Why J.Crew Filed for Bankruptcy

I’ll start out by saying that I’m currently wearing a J.Crew camp shirt and linen shorts. I love much of what I find at J.Crew when it comes to building my work-at-home Florida wardrobe.

But this article is not about my fashionable self. It’s about why J.Crew filed for bankruptcy. How does a popular, storied brand end up in financial distress?

Sure, a pandemic doesn’t help.

Also, the brand had about $1.65 billion dollars in debt. Servicing this level of debt requires a significant amount of positive cash flow – and profits.

But, what I’m about to share is the real driver behind J.Crew’s demise – it’s failed e-commerce logistics.

That’s right, J.Crew failed at e-commerce, and that’s why it had to file for bankruptcy to cancel the debt it could no longer afford to service.

However, if J.Crew doesn’t change it’s e-commerce and logistics strategy, it will simply fail again, post re-organization.

Here’s why:

I placed an order at J.Crew.com for 8 items. The list price J.Crew advertised for the items was $340. After their promotions and discounts, the price was reduced to $54.30. Yes, that’s a discount of 84% or $286. Okay, so things were on clearance and they need to move out last season’s stuff. This makes perfect sense in the fashion world. You sell a percentage of items at full-price, then you start discounting. At the end of the season, you just basically dump what’s left to free up that cash. Even if it is at a loss compared to what the production cost of the merchandise was, that can be okay. E.g., if you spent $10 to manufacture and land in the U.S. for a shirt, but need to clear it out at $6 at the end of the season, in some cases this is okay. $6 is better than no dollars, right?

Here’s where it gets worse… and I’m not even talking about how I qualified for no tax, free shipping, and had a $5 rewards coupon, lowering my purchase price to $49.30 for these 8 items.

J.Crew email receipt

And even worse…

J.Crew then canceled an item that was $14.10 because it was determined to be out of stock after I made the purchase. That lowers my amount I paid to $35.20.

J.Crew shipped these 7 items in 6 different UPS packages from all over the country. Yes, that’s right, they sent me six packages for 7 items. All the packages had either one kid’s tank top, or one adult shirt. One package had two items. The sunglasses came in a box (see below) whereas everything else came in a poly envelope. What you’ll see in the photo below are 5 packages. When I took the photo, I had thought that this was everything. A week later, the 6th package arrived (unphotographed).

6 Packages for 7 Items… Not Efficient!

This type of fulfillment process enables companies that have many stores, to use its stores as fulfillment for online purchases. Essentially, the stores are fulfilling your purchase. So, if you purchase multiple items, but the items are not all available at a single store, multiple stores will ship your products.

This benefits companies that want to sell online that already have stores, by enabling them to avoid keeping a separate physical inventory to fulfill orders. The downside is obviously illustrated by my experience in that I received six packages for seven items.

How much did J.Crew have to pay for shipping six different packages to me? That’s difficult to know for sure because J.Crew likely has negotiated a bulk discount with UPS. Let’s say they paid $2, which is probably low. That would mean they spent $12 in shipping. We’ll need to add in the cost of packaging, though minimal, and the cost of the fulfillment (labor to pull the item, verify, pack and ship). Let’s say that’s 0.25 per package for packaging, plus 0.50 per item for fulfillment. That adds $5.00, so now we are at $17.

Somewhere along the line, J.Crew felt it would be more profitable to go this route versus carrying a separate physical inventory and fulfilling it out of one or more centralized locations.

In my case, J.Crew brought in $35.20 in revenue. What it paid for the items, I don’t know. And what it paid to ship them to me in six packages, I also don’t know… but it was probably at least $17, but possibly much more, perhaps close to mid-20s.

Would it have been better if J.Crew shipped all the clearance items to Amazon to use Amazon fulfillment and have a cool discount J.Crew site on Amazon that uses their fulfillment? Should J.Crew ship all the leftovers to a central place and sell just those online? I think there are many options that would have been better than the logistics it went through to deliver my particular order.

Don’t get me wrong… I love getting seven items from J.Crew for $35. That’s a bargain… but offering those bargains doesn’t see like a good cash flow proposition for the company.

It’s been about two months since this order and I have placed two additional orders and I am pleased to say that both orders contained at least five items were received in a single package within a week of ordering. This is a massive improvement and I hope that J.Crew has fixed their fulfillment logistics, as I wish that the company succeeds in the long the run!

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