J.Crew Looks To Online

There is an interesting article over at CNN|Money (click here) about J.Crew's future plans to increase profits by scaling back store openings.

J.Crew Group Looks Online To Cut Costs And Boost Margins
By Alexandra Scaggs
July 31, 2009

J.Crew Group Inc. is going back to its direct- sales roots to help its bottom line.

The preppy retailer plans to focus on its catalog, how the company was founded and its Web site more than its brick-and-mortar outposts, management told UBS analyst Roxanne Meyer. The company wouldn't comment for this article.

J.Crew doesn't have too big of a transition to worry about, though - it already gets a large part of its sales direct. And only around 10% of its leases are expiring this year, less than many of its competitors, said Meyer.

But with customers still skittish, opening fewer stores will save J.Crew the cost of rents, utilities, and maintenance on a building. And selling clothes online costs even less than selling in a catalog.

The company told Meyer that it plans to open "fewer than expected" stores in the rest of the year. In its annual filing, J.Crew said it planned to open 15 to 20 stores in 2009, and that it had already "slowed the pace" of retail expansion.

J.Crew's shares have risen more than 64% over the past three months and recently changed hands at $28.27, up slightly on the day.

Other stores have tried to direct customers online, too. Gap Inc. (GPS) revamped its Web site in 2008 so customers can shop across all five of the company's brands and pay a flat $7 rate for normal shipping.

But analysts say J.Crew has an advantage because of its direct-sales history. J.Crew already posts significantly more direct sales than its competitors. In fiscal year 2008, the company earned 28.6% of its revenue directly. In contrast, Gap and Abercrombie & Fitch Co. (ANF) brought in about 6% and 8% of their 2008 sales through that channel, respectively.

The company's focus online may also help it avoid the push and pull of rent negotiations. In J.Crew's most recent earnings call, Chief Executive Millard Drexler spoke about the company's tug-of-war over rents. "Unless landlords start to realize the supply and demand balances, as our customers all around the world realize, we're not going to accelerate store openings because we don't want to work for the landlords," he said. "We want to be their partners. And frankly, we're not seeing landlords being flexible and open enough in this environment to understand that."

What are your thoughts on the article? Disagree or agree with any of the points made? Do you think J.Crew's focus on catalog/web while slowing B&M store openings, is a brilliant or short-sighted move during these times?