J. Crew President Out, 100 Laid Off

In a terse May 1 press release, J. Crew Group reported that CEO Mark Sarvary left the company that day “by mutual agreement.” But Sarvary’s departure was apparently one of many: The New York Post, quoting an unnamed source, reported that 100 employees — about 25% of the staff at the apparel cataloger/retailer’s New York headquarters — were laid off that same day.

Texas Pacific Group (TPG), J. Crew’s majority shareholder, wouldn’t comment. But another source familiar with the company confirms the layoffs.

“TPG is curtailing any retail expansion at Crew,” the source says. “It has declared Crew to be a nongrowth company going forward and as a result is really hunkering down. Most contraction is being done on the retail side, since TPG never saw Crew’s direct business as a growth area in the first place.”

According to several sources, TPG, which invested $560 million in J. Crew in 1997, hasn’t gotten out of the company what it had hoped for: to grow the business rapidly enough that TPG could sell it within a few years at a tidy profit. Instead, J. Crew posted a net loss of $11 million in 2001, compared with profit of $11.9 million the year before. What’s more, annual sales dropped 6% last year, to $778.0 million from $827.6 million in 2000. And J. Crew’s earnings before interest, taxes, depreciation, and amortization (EBITDA) plunged 35%, to $53 million.

Several sources agree that J. Crew’s decline is tied in to a lack of merchandising savvy on the part of Sarvary and his team. A former Nestlé executive with no merchandising background, Sarvary took the reigns of the preppy clothing marketer in 1998.

J. Crew was founded in 1983 by Arthur Cinader, who ran the midprice general merchandise catalog Popular Club Plan. Cinader and his daughter Emily had been closely involved in shaping J. Crew’s merchandising direction. But they left the company in the late 1990s after TPG bought its 60% share.

In announcing Sarvary’s departure, J. Crew chief operating officer Walter Killough said the company was seeking a CEO with a merchandising background. For certain, “Crew needs a group of merchants who work well as a team,” says Lawrence Lee, a former CEO of home decor cataloger Ballard Designs who had worked at Popular Club Plan when Cinader launched J. Crew. “And that’s going to take years to happen. So my prediction is that the company will go through a couple of years of mediocre results before there’s any uptick.”

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