Jones Group (NYSE:JNY) is a multi-brand retailer that designs and markets apparel, footwear, accessories, fragrances and jewelry for women. While the company sells more than 30 brands, it earns about 40% of its revenues from its two main brands Jones New York and Nine West. Over the last year, these brands have remained weak due to poor response to fashion changes and lower shipments to wholesale locations.  However, they have shown some signs of recovering lately and the company needs to leverage these signs to boost their growth.
The retailer is making significant efforts for Jones New York such as design improvements, competitive pricing and increase in proportion of performing products. For Nine West’s recovery, Jones Group is leveraging e-commerce channel, improvement in product portfolio and social media marketing. While these efforts might show a few promising signs in the near future, a full turnaround will be difficult given the current state of the retail environment.
Jones New York – Better Design & Focus On Performing Products
During 2011 and 2012, revenues from Jones Group’s domestic wholesale sportswear business declined substantially mainly due to lower shipments of Jones New York (20% of the revenues). The brand has been struggling for a while due to a weaker-than-expected response to its fashion styles, its exit from J.C. Penny and the lack of competitive pricing. J.C. Penny dropped Jones Group’s brands when it adopted a strategy to sell lower-priced merchandise throughout the year. Even as the retailer aggressively invested in the brand, the customer response remained weak in Q1 fiscal 2013. Moreover, Jones New York did not have a good second quarter as the company continued to clear its inventory to reset the brand.
However, there have been some underlying signs indicating that Jones New York is headed in the right direction. Some of the brand’s product segments such as Easy Care, Platinum suitings and Signature denims performed well throughout fiscal 2012. In response, Jones Group started increasing their proportion in its merchandise mix. In Q1 fiscal 2013, these products contributed about 20% to the brand’s revenues, up from 9% in the same quarter last year. These products continued to deliver good results in Q2 fiscal 2013 along with strong performance from Jones New York jeans (12% of the wholesale business). Additionally, Jones Group is working on the brand’s design and prices, and is also reorganizing its products to better connect with the customers. The company is focusing on the brand’s strong categories such as career wear and is adding new product categories as well. While a near term turnaround is unlikely, we believe that Jones New York’s growth might get better in the future.
Nine West – Diverse Products Portfolio & Social Media Marketing
Nine West is the biggest brand for Jones Group in terms of sales volume, contributing over 20% of its overall revenues. In 2012, the brand’s revenues declined slightly due to lower shipments to Asia and Dubai (a step taken to reduce the inventory levels). However, it registered double-digit growth in Q1 fiscal 2013, driven by higher sales from casual wear and handbags, increased full priced sales and growth in e-commerce business. Although the brand sustained some of this momentum in the second quarter, its full-priced sales turned out weak. The challenging retail environment and an unanticipated shift in customer taste were the primary reasons behind it.
Jones Group now plans to diversify its product portfolio to enhance its resilience to sudden changes in weather, fashion and customer tastes. Some of Nine West’s categories such as handbags and jewelry performed well in the last quarter, and the company can leverage these products to boost the brand’s sales. Jones Group stated that it has already made an important product expansion in its key wholesale location Bon-Ton. Additionally, the company is focusing on Nine West’s marketing and e-commerce channel to propel its long term growth. It is leveraging the power of social media to enhance its brand image in global markets, and has gained significant momentum on its digital channel (Channel 9). The channel had over 6 million network views at the end of the first quarter and has now become YouTube’s top fashion network. Also, Jones Group is adding shoppable videos to these platforms wherein the viewers can click on the videos to buy products. Apart from its own e-commerce channel, it has also seen robust growth through Zappos, Piperlime and Macys.com, which indicates its popularity. During the second quarter, Nine West’s e-commerce sales jumped by almost 30%.
Our price estimate for Jones Group stands at $ 14.26, implying a discount of about 15% to the market price.Notes:
- Jones Group’s SEC filings [↩]