How J. Crew went from beloved to bankrupt — and how it launched its comeback
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- In the early 2000s, J. Crew was widely considered one of America's most beloved brands.
- But by the 2010s, sales had started lagging. J. Crew filed for bankruptcy in 2020.
- Now, the company is under new leadership and is poised for a resurgence.
It's been a tumultuous ride for J. Crew over the past two decades or so.
In its heyday in the 2000s, J. Crew garnered a reputation for being one of America's most iconic brands, successfully toeing the line between preppy and cool and garnering the admiration of everyone from celebrities like Gwyneth Paltrow to former First Lady Michelle Obama.
But a series of product missteps and a failure to keep up with where the retail industry was heading led to sliding sales, management challenges, and, eventually, bankruptcy.
Now, J. Crew is hoping fresh design talent and a new CEO can restore its position among America's beloved heritage retailers. Here's how the company rose to prominence, fell from grace, and began working toward a turnaround.
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J. Crew's predecessor, Popular Club Plan, was founded by Mitchell Cinader and Saul Charles.
In 1983, Cinader's son, Arthur, and daughter, Emily, launched the J. Crew catalog in an attempt to capitalize on the popularity of brands like Ralph Lauren at a cheaper price point. Six years later, J. Crew had opened its first-ever store in New York City's South Street Seaport.
In 1997, TPG Capital, a private equity firm known for turning around failing companies, bought a stake in the brand.
AP
Drexler, who was known as the "the merchant prince" at the time, had been responsible for transforming Ann Taylor and Gap before he took up the role of CEO of J. Crew in 2003.
Three years later, J. Crew went public. Its $376 million IPO was, at the time, the most successful in the history of retail.
That same year, Drexler founded Madewell, a trendier sister brand targeted at younger women.
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Lyons started her career at J. Crew, joining as an assistant menswear designer after graduating from Parsons School of Design. She worked her way up over 20 years to become the brand's creative director, and then, two years later, its president.
"She is, in my opinion, one of the most talented, trained, intuitive and commercial designers I have ever met," Drexler told The New York Times in 2013.
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What made Lyons' aesthetic so unusual at the time was its embrace of contrasts: masculine and feminine, expensive and affordable, nerdy and cool. Models walked the runways or appeared in catalogs wearing camouflage cargo pants and high heels, or ripped jeans and sparkly costume jewelry.
Lyons herself was becoming something of a fashion icon in her own right due in large part to her androgynous style, signature oversized glasses, and penchant for bright lipstick.
AP Photo/Chuck Kennedy
Perhaps no one had more of an impact on J. Crew's sales than its highest-profile fan, Michelle Obama.
She famously wore J. Crew during an appearance on "The Tonight Show" in 2008, at the 2009 inauguration, at the 2012 Democratic National Convention, and numerous other times during her tenure as First Lady.
After the 2008 TV appearance, J. Crew's stock jumped and traffic to its website skyrocketed 64%, according to a 2010 New York University study.
Kate Middleton and Meghan Markle were also J. Crew fans, often donning the brand's sweaters, outerwear, and heels for public appearances. And celebrities like Jessica Alba, Reese Witherspoon, Blake Lively, and Gwyneth Paltrow were all spotted out and about in J. Crew.
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The Ludlow suit was a runaway hit for J. Crew: it looked good on most men, cost less than $1,000, and, with its narrow cut, was perfectly on-trend during a time when "Mad Men" was all the rage, according to The Wall Street Journal.
Between 2008 and 2011, sales of men's suits more than doubled thanks to the Ludlow, The Journal reported.
"J.Crew kind of jumped on something when everybody just kind of wanted to look a little bit the same," one Ludlow fan told The Journal.
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In 2010, J. Crew announced it would be taken private in a $3 billion leveraged buyout by two private equity firms: TPG, which had bought a stake in the brand in the '90s, and Leonard Green & Partners.
Drexler netted $200 million in cash after the deal went through and received an 8.8% stake in the new company.
The deal came amid a challenging time for retailers across the board, since the recession meant that shoppers were still hesitant to spend on items like apparel. Brian Sozzi, an equity research analyst at Wall Street Strategies, told CNN at the time that the sale would give J. Crew time to "readjust."
"It will allow them to expand more aggressively, take a more pragmatic approach to opening more stores in the US, and might give them the balance sheet to expand internationally," he said.
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The signs had long been there that J. Crew had high-end aspirations. Back in 2008, Lyons launched J. Crew Collection, a high-end range with prices that mirrored luxury brands — one skirt cost $800, while a sweater cost $1,900. By 2010, J. Crew was showing collections at New York Fashion Week.
