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Retailing icon Mickey Drexler doubles down

J.Crew's CEO says that this is the worst retail environment he's seen in 40 years in the business. His strategy? Launch a new, upscale brand called Madewell.

By John Brodie, assistant managing editor
August 20, 2008: 8:46 AM EDT

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J. Crew President Tracy Gardner (in jacket).

(Fortune Magazine) -- Mickey Drexler is about to teach his menswear design team a lesson about what it means to be a retailer in a downturn. "What year did Christopher Columbus discover America?" asks the 64-year-old CEO. "Fourteen ninety-two!" shouts one designer.

"And what was Columbus wearing?" asks Drexler with mock certitude, presiding from a folding chair over this July meeting of J. Crew's designers and executives at the company's headquarters in New York City's Greenwich Village. Khaki-suited mannequins and racks of clothing line the workroom. He answers his own question. "Blue and white. Christopher Columbus discovered America in a blue-and-white sailor shirt, and since then, men have been wearing blue and white shirts."

Drexler is wearing dark-blue jeans and - you guessed it - a blue button-down shirt. He then proceeds to engage in a straw poll on what color shirts the men in the room are wearing. The majority are wearing blue or white.

"You know what ends up on the markdown racks? All the weird colors. Guys don't wear orange or citron." The point, or what in Drexler-speak is known as the "big call-out," is to watch out for over-assortments (the same item in too many colors).

Today is the moment in the life of a garment when art meets commerce. The occasion is the Spring 2009 Men's Finalization Meeting, a quarterly ritual where the designers present rough drafts of future items to their colleagues in sales, whose job it is to move the chinos, gingham-checked shirts, and desert boots through the company's 267 retail stores, catalogs, and Web site. Together, the designers and the sales team will decide which looks are home runs and which will be shelved. (Among the verdicts: black chino shorts are in; over-assortments of madras shorts are out.)

The merchandise must be both fresh and popular, because the current retail environment, says Drexler, is the worst he's seen during his 40 years in the business. He wants his merchants, who decide how many of each piece J. Crew should produce, to be smarter than ever.

"Don't be buying out of emotion. Buy less if you love something but feel it's a risky item. We don't want overstock. And remember: No profit, no fun!" he says by way of a benediction.

This little speech might come across as the pedantry of a CEO in love with his own instincts and the sound of them coming forth, but Drexler has the track record and passion to back up the bluster. By his own admission, he is a control freak, happiest when he is involved in every facet of J. Crew's merchandise. (No wonder he's a confidant of Apple CEO Steve Jobs.) Drexler's performance with the design team is one of several ways that he's trying to imprint his DNA on J. Crew's 8,700 employees as he tries to grow the company in a harsh environment.

While J. Crew is relatively small - its 2007 revenues were $1.3 billion, and its entire retail square footage would fit into the space of just 13 Sam's Clubs - Drexler is closely watched in his industry because of the way Gap, which he ran for 19 years, transcended retailing to become a pop-culture phenomenon. The reasonably priced pocket T's, clean white store interiors, and the ads with icons like Miles Davis in khakis made Gap into a kind of iWear for the nation. Gap's clothes were both mass and class, populist and cool. No easy feat when you think about how most of the killer apps in retailing distinguish themselves either by low prices (H&M) or by exclusive product (Neiman Marcus).

The Drexler influence

Part of what makes Drexler influential is his ability to predict not only what will sell but also how shopping habits are changing, as witnessed by his launch of Old Navy in 1994. Old Navy allowed Gap to get a jump on big retailers, including Target, which were talking about injecting more style into their apparel assortments.

What does Drexler's trend-spotting instinct tell him now? He thinks the dominance of the big-name designer is played out. He's stacking his chips on quality goods at a fair price, repositioning J. Crew as a luxury-for-less alternative.

At the same time, he is launching his first new separate retailer since Old Navy. The fledgling Madewell chain - which has opened at ten locations, including New York City, Los Angeles, and Dallas - is aimed at the J. Crew customer's edgier siblings. Think jeans and boots rather than skirts and sweater sets. Madewell's name has a deliberate throwback quality that often appeals to a youthful craving for authenticity. (Anyone for a Pabst Blue Ribbon?)

When Drexler was leaving Gap, a friend hipped him to a defunct New England manufacturer bearing that name. He fell in love with the script logo - reminiscent of the Peterbilt truck's typography - and bought the rights to the name shortly after he joined J. Crew.

"There is a great opportunity for J. Crew to pick up the Abercrombie & Fitch graduates. The children of the baby-boomers are three years away from getting into their 20s, and there are not a lot of retailers that are well positioned for that phenomenon right now," says Brian Tunick, a specialty-retail analyst at J.P. Morgan Chase. In fact, both Abercrombie & Fitch (ANF) and American Eagle Outfitters have recently launched more adult lines, called Ruehl and Martin + Osa, respectively.

As confident as Drexler is, the timing is risky. While J. Crew (JCG) is offering a better value proposition, it's going upscale at a moment when the average American consumer is scaling back on discretionary spending. In May the company revised its earnings guidance for the rest of the year, projecting that comparable-store sales growth will be flat or in the low single digits, which sent the company's stock from $49 in May to $28 in August.

And therein lies Drexler's dilemma. Wall Street wants to see growth, but the CEO doesn't want to go on a store-building binge, because if the chain is too far-flung even someone with Drexler's bandwidth won't be able to walk into every one of the stores - something he loves to do - and quiz associates about what they're seeing and hearing on the sales floor ("Which competitors' shopping bags are we seeing?" "Are customers complaining about designer prices yet?").

So the reason this master merchant is putting the fear of a recession into his staff is that he has seen fire and rain. Or more specifically, he made it rain cash at Gap (GPS, Fortune 500) for nearly two decades and then was fired in 2002 after a two-year slump. As Gap grew from 550 to more than 1,800 locations, Drexler's executive duties increasingly took him away from his favorite parts of being a merchant - the stores and the merchandise. He increasingly disagreed with the Fisher family, who controlled more than a third of the company. A bet on trendier, sexier clothes failed to pay off, and suddenly Drexler was out.

"The clothes got weird, and I went along with it," he says now. "But I'm not allowing it to happen here. Whatever we do here has to be consistent with the mission of J. Crew."

During his time at Gap, Drexler had cashed in more than $400 million in Gap stock options, so it was easy for him to pass up a $2 million severance package that came with a string attached - a nonsolicit clause, which would have made it tough for him to compete with Gap had he gone to work for a competitor.

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