While that's still better than many apparel chains in a tough retail environment, it has caused a few analysts to wonder if J. Crew's stock is bloated. Lehman Brothers analyst Jeff Black noted that Gap stock is valued at 26.2 times his projected 2008 earnings estimate, which compares with high-growth peers trading at an average of 17.3 times earnings. That's a high valuation for a company with a CEO who is resistant to rapid store growth. Although he declined to be interviewed for this story, Drexler has spoken numerous times at conferences and events on the subject of growth. Drexler reflected on his Gap experience in a February 2006 speech at Boston University, where he received his business degree in 1968. "When it was $900 million, I was happy," he said. "When it was $2 billion, I was happy. When it was $12 billion, I was starting to be a little unhappy because I didn't see creatively or strategically where to go." More recently, at a retail conference hosted by Bear Stearns earlier this year, Drexler put J. Crew's target store base at about 300, adding that to go too far beyond that could potentially invite problems. "We've seen it with all our competition and my old company," he said. "You get big enough so that you're taking secondary real estate." Jennifer Black, an independent retail consultant, says that Drexler is not willing to retrace his old footprints at Gap. "He was already at a company that grew too fast and grew too big, and it became not fun for him," she says. "I just think his main concern is product and the right productivity per square foot."
Nonetheless, Drexler cannot completely ignore demands for growth. His solution for now is the introduction of two new concepts, Crewcuts for children ages 2 to 10, and Madewell for women who have graduated from teen retailers like Abercrombie & Fitch ( ANF) and American Eagle ( AEO). In the past year, the company has opened 24 Crewcuts inside existing J. Crew stores, and three stand-alone versions of the children's chain. It has plans for an additional five Crewcuts by the end of the year. Madewell, which Drexler emphasizes is still in the research and development phase, will have seven stores by the end of the year. Richard Jaffe, an analyst for Stifel Nicolaus, notes that because the J. Crew brand targets a relatively affluent audience, it will never really see a huge burst in store expansion the way Gap did with its mass appeal. But Madewell, priced 20% lower than J. Crew, has that potential. "It's a good idea at this point," Jaffe says. "If it works, it can be a bigger business than J. Crew because of lower price points." But Madewell is still far from becoming a Gap, mainly because Drexler has been growing it so slowly, in just a handful of key markets like Los Angeles, Las Vegas and Dallas. "Madewell and Crew Cuts -- they're a brand extension," says Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. "Madewell is more what you would call an expression that Mickey has had in the back of his head. It isn't something that's going to conquer the world." Drexler is known for his tendency to keep a tight rein on his stores, managing details down to the buttons on the mannequins. He visits locations and chats with customers regularly, recently giving his e-mail address to 40,000 people.
At Gap, the company had grown too big and Drexler lost his focus, unable to be everywhere at once. When he tripped up on fashion, his mistakes were harder to reel in. "The more you grow, the less control you have over your unit," says Louis Nevaer, author of Fall Into the Gap, a book that chronicles the company's rise in the 1970s through its stumbles in the late 1990s. Ken Pilot, who worked directly under Drexler for five years at Gap, says his former boss' style is better suited for J. Crew than Gap. "J. Crew is far more focused as a brand and the demographic they go after," says Pilot. "I think he's taking the smart approach to it. He's growing it in a smart way." Pilot served as the Gap division's president, as well as president of its international and outlet businesses. After leaving the company, he served as J. Crew's CEO in 2002 for four months before he was replaced by Drexler. But he bears no grudges, calling Drexler the better man for the job. "I don't know who is in his league -- look what he's done with the company," Pilot says. "I don't know who could have turned around J. Crew the way he did. I don't think I could have done that." Pilot acknowledges that Drexler may face similar demands to expand J. Crew as he did at Gap. But for the time being, he seems to be taking it in stride. "There's pressure to grow at J. Crew, but he's probably having the best time of his life," Pilot says. Drexler himself has said that he's been enjoying the ride. "I'm not worried about growth right now," Drexler said during his lecture at Boston University. "But I have said to people in the company, when it gets too big I don't want to be CEO because I'm going to stop having fun."