But it wasn't just select items that had surprisingly high price tags — customers started to complain that prices had gone up across the board, and that J. Crew's offerings had become over-styled, something Drexler himself admitted.
J. Crew's performance grew worse in 2014, culminating in sales dropping 3% during the holiday season.
"Needless to say, it's been a tough year for us, and the numbers speak to that," Drexler said during an earnings call at the time.
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The company reported rough quarter after rough quarter. Plus, several changes to the product assortment and manufacturing process had alienated the brand's strongest customers: professional women.
There were several issues at play. For one, quality had declined, and the brand had made missteps with its inventory planning. It had also "meddled" with classic styles like its beloved ballet flat, Drexler said at the time.
Plus, the frequent discounting had turned many shoppers off from paying full price, and inconsistent sizing had begun to frustrate customers. And some shoppers who had been loyalists for decades were starting to grow weary of Lyons' edgier, high-fashion aesthetic, which didn't feel particularly inclusive.
"It's hard for the 'every person' to find themselves in the J.Crew world anymore," one customer told The Wall Street Journal at the time.
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Drexler addressed the company's woes in an interview with The Wall Street Journal.
"We became a little too elitist in our attitude," he told The Journal. "We gave a perception of being a higher-priced company than we were — in our catalog, online, and in our general presentation. Very big mistake."
He added that he underestimated how much technology would transform retailing, with fast-fashion eclipsing traditional retailers in both trend and speed.
Mark Lennihan/AP
Brett launched a turnaround plan of his own – lowering prices, adding plus sizes, and selling the brand's low-cost Mercantile collection on Amazon for the first time, something Drexler had said the company would never do.
"We must reflect the America of today, which is significantly more diverse than the America of 20 years ago," Brett told The Wall Street Journal at the time. "You can't be one price. You can't be one aesthetic. You can't be one fit."
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In a statement to the press at the time, he hinted that clashes with the board were the reason behind his departure — The Wall Street Journal later confirmed these suspicions.
People familiar with the matter told The Journal that Drexler had taken issue with Brett's decision to start selling clothing on Amazon, as well as his plans to grow the budget Mercantile line.
Many of the changes that Brett put into action — including launching a new label, Nevereven, aimed at young women — were quickly overturned.
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"J.Crew and Madewell have been long admired as iconic American brands, and I am thankful to have been a part of their evolution throughout the years," Drexler said in a statement.
At the time of his departure, J. Crew still didn't have a CEO to replace Brett.
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Singer had her work cut out for her: the company was saddled with nearly $1.7 billion in debt.
According to The Wall Street Journal, the company had planned to leverage a 2020 initial public offering of its sister brand, Madewell, to lessen some of its debt. Plans for the IPO were abandoned near the end of March 2020, however, as the company failed to reach a deal with lenders.
Soon after, J. Crew was forced to close its stores as the coronavirus pandemic swept across the globe.
AP Photo/Gene J. Puskar
The company said that it had reached an agreement with its lenders to convert about $1.65 billion of its debt into equity.
It has also secured $400 million in funding from its lenders to navigate its way through the restructuring process.
"This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J. Crew and further enhancing Madewell's growth momentum," Singer said in a statement at the time.
She continued: "Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances. As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come."
Mark Lennihan/AP
Singer's tenure at J. Crew was short-lived. By November, she was out, and J. Crew had named Libby Wadle, a 16-year veteran of the company who had been serving as Madewell's CEO, the company's new top exec.
In the meantime, J. Crew had emerged from bankruptcy thanks to a deal that made hedge fund Anchorage Capital Group a majority owner in the company.
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Babenzien was the design director at cult favorite streetwear brand Supreme for 14 years before launching Noah, which serves slightly older clientele at higher price points. His first designs for J. Crew hit stores in July and included bleached jeans, a pink plaid jacket, and "giant fit chinos," which have been a major hit for the brand.
Olympia Gayot, a Victoria's Secret veteran, has overseen womenswear design for the past two years and has developed a devout online following for her "effortless, nonchalant approach to dressing," according to Vogue.
Both the men's and women's offerings have been praised by fashion insiders. GQ said the men's collection was "giddily received both by the men's fashion press and by customers," while InStyle said there was a "palpable freshness" to the women's line.
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Under Wadle's tenure, the brand is shifting its strategy: eliminating deep discounting, ironing out quality issues, and using more inclusive marketing and stylish takes on J. Crew classics, she told The Wall Street Journal.
"We got pretty caught up — maybe too much — in just the commodity businesses and the basic businesses," she said.
J. Crew, Wadle said, is "one of a few great American brands. I think we sort of lost that along the way."
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