J. Crew's Drexler to Hand Off CEO Job as Restructuring Looms
(Bloomberg) -- Mickey Drexler, the longtime chief of J. Crew Group Inc. who led the apparel chain through a leveraged buyout before struggling to cope with the rise of Amazon.com Inc., will step down from the job.
After more than 14 years at the helm -- and the rise and fall of J. Crew as a fashion brand -- Drexler is passing the chief executive officer role next month to James Brett, the 48-year-old president of Williams-Sonoma Inc.’s home-furnishings chain West Elm.
The changing of the guard comes as the New York-based company faces a restructuring deal with lenders. J. Crew, laden with about $2.1 billion in debt after its buyout by TPG and Leonard Green & Partners LP in 2011, has been holding at-times contentious negotiations about the chain’s future.
That heavy burden may have precipitated the shake-up, said Michael Appel, founder of consulting firm Appel Associates.
“Let’s face it, the company has a huge amount of debt they have to service -- and that debt forces them to do things they wouldn’t do,” he said.
The move is the most dramatic attempt yet to revive the fortunes of a storied retail brand that has seen sales swoon. Earlier this year, Drexler announced plans to revamp management and cut 250 jobs. As part of that overhaul, Chief Operating Officer Michael Nicholson was put in charge of the J. Crew brand.
In giving up the CEO role, Drexler is stepping back from a company he has managed with often meticulous detail. The 72-year-old is credited with bringing panache to J. Crew’s staid image early in his tenure. When First Lady Michelle Obama wore a J. Crew cardigan during a Jay Leno interview in 2008, it showed that the brand had achieved fashion clout.
But the shift to e-commerce, along with fashion missteps, have turned J. Crew into a retail laggard. As Brett takes up the company’s turnaround efforts, Drexler will remain chairman.
“It is my responsibility to focus on the future of J. Crew and find the right leadership to execute on our strategic plans,” Drexler said in a statement Monday.
In another reshuffling earlier this year, the apparel chain announced that creative director Jenna Lyons would leave by the end of 2017. Taken together, the changes suggest the company will adopt a significantly different style and tone in the coming months.
Brett was previously chief merchandising officer for Urban Outfitters, and he held various roles at Anthropologie, J.C. Penney Co. and May Department Stores Co. He is now taking the helm of a company reeling from shrinking sales and a broader shift away from mall-based retail. J. Crew’s same-store sales -- a key benchmark -- fell 7 percent last year and 8 percent in 2015.
Drexler came to J. Crew after turning around San Francisco-based Gap Inc. in the 1990s. He also launched that company’s Old Navy division, which went on to become its biggest source of revenue.
TPG, a longtime backer of J. Crew, recruited Drexler to run the retailer in 2003. The executive invested $11 million of his own money in the business. In the 2011 buyout led by TPG, his stake was worth about $301 million -- he pocketed $202 million of that and rolled the rest into an 8 percent stake, according to company filings.
In recent months, Drexler has been talking with creditors about restructuring the company’s debt. One of his proposals, a plan to shift the J. Crew brand name to an entity in the Cayman Islands, has riled lenders. They say the change could prevent them from demanding the intellectual property as collateral or lower the value of their holdings in any restructuring.
Anchorage Capital Partners and Blackstone Group LP’s credit arm GSO Capital Partners have been snapping up portions of J. Crew’s debt, aiming to gain a controlling position, people familiar with the situation have said.
J. Crew’s $567 million 7.75 percent senior unsecured bonds maturing May 2019 last traded at 51.75 cents on the dollar on Monday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Ultimately, improving J. Crew’s products will be the key to its future success, Appel said. The company still has brand equity, but it needs to create clothes that shoppers want to buy.
“They’ve got to get the product back on track, that’s the No. 1 thing,” he said. “They’ve got to get that right.”