Drexler's Obsession to Detail Helps Him Triumph With J Crew TPG Takeover

Mickey Drexler put $10 million of his own money into J. Crew Group Inc. when he took over its top job in 2003. As he overhauled the New York retailer, he personally reviewed every item of clothing sold, every model in the catalog and every new employee.

Now the 66-year-old son of a New York button buyer stands to profit from his obsessiveness. He agreed yesterday to a $3 billion takeover by TPG Capital and Leonard Green & Partners that values his stake at about $150 million, 15 times his original investment.

Drexler, J. Crew’s largest individual shareholder, “morphed the company into what it is today,” Jeffry Aronsson, chairman of Aronsson Group LLC and former CEO of Donna Karan International, said in a telephone interview. The former Gap Inc. CEO doubled J. Crew sales to more than $1.5 billion during his tenure, replacing some of the signature preppy gear with stylish dresses and accessories that attracted customers including U.S. First Lady Michelle Obama.

J. Crew isn’t Drexler’s only retail success. The executive first began crafting his reputation at the Ann Taylor chain in the 1980s. During the seven years that he ran San Francisco- based Gap, sales climbed more than four-fold to $14.5 billion. He also put more emphasis on marketing and launched the lower- priced Old Navy brand.

Photographer: Jin Lee/Bloomberg

Millard "Mickey" Drexler, chairman and chief executive officer of J. Crew Group Inc. Close

Millard "Mickey" Drexler, chairman and chief executive officer of J. Crew Group Inc.

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Photographer: Jin Lee/Bloomberg

Millard "Mickey" Drexler, chairman and chief executive officer of J. Crew Group Inc.

‘Obsessive’

“He totally trusts his gut, and he’s obsessive about details,” said Hal Reiter, the executive recruiter for New York-based Herbert Mines Associates, who led the search for Drexler’s Gap replacement in 2002. “He’ll question and question and question and question until he gets the answer that satisfies what he needs.”

Drexler holds about 3.45 million shares, or 5.4 percent of J. Crew, according to data compiled by Bloomberg. He also has options to acquire another 5.1 million, according to regulatory filings.

J. Crew fell 29 cents to $43.70 at 4 p.m. in New York Stock Exchange composite trading. Yesterday the stock advanced 17 percent following news of the acquisition. The shares have fallen 1.7 percent this year before today. J. Crew declined to make Drexler available for an interview.

When Drexler arrived at J. Crew seven years ago, he was the fourth CEO in five years. Revenue had slumped since 1997, when TPG Capital acquired a majority stake. Even as preppy clothing lost currency with fashionistas, the chain had hewed to low- priced preppy basics such as slacks and skirts.

Whimsical

Drexler took J. Crew upscale. He ditched apparel emblazoned with J. Crew’s oar logo, adding women’s jackets, frilly blouses, and cashmere and sequined sweaters. He introduced understated garments with whimsical accents, a wedding line and cocktail apparel. Even as the chain continued selling lower-priced basics, he raised the prices of new items.

The new-look strategy hasn’t always worked for Drexler. After he opted for fashion-forward items at Gap instead of the basic khakis and t-shirts that had long defined the brand, comparable sales fell for 10 straight quarters. In September 2002, the board replaced him with former Walt Disney Co. executive Paul Pressler.

By contrast, Drexler’s changes at J. Crew generated buzz. In 2008, Michelle Obama appeared in a yellow J. Crew ensemble on “The Tonight Show” with Jay Leno. She also outfitted the first daughters in J. Crew’s children’s line, called Crewcuts, at the inauguration of her husband, President Barack Obama.

Weathered Aftermath

Return customers like Michelle Obama have helped push J. Crew’s sales growth up an average of 16 percent a year since Drexler took the company public in 2006. The chain also has weathered the aftermath of the recession better than some rivals, Laura Champine, an analyst at Cowen & Co. in New York said in a telephone interview.

“J. Crew had a nice, casual look that sold well during the downturn,” said Champine. “During that period, J. Crew was a better merchant” than rivals like Banana Republic and Ann Taylor.

Now, sales growth has slowed, and some analysts say J. Crew may not be changing its fashions fast enough. Last month, Christine Chen, a Needham & Co. analyst based in San Francisco, cut profit estimates, blaming “a lack of dramatic fashion newness.” Earlier in the fall, the company discounted sweaters by 20 percent, a practice it tends to avoid, Champine said.

Yesterday J. Crew lowered its full-year earnings outlook for the second time this year, saying it would have to rely on promotions more than anticipated. Sales at stores open more than 12 months fell 1 percent in the latest quarter.

‘Struggle’

“I can see a struggle there to refocus,” Dudley Blossom, chairman of the marketing and management department of LIM College, a fashion business school in New York, said in a telephone interview. “When they first launched, they were focused on the younger customer aged 18 to 24, and they seemed to be tracking those people.” As a result, J Crew began catering to an older customer rather than the original demographic, he said.

Under the terms of the deal, J. Crew’s board has through Jan. 15 to review alternative bids. While TPG and Los Angeles- based Leonard Green yesterday emphasized that Drexler would stay on as chief, a separate offer might limit his control, according to WSL Strategic Retail’s Wendy Liebmann.

“I wonder if this is a defensive action, as someone else might have come along and poached them and then he would really lose control,” said Liebmann, CEO of the New York-based consulting firm.

So long as Drexler remains at the helm of J. Crew, he’ll keep the same obsessive approach, said Reiter.

“I don’t think it’s going to change the way Mickey runs the business.”

To contact the reporters on this story: Burt Helm in New York at bhelm3@bloomberg.net; Cotten Timberlake in Washington at ctimberlake@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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