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Former Gap CEO on retail: ‘I have never seen as much discounting’

Alex Mill CEO Mickey Drexler joins Yahoo Finance Live to discuss the state of retail as well as the impact inflation is having on retail, consumer spending, June retail sales, and the outlook for retailers.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: The only news of late in retail has been bad news. Target is aggressively discounting merchandise due to the economic slowdown. Meanwhile, retailers such as Bed, Bath & Beyond, Gap, and RH have issued earnings warnings for the second quarter. Joining us now to discuss this challenging state of retail is Alex Mill CEO and former Gap and J.Crew CEO, Mickey Drexler. Mickey, always great to get some time with you. The headlines haven't been good in retail. You're still running a retailer right now. How are trends looking in your business?

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MICKEY DREXLER: Well, it's hard-- our business is quite small, growing rapidly. So we're doing pretty well. But I think we're all being affected by the tough economy, inflation, and so on and so forth. But since I look at every day, I was happy this morning because we had a good comp yesterday. But the last few weeks have been tough.

BRIAN SOZZI: How would you characterize just the state of retail from a discounting perspective? I've walked in some of-- into some of these big box retail stores the past two weeks. It's taken me back to the Great Recession period.

MICKEY DREXLER: Well, you're absolutely right. It's not just discount stores. I have never-- but maybe I don't remember-- seen as much discounting with as much merchandise with high percents off. And it tells me one thing. People are a lot more optimistic about planning this season the first and second quarter. So are we, by the way.

And it's not happening. Inflation stares every consumer in the face probably daily-- food, gasoline, clothing, deliveries, you name it. So and you see-- look, I was kind of shocked to see Apple AirPods on sale. And I think I stocked up on them because there's nothing more than that that I lose or misplace, so on and so forth. So I think it's going to continue, but I don't have a crystal ball, just my own personal opinion.

JULIE HYMAN: Mickey, it's Julie here. I'm looking at the Alex Mill website right now kind of covetously, wanting some of the stuff. I think it's fair to say it's a fairly-- it's a little bit higher end in terms of price point here. And I'm curious how you see this playing out, since you've seen many retail cycles across the price spectrum.

MICKEY DREXLER: Well, it's a good question. I think first of all, there's inflation everywhere. If you look at our kinds of competitors, we-- I think we're fairly priced. To me, I live in 1960 dollars, because I grew up that way. Everything was cheap. We didn't have a lot of anything. But so when I personally look at it, I think they're high. When I shop the competition, I think they're very reasonable with high quality. And my history is quality, style, value, good taste, and selecting the right styles.

So, yeah, we're higher than the cheap people. But we're not higher than the better people. But people are spending where they're emotionally connected to the merchandise, where they trust the people running a business. And we don't ever run sales. There's an integrity in that. And we vowed not to tell people they have to come in and get, bingo, the sale is on. And then they get pissed off because they paid more money with an invite on sale. I think it's a disease. For years, it's been affecting the business. But everyone seems to be hit by this.

BRAD SMITH: What style era would you say that we're in right now? I mean, over the past kind of two decades, we've seen everything evolve from kind of the preppy pink polo that Kanye West made popular, all the way into kind of the retro phase and even athleisure that we found ourselves at in the peak kind of moments of the pandemic. Where would you say that we're at in this moment? And what is selling and resonating among consumers?

MICKEY DREXLER: Well, that's a really good question. I don't know how to answer it, except for what we do. It was clearly a huge overreaction during the pandemic on athleisure, athletic wear, so on and so forth.

Our business-- and it's what I've always tried to do with our teams-- is design, develop, and merchandise apparel, clothes, accessories that, frankly, never go out of style. The shirt I'm wearing-- it's not ours [INAUDIBLE]-- is 2014 it was made. It's eight years later now. It's still a shirt I wear. Most of my shirts might be white shirts, but I buy things that I think it's classic-ish.

And if you have a real novelty, and it's fashion and high fashion, it has a shorter shelf life. But from my days at Ann Taylor onward, I like and we like goods that don't have an expiration date-- jeans, t-shirts, but with a little twist, a touch, color. And then we get-- introduce a lot of new things that we absolutely try to make into a classic style.

And that's how I think less is more in retail, less styles, less assortment. But it's clearly, athleisure is not the business it was. And everyone chases on the bandwagon, as did we, and then we ended up with markdowns. We got in late. Fortunately, we didn't buy too much.

