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Famed retailer Mickey Drexler leaving CEO job at J.Crew

  • Mickey Drexler is stepping down as the CEO of J.Crew, but will remain chairman.
  • Drexler will be replaced by James Brett, who most recently served as president of West Elm.
  • The shakeup comes as J.Crew works to refinance its debt and reconnect with consumers, who increasingly found the brand to be too expensive for its basic styling.

Mickey Drexler is stepping down from his role as chief executive of clothing brand J.Crew, the company said Monday.

Drexler, who is 72 years old, will remain chairman of the company's board, and will be replaced by James Brett in July.

Brett, a 25-year retail veteran, most recently served as president of Williams-Sonoma's specialty home-furnishing company West Elm. Prior to that role, he worked at Urban Outfitters, Anthropologie and J.C. Penney.

Drexler was famed for his turnaround of Gap in the 1990s. When he arrived at J.Crew in 2003, he worked hard to do the same by introducing the idea of providing designer quality clothing for the masses. The strategy succeeded for a while.

But recently, the retailer has been in a prolonged sales slump, as shoppers balked at paying up for the brand's preppy style as its prices spiraled higher. Same-store sales have been down for the past 10 quarters.

Meanwhile, the company became burdened by heavy debt load of about $2 billion, which ballooned in the wake of a leveraged buyout in 2011 by TPG Capital and Leonard Green & Partners.

Drexler, who owns a stake in J.Crew, has been scrambling to restructure its debt, which is threatening to pull the retailer into bankruptcy. But he's facing resistance from some debtholders who are mounting a legal challenge.

Last month, Drexler told The Wall Street Journal that he missed the signs of how quickly technology would change retail.

In that interview, he told the paper that his plan was to emphasize lower prices, invest in more digital marketing and adopt a more accessible image.

"We became a little too elitist in our attitude," he told the Journal.

Now the responsibility to turn around J.Crew's sales and restructure its debt will shift to Brett.

"Jim has a proven track record of pushing for innovation and growing omnichannel brands," Drexler said in a release Monday. "I look forward to moving into my new role and assist[ing] Jim and the team in every way possible to help ensure a smooth and successful transition."

According to a Moody's research note last week, J.Crew is looking to lower its leverage and push out its nearest debt maturity from 2019 to 2021. If the company is successful, this step could provide it with the breathing room it needs to reinvigorate its brand.

However, the company is in the midst of litigation with the term loan holders regarding the validity of an intellectual property transfer that is part of the loan agreement, Moody's said.

"It is unclear whether an exchange will be completed," Moody's wrote in the research note. "However, we believe that the exchange will still leave the company with unsustainable leverage and uncertainty regarding its ability to stabilize and recover earnings. In addition, the exchange will reduce cash flow generation by the amount of licensing fees that will fund the new debt's
interest payments."

"Although the terms of the cash royalty payments haven't been established, the total impact on annual cash flow will be meaningful," the rating agency said.

This isn't the first management shake-up at J.Crew this year. In April, the company's longtime design chief, Jenna Lyons, announced plans to leave in December when her contract expires. Lyons had been with J.Crew for 26 years and had taken over as president and creative director in 2012.

Somsack Sikhounmuong will be overseeing design as chief design officer.

Also in April, the retailer eliminated 150 full-time positions as part of a restructuring effort.

(Correction: Somsack Sikhounmuong was promoted to chief design officer. A previous version of this story said Sikhounmuong replaced Jenna Lyons as president and chief creative director.)