Millard Drexler: Ive Learned That Growth Is the Enemy
There's been for twenty years or so to many retailers too much inventory this just too much scrip footage for human being in America. You're always has. That's one thing. Lack of creativity. I think is another thing. What you get is just deflationary trend in retail and I took. We've been going through that. Do we need department stores anymore in the age of Amazon and the Internet. What role do you think a department store serves now? It was a matter of profit not matter out big. Can you get how much volume you too? And it's kind of like this. Endless amount of opening stores are looking for opportunity and they always would say every three years. This is not the end of the armed services once pretty much near the end. Hi this is Imran Ahmed founder and CEO of the business of fashion and. Welcome to our podcast. This week on fly. I sat down with American retail legend. Mickey Drexler now. The American retail environment has been buffeted by the corona virus crisis with retailers from Neiman Marcus to JC Penney J. crew and the gap all struggling in the face of a once in a lifetime economic and public health crisis. I spoke to Mickey about how American retail ended up here in the first place how he sees consumer behavior changing and what the retail landscape might look like when the pandemic is behind us. So here's Mickey Drexler inside fashion. I everyone this is Imran Ahmed founder and CEO of the business of fashion and welcome to be. Oh live. We have a legend with us today for B. O. F. Live I'm pleased to welcome Mickey Drexler. The former CEO of gap and J. Crew and kind of legend in the in the American Retail and fashion world. And I caught up with Mickey briefly on the phone about a week ago and asked whether he would join us today for conversation. Because there's been so much timeouts in turmoil in the American retail landscape over the last couple of weeks I thought it would be really great to have someone like Mickey. Help us all to navigate the changes that are happening and make sense of what's going on and also to paint a picture of what the future might look like as on the other side of this crisis that we find ourselves in so Welcome Mickey to be off lines. Nice to the appreciate it. I wanted to start Mickey Before we dive into the topic at hand if you could just tell us a little bit about how you're doing how your quarantine has been what you doing To keep yourself occupied. I find that everyone is finding new ways to keep their minds and bodies occupant it occupied tile. I'm going crazy I I can't stand still. It's a huge turn for answer. My pants and every day is kind of repeat of yesterday. I have no idea. Tuesday versus Saturday's link. And I get up every morning and not living in a homeless living in a hotel but at such a long story in that makes it less fun. I'M GONNA get up every day. Take a walk with my wife. My kids are one in New York and one's in Sampson and I walked for an hour and a half a long beach here in Miami not on the beach because you're not allowed to and then I come home till the next morning home or whatever wherever I am and life is. I actually like without work. I be dying and this choosing his favorite hobby of mine. My wife is very serious about keeping US isolated Argentine as she should be a so it's it's almost surreal living sway. All of us is just unbelievable. And I don't think anyone really knows what it's going to look like on the other side but it is what it is and I can't wait normal. I do facetime with my grandchild. Some getting to know she's a year and a half and that's my relationship with are in. That's that's like it's not. It's not eas- house. There's a daily routine. I think that we're all developing. I guess it's about injecting moments of connectivity moments of exercise moments of reflection and an moments of work and mixing that all but while being in the same physical space which is kind of challenging. Because it's hard to transition between all of those different but I. I was really excited to talk to you because obviously you know as a as a media publication that covers the global fashion industry of which the the American market still plays an incredibly important part watching from over here in London. What's happening in the retail environment in the United States? It's been harrowing. You know some of the big titans of the American retail landscape are teetering on the edge of bankruptcy some have already filed for bankruptcy some are planning for liquidation including two of the companies that you used to lead an you know. The gap has been withholding rent payments. Furloughing its workers trying to reorganize and restructure its operations and J. Crew has obviously filed for bankruptcy as a way of doing a restructuring of the organizations and they're not alone right this is J. Crew Neiman. Marcus is the gap is his Lord and Taylor as you look across the American retail landscape. It's it's pretty grim out there and so the first question. I just wanted to you to ask you you know. How did we end up here? That so many of these big American retailers find themselves in a position where you know there are teetering because you know the the companies that seemed to be surviving seemed to be seemed to be kind of getting through at least up until now are the ones that were strong going into this crisis. But many American retailers were already Suffering before this all started and this is kind of become the kind of final you know