King of cool (cont.)
His eye for detail is the driving force behind some of the company's new luxury-for-less ventures. One way J. Crew is drawing attention to its higher-end men's wear is by opening the Liquor Store, a 935-square-foot space that was formerly a wood-paneled bar in New York's Tribeca neighborhood. In addition to suits, chinos, and desert boots, the store will sell vintage Timex watches, Redwing work boots and Mackintosh raincoats. The store will also sell a few Baracuta jackets (picture the windbreaker Steve McQueen wore on the cover of Life in 1963 and your dad wore raking leaves). The design team had been talking about reviving the jacket, but it became official after Drexler spotted one hanging on the back of a chair in the window display of a London boutique.
By using these heritage brands, Drexler hopes to tap into guys' love of lore. J. Crew will also be offering men's shirts in fabrics made by Thomas Mason, the textile manufacturer that many Jermyn Street haberdashers use. Says Todd Snyder, who followed Drexler from Old Navy to become J. Crew's senior VP of men's design: "I was getting shirts custom-made for myself, and then one day Mickey asked me, 'Hey, where did you get that shirt?' He said, 'Why don't we do it for J. Crew? And by the way, can you make me some as well?'" The off-the-rack version of the shirts off Drexler's back will retail at $128 for the dress model and $98 for a more casual version.
These brands tap into nostalgia, but Drexler does not want J. Crew's stores to be fantasyscapes that transport the shopper back to the country estates of Evelyn Waugh or the Africa of Isak Dinesen's memoirs. He dislikes the way a lot European designers' boutiques are intimidating. "Maybe its my Bronx upbringing, but I don't like elitist approaches. We don't take ourselves too seriously at J. Crew," he says. "Going into a store is kind of like meeting a person. I want J. Crew to come across as open, warm, and friendly."
The stores achieve this desired effect through bright primary colors on the walls, bold prints on the mannequins that greet shoppers, tables where customers can paw through sweaters, and sisal rugs on the floor that give the proceedings a touch of the beach. The clothes are classics with a modern twist. The music is hip but not deafening, and Drexler wants his salespeople to be multi-culti like the old United Colors of Benetton campaigns - a store that he admired in its heyday. Drexler wants his house to be a place where you'd want to hang.
A major change at J. Crew since Drexler took over is that the company's design team has more influence. Jenna Lyons, the creative director, has been at the company since 1991 but lately has become a rising star in the design world. Tall, reed thin, a working mom who grew up in Palos Verdes, Calif., she has a sense of newfound pride: Women she considers chic are wearing her handiwork and supermodel Inguna Butane will be in an upcoming catalog. Since Drexler's arrival she has also been able to source textiles from better Italian mills, including Ratti, which provides prints to some of Europe's leading designers.
She will be debuting an upscale line called J. Crew Collection this fall. More important, the relationship between designers and merchants at J. Crew has changed. "We used to get pretty serious, heavy direction from the merchants in terms of what they needed. Now we get to completely design a line - we get to dream the dream," says Lyons. "Mickey understands good art can drive the commerce. He makes the analogy with the auto industry a lot, and I think one of the reasons that American carmakers aren't doing well is they've forgotten about design."
Drexler's time on the Apple board, where he has been a director since 1999, validated his instinct to let the creative team lead at J. Crew. After all, clothes are commodities as much as MP3 players are, "but there's nothing as good-looking, as cool, as an iPod," Drexler notes. The influence worked both ways: Drexler played a pivotal role in the early days of Apple's (AAPL, Fortune 500) foray into retail. He suggested to Jobs that before Apple open its first store, the company should build a version of it in a warehouse. Drexler saw the early version of the designs and helped the company come up with a slicker version more consistent with the brand's design legacy.
Drexler's love of design and his garmento wisdom come together in his hobby - buying and refurbishing real estate. The way some CEOs book tee times at Augusta National, Drexler loves looking at property. He can discuss the pros and cons of Manhattan's trophy apartments - the ones in the exclusive co-ops - as if they are potential store sites. He owns homes in Bridgehampton, N.Y.; Sun Valley, Idaho; and Harbour Island, Bahamas. The jewel in the crown is Eothen, the old Andy Warhol estate in Montauk, N.Y., one of the last great parcels of oceanfront real estate on Long Island's East End. Drexler bought the 5.6-acre property for a reported $27 million and plans to restore the compound of cottages to the feel of an old fishing camp.
