Remade J. Crew scores stylishly

By: Elisabeth Butler

On a recent weekday evening, young blondes with armloads of bright sundresses queued up with gray-haired baby boomers clutching summery linen pullovers at the J. Crew store in the Flatiron district. Four cashiers struggled to keep up with business.

That scene is typical. Four years after industry veteran Millard "Mickey" Drexler was brought in as chief executive and given a mandate to remake the money-losing retailer, J. Crew has hit its stride. Its 176 stores are humming, and investors are taking note nearly doubling the company's stock price since the initial public offering of $20 per share in August.

This year, J. Crew is expected to ring up revenue of $1.3 billion, a 13% increase over last year and an 88% leap from 2003, when Mr. Drexler arrived. Meanwhile, even after deducting for heavy investments in new stores, analysts predict that profits will hit $78 million this year compared with $50 million in losses in 2003.

Behind the numbers stands a deft piece of repositioning. Mr. Drexler has given J. Crew a flirty new personality with touches of luxury, without alienating the preppy shoppers who helped make the brand a success when it bowed 24 years ago.

These days, swarms of new, younger shoppers are drawn to the store's fresh racks of accessories and fun apparel, including tangerine-colored linen Talitha dresses for $300 and aquamarine flip-flops for $15. Many of those customers have come from rivals including Banana Republic and Ann Taylor.

"People are looking at the price tags at J. Crew, and they're saying `Wow,' " says Kirsten Sharett, a retail analyst with trend forecasting firm StyleSight. "Customers really know value when they see it."

Foreign invasion

It remains to be seen how well those gains will hold up in the face of aggressive efforts by a host of trendy foreign retailers, including Japan's Uniqlo, Sweden's H&M and Spain's Mango. More daunting is the suddenly ominous American retail landscape in which sagging home sales and soaring gasoline prices have battered first-quarter earnings of clothiers from Liz Claiborne to Target.

J. Crew executives declined to comment.

Mr. Drexler aims to stay above the fray by leveraging J. Crew's hip new look. Led by stars like Jenna Lyons Mazeau, J. Crew's head women's designer, the retailer has added more color and lively prints to its collection. This summer's offerings feature fashionable seersucker blazers at $128 on the women's racks and patchwork shorts selling for $70 in the men's department. The stores have also beefed up their handbag, shoe and jewelry offerings.

"[J. Crew] is picking the right things, fashionwise," says Jamie Ross, a creative director at fashion consulting firm The Doneger Group. "It's kind of foolproof fashion."

Online, the company has had a big hit with a new bridal line designed to appeal to budget-conscious brides and women eager to find bridesmaid dresses that they can actually wear more than once. The matrimonial line helped J. Crew's online and catalog sales soar by 22% to $309 million last year.

New formats

Having rebuilt the company's reputation, Mr. Drexler is now capitalizing on that success with the planned opening of 60 more outposts over the next two years. He recently added two retail formats: Madewell, a casual clothing chain that sells chinos and T-shirts, and Crewcuts, children's stores that sell miniature versions of J. Crew's offerings. Those efforts do not come cheap, however. Each new store costs about $844,000.

Mr. Drexler, who achieved fame as the longtime head of The Gap Inc., risks reliving some painful memories as he expands J. Crew. At Gap, he oversaw massive growth that made him the toast of the industry. He made the chain into a national retailing phenom, adding hundreds of stores a year at the peak.

In 2000, that train hit a wall. Turned off by too-trendy fashions, shoppers took their business elsewhere. Same-store sales plummeted to 5% losses reversing years of double-digit gains and the company's share price cratered. Two years after the decline began, Mr. Drexler left the company in disgrace.

At far smaller J. Crew, Mr. Drexler has managed to restore much of his lost luster. He took over a company where morale had been decimated by restructurings and set about rebuilding it with equal measures of creativity and confidence.

"Mickey Drexler has done a great job with J. Crew," says David N. Deutsch, chief executive of an eponymous investment firm that specializes in retailing. "He's universally hailed as a merchant prince."

Such praise could pose a problem for J. Crew, however. With his crown re-established, Mr. Drexler has become the focus of much speculation, and a series of larger firms are rumored to be eyeing him for their own makeovers.