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Do You J Crew or Rue?

The entire team is attending the ICR Exchange in rainy Dana Point, CA over the next couple of days.  Along the way we’ll be keeping you abreast of any interesting presentations, anecdotes, and data points that we pick up.  Kicking of the conference was an informal presentation by J Crew’s Mickey Drexler.  The standing room only presentation wasn’t filled with too many new insights, but one of the most respected merchants in retail did provide some interesting insights:

  • JCG will remain in a “balanced” growth mode.  A mix of offense and defense.  Questions surrounding missed sales opportunities due to tight inventory management were quickly dismissed.  There is “no hurry to grow inventory”.  Inventories planned flat for 1H10, and will continue to be planned at levels below sales growth.
  • Drexler was bullish on opportunities beyond the core brand.  Madewell.com, Madewell store growth, incremental Crewcuts catalogs, additional Men’s Stores, and bridal shop-in-shops are all part of the near to intermediate growth plan.  When asked if overall growth could be ramped up, Mickey suggested it was unlikely although possible if the right locations came along.
  • Overall bullish on e-commerce and direct business.  Drexler’s off the cuff comments on the demise of video rental stores and potential disappearance of retail bookstores (thanks to the Kindle and others) supported his commentary that “online investments are very appealing compared to bricks and mortar”.  This supports one of our core themes that retailers embracing online as a key growth driver will continue to gain profitable share. 

Following, J Crew was a unique presentation by Rue 21.  The first five minutes were centered on the company’s recent IPO, strong share price performance, growth track record, and plan to dominate retailing like we’ve never seen before (I may be exaggerating, but not by much).  Key points from Rue (that I’m not making up):

  • When asked by the company’s pre-IPO investors if they were ready to go public, the CEO responded “Why not?”.  The entire IPO process was completed in 3 months!
  • On several occasions during the presentation, the CEO mentioned that Rue is the fastest growing retailer in the U.S.  With just over 500 stores, management now believes there is an opportunity for 1,500 stores! Prior expectations were for a 1,000. 
  • It’s all about speed.  Speed to market on merchandising through exclusive use of domestic resources and US based importers.  Speed to open stores, which only takes 6 weeks from signing a lease.  Speed to double the store base which should only take another 3.5 years. 
  • Contrary to J Crew, Rue does not operate an e-commerce site.  It appears that management is entirely focused on opening stores at this point.   Oddly, this seems a bit contradictory given the core demographic for the brand is a 12-17 year old.
  • Finally, the CEO ended with “I’m proud to say our stock price is up 60% since the IPO and we’ve added $300 million to our market cap”.  Hmm…I think we know what motivates these guys.

 Do You J Crew or Rue? - 1

Eric Levine


Casey Flavin