But any time I personally and the company's been in trouble is when you're looking too much at what other people do. I'll never forget it. Old Navy, we looked at H&M. And it kind of hurt us for about a year, trying to figure out what fast fashion is. It's not in our DNA. So, you know, clearly, guys aren't wearing ties. They're not wearing the suits with the shoulders and the padding.

We sell a ton of unstructured jackets. We don't carry one suit in men's or women's that is structured and like the old days. Casual is what it is. And we like uniforms. Personally, I wear a uniform every day. It's much easier to dress. Women like it. They don't do it as often. But our jumpsuits are really important, our work jackets, our t-shirts, our woven shirts.

We try to zero in, and we're still over assorted. And today's a day we look at women's spring. And the big message, aside from the others, is, more is too much for a customer. The stores are so over assorted that it's very hard to shop these days. And if you look at every website, who gets through the more than the first 10 pages? And maybe it's five pages. So that's my point of view on history and where we are now.

The interesting thing, for me, I've been doing it for so long. But I learn every day. Curious. Yesterday, this guy showed me a sneaker from Novesta that he bought from us. It was worn out. And I came in this morning, said, why do we discontinue that? It's classic. It looks great. And it's an alternative opportunity.

BRIAN SOZZI: Mickey, you briefly mentioned Old Navy. And I'm just going to roll with it from that point on. Look, what happens to Gap? Clearly, this is an iconic company that's now in crisis.

MICKEY DREXLER: Well, the last time I said something about Gap, all my friends there kind of-- they were in a board meeting, and I got a slew of emails as soon as I was off.

BRIAN SOZZI: I think that was with us, actually.

MICKEY DREXLER: That's with you, right. So I think Gap is-- I can't really answer that. But I will say, every business in our business needs to be run-- or the biggest influencers in management are merchants and designers. Of course, you have the operating and marketing. But a lot of companies today are run by operating people. And I'm not sure they're paying attention to the product. My personally-- don't think so. And I'm saying with all the respect to these great companies.

But, you know, I mentioned the other day. If you go to a restaurant and they have an incompetent chef-- or not incompetent, but a chef who doesn't make good food, that's the product. If you look at companies, when I was on the board of Apple, Steve Jobs constantly floated new products. Of course, today, they have a monopoly on phones. But really strong merchants, I think, have to have a point of view. They have to have vision. And they've got to connect to the merchandise. And that's a skill that I'm not sure is overemphasized in our industry.

JULIE HYMAN: So Mickey-- and I have to say I'm a Gap fan from way back, but I have not bought much there lately. In theory, let's say Bob Martin, who's the interim CEO, chair of the board, calls you up and says, Mickey, why don't you come on back for a little bit and steer us in the right direction again?

MICKEY DREXLER: Well--

JULIE HYMAN: What-- OK, this is hypothetical. But what would you do at Gap if--

MICKEY DREXLER: OK, well, I did--

JULIE HYMAN: --you were going to look at fixing it?

MICKEY DREXLER: You remind me of a joke. Well, I know Bob very well. We chat. And he's a terrifically talented guy. I think the challenge he-- I'll tell you what I do. I have huge aggravation for the first couple of years. And in that company, I'd have even huger aggravation as to where they are. They're being affected, I think, by what every other big apparel chain is being affected by-- too much stores, too much merchandising, too much sale, tons of competition.

And you've got to have a niche. You've got to have a point of view. So what I would do is what I did the first day, hello, in 1983. I went through every style in the company and throwing out, keeping in, and renaming everything. Same thing in J.Crew. There is a formula that-- for example, personally, I have a formula. It's get rid of the old that doesn't work and bring in the new, and look for things that a company might be famous or well known for.

At Gap, we had t-shirts. We had jeans. And Levi left. Gap was founded on jeans. But the companies I've been involved with, that's what I do-- merchandise, merchandise, marketing, and having a great backup team. No one ever does it alone. I couldn't have done what we did there without a strong team. And then you interview everyone, which I did at Gap. I did it at J.Crew, Banana Republic. And I started Old Navy and Madewell. And we did the same things. It's people who get it. So that's what I do.

JULIE HYMAN: And that's what makes you a legend in the retail business, Mickey. So it's great to get your perspective on all of this. Mickey Drexler is Alex Mills CEO and former CEO of Gap and J.Crew. Thank you so much for your time today. Appreciate it.