the the proverbial Straw against the camels back so talk to me a bit about how we ended up here in the first first thing I'm GonNa say is Speak to a lot of people every day to work and do whatever most people will say. I have no answer to your question. I mean I have one opinion on how he ended up here with. Most of us don't know what the other sides could look like in my own opinion on and I think statistics There's been for twenty years or so to many retailers too much inventory and I think what's happened because of a corona virus in one short sue. What probably could've happened ten or fifteen years ago. Too much out there to choice to inventory drove down prices drove down margins increase of price. And they're well if you look at Tj. Max I think the biggest most profitable department store in America if not the world and they have a great merchant account rich wanting running at night. I think the great were cheap or is also part of it. I think this just too much square footage for human being in America. It always has. That's one thing. Lack of creativity I think is another thing although with too many stores into choice of what you get is just a deflationary trend in retail nights. We've been going through that. Very simply stated is too much assortment out there too much goods not enough special. Not Enough unique. Lots of commodities Amazon certainly influenced a lot of this and that's life end so could add twenty or ten years ago because I always ask the question an I didn't know none of us knew about this while some people that Bill Gates I guess sold coming is what you do. Then you've named companies if solemn so didn't exist would you miss them and there was so many no. I will miss them if they weren't here anymore. Now what's happening is a lot of going away either. Unfortunately because they have no cash they're running out of cash in. They might be good at what they do and the rest. You just won't miss them and the balance sheet was week when you say their balance sheet was weak you mean they were heavily indebted right overly indebted or plus an I. Don't you know right now? Sitting with all these empty stores with huge Will push people over the edge if they might have survived longer than they probably would discount. It cleans up the landscape of Aqua Lung. Markdown companies and others who sadly will go away because you know maybe they just undercapitalized. And they might be run. Creatively have nice goods. The the report cards not in yet. I don't think it's close to being so if that's the question if if there are too many stores and I think you know there's one statistic that's you know frequently cited that there there's more store space in America. Her customer or per person than there is anywhere in the world by a long shot. So there's too many stores is too many malls. There's too much product There's too many brands. How did how did they all last this long? My first place you know. We'll explain that to me because I don't understand how that can happen. What the the answer. I always get free money out there for everyone. I'm not an economist. A merchandiser in what free money means as maybe lower interest rates are money plus a venture capital like. Oh here ten million years fifteen million. Let's think shot I kind of Bedding in dark half the time I. I sat in Venture Capital Office for my first year at J. crew and I visit with companies and it wasn't very hard to get money who's actually quite easy just to fancy. Dan Presentation Sound. Like you know what you're talking about a with great confidence have no experience. Oh we're going to invest in. You know what I've learned is if they hit one or two or three ten. They're very happy and don't says that they'll talk about it. But I'm not blaming venture capital maybe blaming too much cash around America to take a shot and when I look at the companies are known to be critical. I am like very few things impress. And I'm saying you kidding. You're going to invest in this when his so many of that but I think free money betting taking a shot. I guess in the two Twenty that the deal is makes it very attractive to buy company sell companies and it got us to place where we are in a to a degree. And you know you weren't looking at these with a sharp. I may be in my world in Tarot. It's amazing how people might evaluate opportunity without Kinda doing the surgery you know doing whatever before and money people are different than operate. There were very much different. They probably make more money in a sense because playing money in the not Clinton with and I don't think the playing vision and I don't think they're playing with a down. The road shot now. Drafting said is more start ups and I don't know what's GonNa Happen is my own personal opinion. All this is how many of them are actually going to survive. How many will make money? I'm used to and I started made. Well started old navy. A while I was running. It was a matter profit not a matter out big. Could you get how much volume two right? So basically what you're saying is there's been a lot of capital floating around cheap capital either in the form of debt. That's you know coming from. The capital markets are very low interest rates that enables big investors to take bets on an industry that they don't really understand and so they're artificially in a way propping up some of these retailers that without that kind of you know we talk about. Smart MONEY. Maybe we'll call it not smart money with that. Not Smart Money. It kind