The Rise and Fall of J.Crew

• J. Crew was arguably the most popular clothing brand in the US in the 2000s.
• The company filed for bankruptcy in 2020 in the midst of the novel coronavirus pandemic.
• But sales were declining before the pandemic ever hit, proving the pandemic acted only as a catalyst.
• This is the rise and fall of J. Crew.

Following is a transcription of the video:

Narrator: At the height of its success, J.Crew and its sister company Madewell were operating in over 100 countries and had over 500 stores. Seen on celebrities, politicians, and working professionals around the world, J.Crew was considered at the top of the retail food chain. So how did the brand go from extreme popularity to bankruptcy? Let's just say it wasn't entirely the pandemic's fault.

Way back in 1947, two men by the name of Mitchell Cinader and Saul Charles founded Popular Merchandise, a low-price clothing company that catered to women. Fast-forward to 1983, when Popular Merchandise launched its first catalog, the J.Crew catalog. At the time, it targeted customers who were conscious about how much money they were spending as a way to compete with higher-priced brands.

The catalog touted affordable clothes but was packaged with high-end photography that mirrored the glossy layouts of fashion magazines. Catalogs provided convenience to customers who either didn't have the time to go to the mall or just didn't want to. It was an effective way to build an audience.

By 1997, though, J.Crew had hit a financial wall. However, J.Crew's potential to grow was recognized by private-equity firm TPG Capital. It bought an 88% stake in J.Crew, worth over $500 million, and got right to work with a change in leadership. J.Crew was able to hire retail star Millard "Mickey" Drexler as CEO in 2003.

Drexler is known as "The Merchant Prince" and turned around Ann Taylor and Gap before coming to J.Crew. Jenna Lyons, who had been with the company since 1990, was the vice president of women's design when Drexler was hired. As soon as he started, he and Lyons made a decision to focus on the brand's authenticity. The pair changed where they were sourcing their fabrics, executed a design rehaul of their stores, and gave creative control to the designers.

In order to raise even more cash, Drexler took J.Crew public in 2006, and this is when things really start to turn for the company. At $20 per share, he raised nearly $400 million. Drexler opened the first Madewell store that year, and Madewell would soon become a popular brand among younger clientele. All of these decisions proved to be fruitful, as J.Crew's revenue for 2007 reached $1.3 billion. Every day, consumers and celebrities alike gravitated towards J.Crew's combination of formal and informal clothing.

Michelle Obama: Ladies, we know J.Crew. [audience cheering]

Narrator: In 2008, Michelle Obama famously wore J.Crew in an appearance on "The Tonight Show with Jay Leno," and she went on to wear its clothing frequently on state trips as first lady. With celebrities like Taylor Swift, Jennifer Love Hewitt, and Brooke Shields wearing its clothes, J.Crew became synonymous with having perfect staple pieces for the modern professional.

Even the recession in 2008 showed little sign of slowing down J.Crew's popularity. While retail sales plummeted to a 35-year low, J.Crew actually made gains. The company made $363 million in the third quarter of 2008, which was a 9% increase from the third quarter of the previous year.

Jenna Lyons was promoted to president of J.Crew in 2010, and by this point, she had become something of a cultural icon in the fashion industry. Not only was she responsible for the brand's look, but she also operated as a pseudo model for her own clothes, making appearances at red carpets, fashion events, and even playing a character on HBO's "Girls."

Jenna Lyons: And I see you found the snack room as well.

Narrator: In 2011, J.Crew was bought out by TPG Capital and Leonard Green & Partners in a $3 billion deal. On the surface, things were looking up for J.Crew, but the exclusivity that had built the brand would soon prove to haunt it.

After the recession, J.Crew began to get criticized for being too exclusive and too out of touch with the current reality. Even though the brand performed well during the recession, the economic changes the country went through changed consumer behavior. Customers began to favor fast-fashion brands like Zara and H&M and began wondering if the $2,500 J.Crew skirts were really worth it.

In 2014, as its clothing continued to become more and more expensive, it suffered a net loss of nearly $658 million. And sales continued to drop from 2015 to 2017. And remember that $3 billion buyout we mentioned earlier? The decline in sales meant that J.Crew was never able to return the investment that the private-equity firms made, ultimately resulting in $1.7 billion in debt.

In an interview with The Wall Street Journal, Mickey Drexler said that the company's biggest flaw was its exclusivity, saying, "We became a little too elitist in our attitude," and, "We gave a perception of being a higher-priced company than we were... very big mistake."

Drexler would ultimately step down as CEO and be replaced by a retail native, Jim Brett. Brett immediately got to work trying to solve J.Crew's reputation issue. Among other things, Brett lowered prices, added plus-size clothing, and began to sell J.Crew on Amazon. Brett also set his sights on building out Mercantile, a budget-friendly collection from J.Crew.

However, Drexler wasn't completely out of the picture, and from his seat on the board, he believed these moves would cheapen the brand. This friction caused Brett to leave after only 16 months. Drexler finally left J.Crew completely in 2019.

It took 15 months to find someone who was willing to rehab J.Crew's reputation, when the company acquired a new CEO in Jan Singer. Before Singer landed at J.Crew, she ran companies like Victoria's Secret, Nike, and Spanx, so her familiarity in growing brands was apparent. But no one could have predicted the crisis that was quickly approaching.

Reporter: There are confirmed cases in nearly 30 countries and more than 2,100 people dead.

Narrator: Due to plummeting sales caused by the coronavirus pandemic, Singer announced in May that J.Crew would be filing for bankruptcy and would convert roughly $1.6 billion of its debt into equity, as well as receive $400 million from lenders. The terms of the bankruptcy mean that J.Crew can remain fully operational, and the company has plans to reopen after states begin their reopening processes. Without the massive debt burden, J.Crew has a chance to reinvent itself to attract new customers.

But no one really knows how long this pandemic will last, which leaves retailers unsure of what to expect. Some brands are offering curbside pickup, while others have been offering discounts to increase sales. Retailers must adapt quickly, or else face bankruptcy, just like J.Crew. Business Insider reached out to J.Crew but did not receive a response.