One of my favorite types of stocks to trade is a retail company that I shop at.  Why?  Because if I profit off the stock I don’t feel guilty about “reinvesting my profits” at the store (see: the absurd amount of lululemon clothes I own).  Given this, I was quite excited to see an article on Motley Fool this morning comparing potential 2014 IPOs from two of my favorite retailers, Tory Burch and J.Crew: Tory Burch vs. J. Crew — IPO-Off!

You can check out the Motley Fool article for more background on the companies. The article concludes: “The differences between Tory Burch and J. Crew make both companies interesting options for a portfolio light on retailers. The strength of both brands coupled with their growth potential is good news for investors, and the strong and proven leadership at both should help you rest easy. For many, it will simply come down to how fast you think Tory Burch can grow compared to how big you think J. Crew can be. I’m a fan of the latter, but I can see the case for the former.”

In my opinion though, there are a few key metrics that the article did not examine, which indicate Tory Burch as the significantly better option should there be an IPO.

1. Sales per Square Foot

Sales per square foot is an extremely important metric in the retail industry. Quite literally, it’s the total revenue divided by the size of the stores – it’s almost a measure of how efficient the store is.  Apple currently has the highest sales per square foot of any retailer, at slightly over a crazy $6000.

According to the article, “J.Crew operates 300 locations — three times Tory Burch’s footprint  — but generates only twice the revenue.” I don’t have actual sales per square foot revenues but some quick calculations show Tory Burch’s to be much higher.  Assuming the two companies have stores of the same size, Tory’s sales per square foot are a third higher than J. Crew’s.  However, I’ve been in both stores and in general J. Crew stores seem to be a lot bigger.  So that difference is likely much higher.

2. Growth Prospects

Tory Burch has been growing at a crazily fast rate since it first started in 2004.  Tory Burch is said to have posted sales of $760 million in 2012, a growth of 55.1% over the prior year.  This also translated to a  3-year revenue CAGR of 50%.  In comparison, J. Crew Q3  revenues increased 11% over the prior year.  And for future growth I think Tory Burch is a lot less saturated in the market than J. Crew is, leaving it more room to grow.

3. Discount Pricing 

It is on a very rare occasion that I’ll pay full price for something from J. Crew.  It seems like every other week I get an email from them offering 25% off of my full price purchase.  Plus, their clothes go on sale fairly quickly and are then often an extra 40% off the sale price.  For  Tory Burch on the other hand I’m lucky if I can get 20% off at Bloomingdale’s Friends and Family (it’s often excluded).  

Granted, this difference could just be a factor of two different pricing strategies.  But if not , it could indicate a higher demand for Tory’s product, plus richer customers who are less sensitive to fluctuations in the economy.

If Tory Burch does IPO this year I’ll be buying it.  And then I’m buying these shoes.

tb shoe

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4 Comments on Battle of the prep-stars (Tory Burch and J. Crew article share and response)

  1. Jeff
    January 29, 2014 at 8:12 pm (3 years ago)

    Anddd for what it’s worth, Apple’s sales/sq ft. are so redonc because their prices are outrageous. I got an ultrabook not long ago that, for comparable specs, would be nearly double the price from Apple. Their OS is also free, so now I can 1) pay less, 2) for better performance hardware, and 3) take advantage of their pretty UI, and Apple will never see a dime.

    Competition is destroying, and will continue to destroy Apple until they make products worth the extra cash. Or innovate, but it seems their good ideas have all dried up.

    Reply
  2. jefftopia
    January 29, 2014 at 8:35 pm (3 years ago)

    So here’s a question: the article states that J Crew has thrice (good word choice, eh?) the number of stores, but only twice the revenue. Is that wrong/bad/surprising? Shouldn’t we expect diminishing returns? The number of stores dilutes the average as customers shop at closer locations than they would otherwise. This is probably because J Crew wants good shopping experience, not crowded stores.

    Also, how does online shopping factor into sales/sq. ft. calculations? I only recently moved to an area with a J Crew, so I *had* to order online.

    Anyways, I just thought I’d add that. Oh – one more thought: Do women’s clothing stores face stiffer competition than men’s/ women’s + mens? I suspect they do, and that could cut short Tory Burche’s growth.

    Reply
    • The Day Tradette
      January 30, 2014 at 5:00 pm (3 years ago)

      Thanks for the comments Jeff! Interesting points
      Re. Apple I agree, and that was why I suggested staying out of it ahead of earnings in my recent post. Apple needs something new because Samsung is catching up. I’m also writing this on an HP ultrabook btw, and it looks just like a mac…

      So I see your point, and I’m not a retail expert so I could be wrong, but in theory you should be getting the most bang for your buck out of your stores. In theory you are correct, if J.Crew’s strategy of less crowded stores led to more sales per person who shops there, or more people shopping there. But if that’s not showing up in the revenues, there’s not point. If you’re not increasing revenue by adding more stores, you really don’t need the extra square footage and are essentially throwing out money for rent.

      That is a good question about online shopping. I actually don’t know the answer for sure, but I am pretty positive online sales are measured separately from retail store sales. So in store sales figures (sales per square foot, same store sales) do not include online sales in calculations.

      Finally, it’s funny you bring up the men’s clothing point, my friend was pointing that out as well. Again, I don’t have a definitive answer but I would guess that even though women’s clothing stores are more competitive, women tend to buy more clothing than men do so there is a bigger pot to split. Plus, given the amount that women shop for men, should Tory Burch expand into men’s clothing it’s reasonable that they could use their popularity with women as an advantage.

      By the way, do you go to UVa?

      Reply
      • jefftopia
        January 31, 2014 at 5:24 pm (3 years ago)

        I do not attend UVA. I actually graduated from nearby James Madison University, with a degree in economics. I currently reside in Charlottesville, where I am employed by a small but growing consulting company. It’s nice here – you can go from a Phoenix concert downtown to the Appalachian Trail in ~30 minutes. Pretty cool!

        Reply

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