of it extends the life of these retailers. Maybe beyond what they would have had if they didn't have that money. And then the people taking ownership of these companies don't really know how to operate them a you. Just you just called yourself a merchandiser right. And I think that's a really important a role for everyone to understand because the role of the merchant as also kind of faded in the in the last few years. There's been a lot more merchandising by numbers and algorithms and data and less instinct and taste and differentiation. So when you walk into stores many of the department stores everything kind of looks the same not just within the store from brand to brand to brand but also between stores so talk to us more about the fundamental importance of the merchandiser and operator in making a fashion retailer successful. Well I do call myself a merchant and that's what I do for living in fact someone said to me the other day we have beautiful stornoway really love Alex meal and they said this ten of us and to people said what we need to work at. What you do is they said. Because you're working like you're you're looking at everything you're working at such a detailed level and don't want someone to help you. I said I'm doing the same thing and looking at every style for forty years. Why should it change now will older now than I was when I started running companies? But that's what I do for a living. I said I look at every style and actually like doing that and I look at every email and I look at every this. I am a huge micromanage. And if you're not a micro manager I don't think you're doing your job that in retail or in my opinion in anything take care of your customers in anything. I just like micromanaging. It's up liking. I think you're forced to you have customers in the most companies in my own opinion aren't micromanage. I was at two car companies. Designer Room Big Car companies and I went to visit the Friends of friends whatever and when I went to the design room. He didn't go both of them. They didn't go. I was there to look at cars just APPs fun. I wanted to do a car related to old navy. You know we had those pickup trucks. Let's do a truck that's cut new so we go into the design. Seven people designing one car in the wheels and I said this to the CEO. I said that's a really good looking car. Showed me car that they working ice? Good Lookin' Korbut really ugly reels. He's thought I was crazy. And I said Wind Bakar with ugly wheels of a car and it's true and you know it's just what I live with at. Maybe it's not moral to not like a car with of the wheels. What but decio couldn't care less in both cases even as a courtesy to me visiting with him like when you're working with design teams right you know. The word micromanagement isn't necessarily a word that people use with positive connotations right. But you're using it as kind of necessity to get all the details right. I mean how did you if you think that's one of the things. It takes to be successful in the job of running a fashion retail company. Like how did your design teams and the people around you feel about that. Well first of all. It's not just a micro management applies to anything with his customer. And I WANNA know that. Every customer is responding to an X. amount of time in startup. It's different. I encourage Alex in some sick note cold. I used to do that. Gap Or J. Crew will thanks to Kohl. Whatever they kinda shop but I think it's design one thing not a designer and so I don't micromanage design in less when the collections done. Because I can't deal with looking at drawn pictures off say a zipper. It's not. I'm not a designer but I can look at something and I feel that it doesn't come together as a painting painting. I've sent dramatic but a bed. Button can actually ruin something or two long collar and born with Canada's weird thing noticing. What's wrong things it's not easy deliver like? I do but I do notice things that don't fit in the puzzle right if if you speak to all the designers. I work with I try to be inspirational. I try to a goods. I don't like the goods available commercially than we can't sell nets bit. There's no negotiation good in bed but I don't I try to inspire A to Bush. I send emails out. I do what I do I shop stores and I hope I serve a service for the designers and that's what I do. I'm not a desire. A classic looks like and that's what I do. Y- I mean one of the things going back to this idea of merchandising by numbers someone in the audience who's watching has said here's a question. Do you feel that retail by venture capital I e people with ideas but no practical experience in retail manufacturing where their chosen market versus traditional retail pumping out products based on buyers calculations instead of instinct. Do you think that's what's hastened the so-called retail apocalypse on? How do you find the right balance between the instinct and the numbers risks and doing what's driven news interesting algorithms? When I was twenty three years old. They didn't call them. You need to be good mass and good and merchandising a successful merchant. I spend a lot of my life with math. My head here. They can't do math without having the product thing. So what's happened. Is We have planners defense. I worked with them for years and love them all. But a merchant sees in front and around corners. They feel they see it. In my opinion they have a taste level or point of view on what they're going to do with with the merchandise the financial