories such as schoolboy blazers, café capris, pencil skirts and cashmere, paced the business. On the other hand, more casual areas like knit T-shirts have not been as robust.