The green grass and clear ocean of Eothen is a far cry from the Bronx of his childhood. (The same borough spawned two other industry giants: Calvin Klein and Ralph Lauren.) There, Millard S. Drexler grew up in a one-bedroom apartment. His mother, Mary, was diagnosed with breast cancer when he was 2, and she died 14 years later. He attended Bronx High School of Science, graduated from the University of Buffalo, and got his MBA at Boston University, where he met his wife, Peggy, now a psychologist, author, and lecturer. The couple have two children, a grown son and a teenage daughter.
Long term, Drexler's biggest challenge may be showing Wall Street the growth it craves. Since taking over, he has made great strides in pumping up two key metrics - sales per square foot and operating margins. J. Crew's 2007 operating margin was 12.9%, compared with the 7% to 8% average in its competitive set. Last year its sales per square foot were $569, well above the $400 average for the sector. That leaves J. Crew a few additional avenues of growth: build more stores, launch new brands, and stoke its fast-growing e-commerce.
Opening new stores would be the easiest way to show Wall Street growth, but Drexler doesn't want to go down the road that has led to so much grief for overstretched retailers from Gap to Starbucks. Right now J. Crew plans to open 36 new stores by year-end and close two underperforming locations, bringing its total to 301. Still, that's a small footprint compared with Abercrombie & Fitch's 1,000-plus stores or Banana Republic's roughly 550. "Three hundred retail and 100 factory stores is not the cap, but it's kind of the intermediate goal," says James S. Scully, the company's CFO. J. Crew has no plans to go abroad. It is almost as if Drexler burned his hand on the stove of expansion when he was running Gap and has no interest in trying it again.
Selling directly to customers, either through catalogs (of which there are 13 a year) or over the web, is more the focus at J. Crew. Compared with the flat or slow revenue growth expected from the stores this year, the company is predicting direct-sales growth in the high single digits. Last year 28% of the company's total revenues came from web and catalog sales. That's markedly higher than competitors, including Talbot's (19%), Urban Outfitters (14%), and Limited Brands (LTD, Fortune 500) (which includes Victoria's Secret and clocks in at 14%).
Wall Street likes to see healthy direct sales because that's a way to show growth without real estate costs, and as more and more computer-literate progeny of the baby-boomers graduate to adult brands, online shopping will continue to grow. The downside is that when there's a hiccup with the Web site, as there was during an upgrade to improve customer service this summer, the Street reacts. On July 31, Drexler and Tracy Gardner, J. Crew's president of retail and direct sales, posted an apology. "We've made some mistakes ... too many, in our mind ... We know we've let you down." This cyber apology may have made customers feel better, but it knocked two bucks off the stock.
So should department stores or designers who slap logos on their clothing (and hefty markups on their customers) be worried about J. Crew? Industry watchers and retail veterans think Drexler may be onto something. "There's an opportunity to capture customers who are looking to belt-tighten, looking for a little bit more value out of their apparel purchase," says Kimberly Greenberger, Citi senior retail analyst. But Greenberger cautions that going upscale could be a zero-sum game in which Drexler prices himself beyond the reach of the customers J. Crew already has. Says Greenberger: "We think consumers at every level are getting squeezed."
Even as he unleashes his designers, Drexler seems to keep that in mind. If art begins to drift too far from commerce, Drexler will be the first to speak out. He may invoke Christopher Columbus - or another great Italian of the Renaissance. When Jenna Lyons and her women's design team had their finalization meeting and showed one too many colors on a certain item, for example, they were treated to a lecture. "The big call-out today is too many colors," Drexler lectured the designers and merchants. "Leonardo da Vinci didn't make the 'Mona Lisa' in four colors; he made it in one." And if his company can make it through the downturn, Mickey Drexler may finally have painted his masterpiece at J. Crew.