look to me. I say you're going to go in and be a merchant. You haven't or doctor you haven't done surgery as a doc. You haven't done the surgery you mean mistakes. I made my career so many more mistakes than most people even try to make and then I fail. I succeed like I had a argument yesterday. Was today yesterday to argue every day. So we have a shirt at Alex. It's called the paper cloth. Pullover shirt was yesterday on a slight do and I said we were thinking of it and Sanchia feeling very well on sale. Everything is unfortunately on sale these days and I was saying why. Would we carry that shirt? We saw a lot of paper cloth. It's fabric recall. We saw tons of something. It's a pullover short sleeved shirt and I said to the team of Ted. I said what about carrying this shrew through next spring so I get to win now I knew what my answer was. I said you know one third. The states have short sleeves. So pullover selling terrifically well and people give me a quick answer no now. Fortunately they weren't the merchant but they said no because it short sleeve needed. I said let me ask you something. Why do you say no? I said you know the answer. I said you have fifty. One hundred people wear short sleeves. You talk about your best shirt. It's online online sales every place in the world cold in this thing it was not a smart answer a in terms of the no. I don't like knows I like. Listen maybe let's try try fifty or one hundred. I've seen fifty and one hundred ended up being twenty million dollar business and you have to have an open mind sensitive instinct and willing to take the risks. I mean that's the way it works in the business so So the merge algorithm thing which. I laugh at because I was doing my algorithms. I called it like spreadsheet was me. I didn't have players. And then you look at the item and you start to figure out how big how will my first big item. It was boring. You please. Interrupt was humid by ever made it. And you know how I picked the item the volume of it so you giant Tuesday with a t shirt Tuesday in February first Tuesday or Monday when it came in we sold X. AMOUNT. So then you start doing the math in your mind. Tuesday in February means what in June and I like to look at almost hourly selling because once break in an item you can never get. The full of how high up is a little bits guessing but it really is a cold that algorithm what. I did I still do. Tell me what you sold the first day by the Fair Day. If you broken on the island is no credibility you can forecast something. You so three axles Thursday. And you're looking at a full week selling alot. Don't look at a full week. Selling look in the first hour. So that's my story on on on. Algorithms and math versus product. It's very mathematical thing. That goes on Italy. I went to science science really good math in new looking back good because I had a great teacher. Variants fraiche ratio which is a whole other. The other thing I wanted to test with you that clearly this is going to dramatically change. The way we shop you know in some of the stores are starting starting to open here in Europe. They've been open in China for the past few weeks now. An already. Consumer behavior is starting to shift. As it pertains to shopping in the short-term people are generally fearful of going to stores and you know there's a lot of precautions measures that retailers are taking to make customers feel safe but these are going to reduce footfall stores and all of the kind of traffic and energy that retail stores have. So I'm wondering like. Have you got any thoughts about how all of this is going to change the way people shop? Well you know I have a lot of thoughts. I Dunno from writer. My spoke to my friend. Andrew yesterday was in the wholesale business. Andrew is a great wholesaler and what he does so he has four or five copies invested it and we. He was telling me last night and by the way I spend a lot of my life talking to people who were smart. Who knows something? I don't know so so we speak. We're good friends. And he's advisor to company in these. We're one of the better. He's at the top of the pyramid on Being good one does he was describing. Hope is saying this. He said in three or four stories yesterday. Now this is this is me is all. I know so. I learned this yesterday very little traffic. Very high transactions. So that's day one now. I'll talk to him or whoever every day ish. If you want so I I think people are going to be really afraid and we're trying to figure it out when we opened a store which is not we have one store by Thank God we have one store. I can't imagine going through this with even ten stores. We we would be in trouble. You think about how many people are in trouble. So we have inventory sitting only in one store in Manhattan. But I don't know the answer. You have to be afraid if you normal accustomed you have to be afraid. The online businesses wildly rolling crazy to this is what it is. And A. WE'LL SEE I. I don't think we're back to normal all years. Not going to be normal. What do you do with close at some of those tried? Were all trump. Your it's interesting this idea of the footfall falling but the basket size the kind of overall purchase amount increasing. Because I guess for those people who do venture out into a retail store. They're going with a real sense of purpose. It's like less about browsing and shopping as entertainment and more shopping with purpose so when people enter the store with a purpose. I guess they'll have a tendency to