In reversals of moves taken by its recently departed CEO, J. Crew is axing its low-price Mercantile brand and its just-launched Nevereven brand, the Wall Street Journal reports. J. Crew didn't immediately return Retail Dive's request for comment, and executives didn't mention such plans on their investor conference call Thursday night.
The news came as the apparel company reported that third-quarter revenues rose 10% to $622.2 million, and comparable sales rose 8%, following a decrease of 9% in the same quarter last year, according to a company press release. By banner in the quarter: J. Crew sales rose 1% to $430.9 million, as comp sales rose 4% following a 13% decrease last year; and Madewell sales rose 26% to $133.7 million, as comp sales rose 22% following a 14% increase last year.
Operating income rose to $32.7 million from $25.1 million for the same period a year ago, and net loss narrowed to $5.7 million from the $18.4 million of the year-ago quarter.
J. Crew's latest quarterly report was like a departing gift from James Brett, who left earlier this month after disagreements with the board over the direction of the company.
During his tenure, the company expanded sizes, pushed its successful Madewell brand and developed a re-launch this fall of the J. Crew flagship label. Those initiatives all seemed to be gaining traction, with buds of new life showing up in the previous quarter and even more robust gains in the most recent one.
"Under Jim Brett, J. Crew had started to recover, mainly thanks to more competitive price points and a refocusing of the product," Neil Saunders, Managing Director of GlobalData Retail, said in comments emailed to Retail Dive. "Other initiatives, like introducing plus sizes, were also helpful in widening the audience. However, the brand is nowhere near back to full strength and the sales results, while going in the right direction, are still fairly soft. More time, and effort, is required for the strategy to come to fruition."
Aside from continuing some of Brett's tactics while nixing others, it's not all that clear what the strategy will be without him, although President and COO Michael J. Nicholson said on a conference call Thursday that it will include "capitalizing on recent momentum in the business and returning J. Crew to profitable growth … fueling Madewell's success," improving gross margins and inventory control, growing wholesale and positioning Madewell as "the leading premium denim brand in the world."
"It sounds like the company is now doing triage at the moment more than anything else," Mark Cohen, director of retail studies at Columbia University's Graduate School of Business, told Retail Dive in an email. "At the end of the day, too many brand strategies going on at J. Crew in the face of only marginally better performance. … Brett seemed to be broadening out both J. Crew and Madewell In a way that the board (read that to mean Drexler) was unhappy with."
Ditching the company's Mercantile brand — like Madewell, a Mickey Drexler invention, and like Old Navy (also a Drexler invention), a lower-priced offering — leaves J. Crew to cater to budget shoppers through its factory outlets. And it presumably puts aside a recently inked deal to sell Mercantile through Amazon.
But "scrapping Mercantile is a mistake," and not based on evidence considering how new it is, according to Saunders. "It's an emotional reaction by a management team with entrenched views and an inability to innovate," Saunders said. The brand was launched in 2014.
The move is a reflection of the company's desire to become a more premium apparel company, but that's not realistic, Saunders said. "Unfortunately for J. Crew, the market will not bear much higher prices. There is a disconnect between how management sees the brand and how shoppers see it. Jim Brett understood this, existing management does not."