Man sacked by Gap is new king of US fashion – thanks to Michelle
Mickey Drexler fronts $3bn bid for J Crew – the First Lady's favourite label
Wednesday 24 November 2010
The man whom America calls "the merchant prince" just became king of a retail empire.
Mickey Drexler, who turned Gap into the epitome of Nineties casual and in the process made himself one of the tastemasters of American popular fashion, is fronting a $3bn (£1.9bn) takeover bid for J Crew, the fashion chain he has been running since 2003, and which broke through to the big time when it dressed the First Lady, Michelle Obama, for her husband's inauguration last year.
The $3bn bid – the money for which will come mainly from the private-equity firm TPG – caps years of growing acclaim for J Crew and for Mr Drexler's own intuitive sense of what Americans want to wear. It is also a final two fingers to the old guard at Gap, which fired him in 2002 during a brief dip in sales.
J Crew began as a catalogue retailer and opened its first store at the South Street Seaport tourist hotspot in New York in 1989. When Mr Drexler arrived, it was struggling to find a way out of its niche of staid preppy clothing. In the past seven years, it has marched resolutely upmarket, and branched out into kidswear and by selling other brands' accessories. The discovery that Michelle Obama was a shopper only added lustre to the brand, and the company has endured the recession better than many of its peers as heretofore designer-label clothes-horses decided to trade down to its lower-cost, high-fashion range.
With 250 stores across the US, analysts believe it is only a matter of time until it sets its sights on the international market.
As the champagne corks popped yesterday on the announcement of a takeover – and as J Crew shares soared 17 per cent on the New York Stock Exchange – Mr Drexler's existing stake was valued at a cool $165m. He will roll most of that money into a shareholding in the private company and continue as chairman and chief executive.
"As I have always said, we are in this for the long term," he said yesterday. "We do what we do, day in and day out, so we can deliver the best possible products to our customers."
Mr Drexler, 66, is an instinctive and ebullient rag trader in the mould of the UK's Sir Philip Green. The son of a garment worker from an underprivileged neighbourhood in the Bronx, Mr Drexler started as a buyer for iconic New York stores such as Bloomingdale's and Macy's, and today he still travels the US bursting in on J Crew stores to check the arrangement of stock, or visiting suppliers to pick out the latest colours or fashions.
"A merchant is someone who figures out how to select, how to smell, how to identify, how to feel, how to time, how to buy, how to sell, and how to hopefully have two plus two equal six," he told The New Yorker recently. "Does the merchandise speak to you numerically? There's a rhythm. You see goods as numbers. You see stores as numbers. And the numbers have to work out."
TPG is putting in about three-quarters of the money for the takeover deal, with another private-equity firm, Leonard Green & Partners, stumping up the remainder. TPG has a long association with J Crew, having previously owned a majority stake before luring Mr Drexler to the company and floating it on the stock market in 2006. Under the merchant prince's regency, the company's shares have soared from their $20 price in 2006 to yesterday's takeover price of $43.
To reassure shareholders that the deal is not a stitch-up, Mr Drexler said he did not take part in the boardroom decision to approve the deal, and directors got independent advice on the value of the offer. In addition, the company is being allowed to actively solicit other bidders until well into the New Year – after the Christmas-shopping results are in. Deals at this time of year are unusual because so much of the company's profitability depends on the holiday season, which kicks off this week on so-called Black Friday, the day after Thanksgiving, when retailers hold big sales, shoppers flock to the stores, and the companies are said to go into the black for the year.
J Crew is trying to prove it has not hit a bad patch, after giving warning about "nervous" shoppers and promotions by competitors in recent weeks. The company said yesterday that it had to discount women's clothing more than expected in its third quarter.
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