shop more I think so but I don't know if you're going into stores. Why don't really shop yours anyway? But I'm not going and some of our people are afraid to work and you know what I said yesterday. Said don't go if you're because there's nothing worse than being afraid in worrying of being anxious about catching virus. I think it's GonNa take. I think the whole year's going to be pretty much a promotional year. He loves so much inventory to get rid of right. Now it's extraordinary. We started small but for us. It was a lot of inventory. Wasn't sure anyone else but tiny and we and we sell fund the business so I don't have someone who's investor saying. Do this do that. Do the other thing We're pretty much. Most things will be a good valley except except things that people want in what people want special. They weren't neak. They want a fashion. I don't think that's GONNA stop in. I think there's GonNa be a desperate run to cool fashion if it's out there now. I don't know how much is out there. I'm usually I'm not in Frisco. Haven't been for years with what the choices are out there but we'll see ads our business. We have something really good. It sells really well again. We're tiny tiny time if you have something that's more commodity ish. It doesn't Celso it on sale in. Please get rid of it now. We are doing markdown. So getting clean going forward so discounting is an important question that I think. A lot of retailers and brands are grappling with right. Now if you were running a big retail store how would you balance the trade off between discounting to clear that inventory to to kind of generate cash versus damaging long term brand equity and kind of training the consumer expect discounts in the future? How do you weigh those? Two things aren't real this the short answers about thirty or forty years ago and I knew I never kind of learn one thing is that I don't WanNa carry any product in the world that someone else asks then. This I was at Bloomingdale's twenty three years. Old Brand new baby buyer and there was a discounter was the street. I wake up one morning. I knew it was gonNA happen. I was women's bathing suit. Fire among other shakes and they run sale and therefore my inventory that day in Jews worth one third of what it was worth the day before we had a policy we prices so in fact the A. I don't WanNa carry and I learned that a my next when I became president of the and Taylor in nineteen eighty. I learned that because Brooks Brothers then was brooks brothers had their own label in the clothes and they the most profitable of the five companies tree very mediocre in his of ZANU tail and I looked at their earnings and it was really easy to figure out that did not take double markups. It was always a pretty good value. Works and Zen much difference today. Of course I learned from them and Benetton White Benetton's buying my son Closet Benetton. I go in easy to shop. And then you look at prices in any figured out. Hello own the brand. Don't let someone else on put it on sale. You're safe in today. What happens and that's what you know about direct to consumer. It's been around for forty years. You know whether it was limited or when we converted to entail the Joe Studio I learned anyone. WanNa be any brand Some good more and I still believe it. Now that being said how many brands to retailers control today that are there's why why did the trucks go to Tj Maxx and Ross stores. Why inventories they're they're going to have. Probably what if I'm a department store and bless them? I can't depend upon being out there is I. Don't control pricing. You don't control pricing and everyone's got into the habit to reasons a on sale. One is yet always. That discount is Galore in number two. There's a double markup double markup on every item that gets sold in wholesale you got the markup from maker to the department store and then the next Markelle is from a department store the consumer so essentially a sale is really the real price and I think the stores I I have been in the in the sale. It's just a it's a level of the value of the real value but at least in customers no mess whether always on sale by the way is not just. It's even direct to consumers or on sale and that's pretty easy when you have a rough time. The goods aren't right. You got to put him on sale. Let's everyone else has the goods and I'll never forget A. I've been through that too long story but it's great brands out there but it goods aren't right. It's it's pretty simple. It's not complicated. The customer's always looking for something. Right and something unique and something. That's GonNa turn him or her on speaking of customers looking for something right. I did want to touch upon the department stores. That you just mentioned Because of all the retailers in the landscape of of American fashion and retail department stores are the ones that seem to be the hardest hit and I just wonder like. There's there's an a report that's just out today. That says you know. One of the investors creditors at Neiman's is saying that saks and neiman's should be merged which I think has been a rumor in the market for a long time but I haven't even more fundamental question which is do we need department stores anymore in the age of Amazon and the Internet. Like what. What role do you think a department store serves now? I don't think he knew I still department stores. I have to be careful what I say. I don't think you need them even Amazon aside. I don't think Amazon's great in the fashion business