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Nothing Gold Can Stay


Nature's first green is gold.
Her hardest hue to hold.
Her early leaf's a flower;
But only so an hour.
Then leaf subsides to leaf.
So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.
-Robert Frost

The Specialty Retail and Food Service Conference
PierreHotel, New York City. September 1997.

At the time, of course, I felt mature, cynical and half-again too wised-up for my own general good. Just about the way I usually feel now. Looking back, I was a child. I was naïf among cynics, all but begging to be taken to the woodshed to have a little sense flogged into me as I walked into a garishly ornate ballroom for the day's keynote. Gap Inc. (GPS) CEO Mickey Drexler was speaking. The man was a titan and I wanted a good seat.

I believed in idols then. Men who could do no wrong and organizations with stocks you simply had to own. The Gap was just such an operation and Drexler was the man who had helped them become so. He had been brought into the Gap earlier that decade in a high-profile deal from which, it was said, Drexler was set to earn "ten-cents for every dollar he made for the Fischers (the founding family and by far largest shareholder)."

It was a perfect hire. Drexler was known as the smartest guy in retail which, arguably, made him the only person from whom employees at the Gap would be willing to take direction. Under Drexler, Gap became something resembling the Goldman Sachs (GS) of retail; they were shockingly pleased with themselves but, hey, you had to give them credit for being pretty damn good.

To the extent that anyone who was willing to question Drexler or the Gap by the latter half of the 90's did so only after sheathing the observation with sufficient flattery so as not to offend. As in "while recognizing that your Gap stores are a utopian glimpse of a world in which all retail is perfect, aren't you sort of running out of places to put them now that you are in every mid-level and up market in the United States…?"

Analysts would be all but self-flagellating by the time Drexler would end the nightmare by offering what was then his devastating, two-pronged, standard rebuttal. The first prong was the Old Navy chain. Old Navy was going be Target (TGT) "if Target had been done by smart, hip people" as the head of that division had himself told me the prior year.

Inasmuch as I was big fan of Target, by both choice and genetics ("Damn my common gutter blood! (by way of disclosure)"), it was far from me to presume so much as to imagine the greatness of Old Navy, let alone question such a thing.

I had come to the Specialty Retail conference specifically to hear Drexler do a live rendition of his other prong, the one to the point of finding another leg of growth for the Gap store division. I was there seeking a rub of genius from the legend himself. I washed down the last of my "Time" Limp salad and looked up at the genius himself, commanding a stage of suits clad in his Banana Republic chinos and button-up. Drexler was the Dali-Lama; he didn't dress like us because he didn't think like us. We adored them both all the more for it.

Drexler warmed to his task by telling the gathered analysts of two shoe salesmen sent to a faraway world where the natives had never heard of footwear. "The first guy" Drexler intoned disapprovingly, "called his home office crying 'send me home; these guys have never heard of shoes!' The second fella, the one who made all the money, he called his office and told them to send over as much product as they could get their hands on because no one there had any shoes!"

Speaking over a wave of polite laughter, the Lama of Khaki concluded "People tell me we can't grow the Gap chain of stores anymore because we already have one in every mall. I say to them 'why can't we have two or three Gap stores in every good sized mall? Who's in those other non-Gap stores? Aren't we smarter than they are? Can't we make more money there by putting in a second or third Gap?"

In retrospect, I shouldn't have been so embarrassed to have burst out laughing at the conclusion of this, the second, non-funny, part of Mr. Drexler's parable. I wouldn't have pretended to be slightly choking on a bite of that limpid salad, hotly blushing in the humiliation of having found the "Ahhhh!" moment of his speech humorous. Looking back, I wasn't like the short-sided first salesperson in my inability to grasp the wisdom of malls featuring 45 Gap stores and a Food Court

But I was young then; given to both more arrogance and self-doubt than I am now. I thought I was wrong because I was young and dumb and I believed in a world of all-knowing Icons running companies you could "never short." I thought there were specialty retailers you could "buy and throw in a drawer forever."

Specialty Retailers Are Where Love Goes to Die

Only in hindsight can I see what I should have been learning then. The real lesson of the Gap over the last 10 years is that specialty retailers, even the smartest, toughest and best of them, have a defined growth cycle. The great ones die from market saturation; the weak ones before that from a lack of performance. Regardless of cause, they die fast and take out years and years of stock gains with them.

There are two kinds of specialty retail stocks: those who have ripped the souls from their greatest fans and those who will do so, in time. Specialty retail is where love goes to die and it happens to every Gap and Abercrombie & Fitch (ANF) and Urban Outfitter (URBN) who ever lived.

You can trade them long or short but you need to ignore all maxims about time-frames and capital gain aversion. Drexler was doomed not for a lack of smarts but simply because you can't beat nature and the Gap's time was done. Not all the reverence nor options in the world could change that fact.

They are stocks to be traded, not stowed away. It's an important point to remember as we brace ourselves for Same-Store-Sales results this Thursday morning.

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No positions in stocks mentioned.

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