At first glance, the unveiling of Apple's (AAPL) new music device, the HomePod, and the departure of Mickey Drexler from the CEO job at J.Crew don't seem to have much in common. But I think they have much in common and they help define what's working and what's not in this crazy stock market.
If you don't know Mickey, and everyone knows him as Mickey in the business, he's the man who turned Gap (GPS) into a powerhouse and then left to ignite J.Crew. He succeeded beyond his wildest dreams at his second apparel company, to the point where, almost seven years ago, he and two different private equity firms, Leonard Green and TPG, took it private.
Things went well for Mickey for several years, but like so many others who sell fashion goods in the mall, things started to go downhill and same-store sales -- the key metric -- have been down 11 out of 12 quarters. Given that Mickey is one of the great clothing merchants of all time, there are lots of stories about how he has struggled, questioning his strategies and his eye.
And that's where Apple comes in. You see, I don't think anyone in a stand-alone apparel store chain is doing well these days. Whether it be Urban Outfitters (URBN) or Macy's (M) or J.C. Penney (JCP) or Kohl's (KSS) , Target (TGT) or Neiman's and Nordstrom (JWN) , the individual fashion stores, the Limited, L Brands (LB) , Lands' End (LE) , Gap and Under Armour (UA) , apparel's been disastrous. The reason? I think it has to do with brand loyalty: there is none. Even a few years ago, you wore Crew, not just clothes. You liked Crew's style, but now you wear what you want from whoever you saw last. Even Lululemon (LULU) , which had such brand loyalty, has been struggling as people sample look-alike brands, although I think the company has beaten back a lot of the competition with a sense of mission that might transcend the four walls of the bricks-and-mortar box.
But in an age of Amazon (AMZN) , where going to the mall is anathema to many, Mickey couldn't distinguish his goods enough to entice people where they didn't want to go. Much has been made of his fashion missteps, but I think that's way off base.
Sure, PVH (PVH) has had success and Manny Chirico has done a fabulous job putting together a house of brands that include Tommy Hilfiger and Calvin Klein, but I would argue that Manny's best move was to diversify away from the United States to Europe and Asia. His second-best? Keeping inventories lean in the United States, although it is important to point out that one of his designers, Raf Simons of Calvin Klein, just won the men's and women's designer of the year awards, which will boost sales in the big department stores in the fall, another reason to own that consistent company's stock.
But think about the landscape. Remember when Under Armour was all the rage? Jeez, now it is all the rage in TJ Maxx (TJX) , not where you want a rager. Remember when Victoria's Secret couldn't miss? Now it can't hit. Or how Urban Outfitters used to crush it with fashion? Now they are talking about fashion being too difficult. That's code for loyalty, or specifically, in the age of Amazon, a lack thereof. Young people don't go to the mall to hang or peruse. They are laser-focused and head down, getting what they want and then going home.
That hurt Crew immensely. It's hurt them all as we recognize that we are dramatically overstored and it wouldn't surprise me to see as many as 7,000 stores close this year, turning some malls into ghost towns. Sure, Crew had a worse balance sheet. But the fact is, unlike so many others, the darned thing hasn't had to file for bankruptcy and was still able to attract a top talent, James Brett, the man behind the very successful West Elm of Williams-Sonoma (WSM) . I wish him the best of luck.
But how about that analogy to Apple? Other than Drexler being a former director who served faithfully on Apple's board for 16 years, what's the tie-in? (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
Simple: Despite all the internet intermediation, despite all the hunt for bargains via Amazon, Apple's got the best brand loyalty in the world. It's the key to its earnings per share, it's the key to its most recent stock move and it's the key to why Warren Buffett became the company's largest shareholder.
You see, Apple's charging $349 for its 7-inch-tall HomePod, and despite that being appreciably more than the all-around utile Amazon Echo at $179, I think it is going to have a lot of takers. Why? Even as The Wall Street Journal asks, "HomePod First Look, Hey Siri, What Took You So Long?" I think the answer is clear to the Apple-philes out there without a lot of doubt: because they wanted it to be perfect, that's why.
Apple's phones are the most expensive phones. They make it so the phone companies that purvey them have to pay full boat and can't play hardball. The customers want them. When Apple develops a new iPad, those who haven't upgraded want to get one. Why? Because if they go to the Apple Store and see them, they are blown away. And when Apple develops a sound device, we know it will be the best.
I love my Echo. It's really cool. I asked it to play Coltrane the other day and I got a fantastic array of the great jazz musician without a lot of heavy lifting. I have a Logitech blue-tooth speaker and a Harman Kardon speaker. I like them all. But I am an audiophile from way back. I always liked the sound of a vinyl stylus system because of the purity of it. I backed Pono, the device created by Neil Young, that gave you far superior sound than current devices.
I am going to ask for this device for the holidays because I figure Apple CEO Tim Cook wouldn't be releasing it if it weren't better than whatever else is in the market, and while I am not saying I am insensitive to price, I am saying my loyalty to Apple's brand has never been unrequited.
Now think about that. Think about retail. Don't you increasingly think that most apparel is generic? Think about televisions. Totally generic, right? My daughter bought a 55-incher the other day and I didn't ask which maker, I figured it would work. Same with the fridge I bought recently. I am buying a grill and I don't even care who makes that either. I recently bought a terrific bike; the owner of the store suggested it; I had never even heard of the brand. Something Brooklyn. I love it.
In each case, I used to have a brand that I was loyal to and it would be heresy to trade away. Now I don't care except when it comes to Apple.
That's what Mickey really ran into. I don't sit there anymore and say, "I have to have Crew." I don't say I have to have anything. Yes, on the ultra-highest-end clothes, there's loyalty. But I buy my casual clothes at Costco COST. They always seem to have a good buy. Or I buy on Amazon. I know my size. Who cares?
But the Apple HomePod? Here's my biggest worry: Will I get too many of them? Will my daughter communicate with my wife? Or will they both give it to me? They know what I want.
I want something Apple makes.
That's enough for them. It's enough for me.