at all. A big could be amazing but I I think well it's easy. Go here look up the brand you say oh. I want that you order. It usually get a deal anyway. A department store is not. It's you know. How many were there? In the in the sixties I started the late sixties and they always would say every three years. This is not the end of the department. Stroke is looks pretty much near the end and We'll see what happens. I think. What's the purpose of the department store? You go in you. You just sort if someone in the I duNno I duNno Selfridge. People seem to love data. London is at the favor they must be pretty exciting at their assortment. I'm guessing they probably have people will taste to a buying or good merchants. I'm guessing but there's no reason unless the assortment so great and compelling and even if not that bit there edited the Right Way I think entity is critical. You can have ten people in a department store in one will. They'll all put the assortment together differently. So if I went into a store and it was perfectly edited. I am you know I would Probably my there you know. See Editing Tastes the point of view and lead lead me to what I think. You're right Mickey we've been living in an era of hype and you know if if anything if this if this situation can get us back to an Arab substance and quality and value to use some of the words that you've used today then I think the industry will be better for it and customers will be more engaged with fashion again. It won't just seem like this transactional thing and if there's one line I'm going to take away from this is that you've learned. That growth is the enemy. Can you tell me more what you mean? By that. That's what financial investors want is growth. That's what people want from this stock price and you do dumb things to get there. Never forget with Wi- Any of the Companies Act. We like a rocket and rockets slowdown. But you're forced to open up in. It's kind of like this. Endless amount of opening stores are looking for opportunity. I think that it would be some understanding from the owners in the owners could be the financial owners saying. Let's get out now the other hand. What they do is as soon as extra cash should take companies. They take it out. So why because it's cash in their pockets and it takes away from the liquidity in the long term health of the balance sheet. I found every everyone wanted wrong today. It's all growth. They think they're judged growth and in the I could be wrong adventure. People say how much sales you do. We have a little company for Slang million dollars is known magic action why Amex mill is done by the three of a nice little tink. I say to myself not trying to sell the company because I liked not having an investor. Sit someone had an imagination imagination. A look Alex Mill. Yeah I sound like a this is not an infant but they look at the goods they look at the style they look the marketing and say it's got it and they might look at the management and say well we've been there done it many times so I say this to financial friends. I know them all. I said you explain something to me. Why when someone come to us and say I want invest now. I want to be part of the ride for the next five or six years and the answer is you gotTa have two or three stores. You gotTa have this. She got to head of fifteen million painting. You don't have to have twenty great paintings all you need one of Kohl's now from people can you help? Can you help us there? Can you do this? I said I'd love. Why do I sit in? The biggest opportunity is what we're working on. I don't WanNa be in a SPEC. We would expect whenever we buy a company that doesn't term beyond or someone else on and the fact is I don't WanNa be a CEO of big company. I just don't and the fact this was going to run it like a merchant to run. That's I'm old fashioned. I WANNA MERCHANT WANNA merchandising company back surgery to surgery. I want you people have Ashley experienced in the success on everything they do and you mentioned before that they could start a company and they have no parallel experience but did good algorithms all anyway. We're gonNA tell Mickey been such a pleasure talking to you I knew it would be illuminating and provocative as always thank you for taking the time to speak with us at thanks to all of you all around the world for joining us from around the world. I think we've had people from eighty eighty something countries you. I could do this every day. I got nothing to do full day. Maybe maybe we'll check in with you in a few in looking at months months things have developed a little further. Check back in with you in and speak to you about your your percents to happening. I liked to be busy. So you'll do me a favor anyway. Thanks this was funding. Going to see it all right. Thank you everyone for joining us. This is bureau F. Life. I hope that you enjoyed Mickey's insights. I hope you'll join us for future sessions if you want to explore the upcoming events keep checking back with US business a fashion dot com slash events. That's all for today. Thanks again Mickey. Appreciate it if you've enjoyed this episode. Don't forget to subscribe. Give us a rating and you might be interested in joining the business of fashions. Global membership community professional are members receive exclusive deep dive analysis regular email briefings as well as unlimited access to archive of over ten thousand articles. Our new IPHONE APP and all of the online courses and learning materials from education.