Lululemon, J.Crew: Specialty Retail Growth Opportunities
by the Wall Street Transcript
August 04, 2008
The Wall Street Transcript interviewed Paul Lejuez, Director & Senior Analyst on Credit Suisse's retail research team...
TWST: If we take a little longer-term look, are there growth opportunities in this space longer term?
Mr. Lejuez: Yes. I think domestically there are a few stories that we would say have very clear, visible square footage growth. That is to say, I can look three to five years down the road and see companies still growing.
One name that we would call out that has those opportunities is Lululemon (LULU), for example, which is in its infant stages of getting its store base established here in the United States after developing into a very well established brand up in Canada. ...
TWST: What's the market they're appealing to?
Mr. Lejuez: They sell yoga-inspired apparel, but they are not just selling yoga apparel here...
The other name I would mention would be J.Crew (JCG) in terms of growth opportunities here domestically. They have about 200 full-priced stores. We think there are about 350 "A" malls in this country, and so they could still increase their square footage at their core concept by over 50% over the next several years. There are very few companies that I cover, if any, that can say that. Lululemon would actually be way higher than that; they can triple or quadruple their store base, but J.Crew I think would be the other one that we would call out on the specialty side that has great growth opportunities.
TWST: What is it that gives Lululemon and J.Crew an edge that will allow them to succeed in a tough market?
Mr. Lejuez: Different answers for each.
With Lululemon, what they do so well is that they really become part of the community. ...
With J.Crew, it's a little bit different. I think they operate in an underserved market, or I should say it's not served effectively, which is the young adults/adults market. They just seem to get the product right. They are run by CEO Mickey Drexler, and we'd say he is one of the few rock star merchants in specialty apparel. The way that they run their business is they've managed to put out some of the best fashion on the floor, season in and season out. They do a great job with colors. They do a great job with fit. They are always doing something new and interesting rather than just kind of sitting back and doing the same old thing. I think customers appreciate that, and they want to shop at their stores.
TWST: Is there a risk at J.Crew of being so dependent on Mickey Drexler?
Mr. Lejuez: Mickey certainly is key to the story, but President Tracy Gardner is there as well and I think that under Mickey's leadership she has developed into a very talented merchant. Nobody is going to ever be a Mickey, but I think she is one of the best out there.
TWST: Can Lululemon and J.Crew hold their own from a sales and earnings perspective during times like these?
Mr. Lejuez: We think they should be able to. Certainly, one of the things that drive earnings in retail is square footage growth, and these two have it. ... J.Crew has already shown that their same-store sales number has slowed a little bit, but I think it's important to look at their direct business as well, which represents about 30% of their overall sales, and that has been increasing and growing at a faster rate than retail sales have been. We did a report last week where we basically asked a question, "what if direct sales were included in comps?" and when we looked at our entire universe, J.Crew really stands out as being the beneficiary.
If we were, in fact, to include direct sales in comps, J.Crew's comp would have been 500 basis points higher. As far as we are concerned, as far as the company is concerned and the point we are trying to get across is that the direct sales should be included in the comp. There is very much an indifference, I think, between whether a company makes a sale at a store or online. Direct is a very leverageable, if not more leverageable model. So when you think about companies growing organically and being able to leverage their fixed investments, as far as I'm concerned the direct channel is just as important. Either ring the register or click the mouse. No difference to me or to the retailer.
I must say that the portions of the article that I have in bold, I completely agree with. I think J.Crew has some of the best fashions, with excellent selections in terms of color and fit. When it comes to jackets and coats, I can't imagine buying either anywhere else except for J.Crew. I also think Micky is a rock star when it comes to his visionary leadership at J.Crew (I really do!) :)What do you think of this article? Do you agree or disagree? Do you think CEO Mickey Drexler is a "rock star merchant in specialty apparel"?
0 comments:
Post a Comment