John Howard, the Merchant Investor

Irving Place Capital's ceo has a penchant for retail, a merchandising pedigree, cash to invest and, surprisingly, a sense of humor.

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WWDStyle issue 03/15/2011

John Howard, chief executive officer of Irving Place Capital, couldn’t take his eyes off his colleague Rick Perkal’s gigantic cuff links at a recent meeting.

This story first appeared in the March 15, 2011 issue of WWD.  Subscribe Today.

The two might have been meeting to discuss Dots, a discount retailer they bought in January. Or to tally profits from their investment in New York & Company Inc. Or they might have been sizing up their next fashion target — Irving Place has $2.7 billion in committed capital and an expertise in the industry, having invested in Seven For All Mankind, Stuart Weitzman, Aéropostale and others. But Howard just couldn’t get past the cuff links.

“What are you staring at?” Perkal asked. Howard wanted to dig into his affable colleague, and not long ago he would have. “I said, ‘I can’t really tell you,’” Howard recalled. “So this is our new nice-guy stuff.”

The “nice-guy stuff” comes from Michael Feiner, the human resources guru Irving Place brought on board last month to help the leaders at its various holdings think the big thoughts about their succession planning, their culture and so on. Providing such outside experts is one of the ways Irving Place tries to improve the companies it buys before flipping them.

Feiner had some thoughts about how Irving Place itself was run. Howard was advised to stop leading meetings from the head of the table. And the kidding stopped — almost. If someone slips up, they put $100 into a jar.

If Howard has to put $100 into the jar for indulging in a giggle over his colleague’s cuff links with a reporter, it’s just as well the 58-year-old Manhattan native didn’t pursue the career he envisioned while at Trinity College. “I was an English major and wanted to be a writer, but then found that that was a difficult way to make money,” he said.

Besides, Howard — who comes off as the confident intellectual, with glasses, a shock of dark hair and a double-breasted suit he had made to imitate a Gary Cooper look — comes from a merchandising household.

His father, Fred Howard, fled Nazi Germany and wound up in America with $3 in his pocket. He later served in the U.S. Army, ferreting out and interrogating top Nazis. After the war, he helped establish L’eggs, the hosiery brand that for years was sold in plastic eggs.

Howard’s father brought home his passion for the nuances of merchandising, from stockkeeping units to display.

“I learned what ‘sku’ meant when I was probably seven,” said Howard, recalling that his father “would talk about sku’s and category management and stuff like this to the maid; he was very enthusiastic about teaching the Jamaican maid about sku’s.”

After graduating from Trinity, Howard joined the Macy’s Inc. trainee program. (The road not traveled was a chance to work with Al Goldstein, founder of Screw magazine). From the start at Macy’s, his merchandising acumen shined. Howard showed up for his interview with 15 pages of typed notes on the store, including: “Why is the rug under the carpeting display on the seventh floor in Macy’s frayed and dirty?” He suggested that the store could cut a deal with its rug vendors and get it replaced for free.

He was hired on the spot and after “three-and-a-half years of fun at Macy’s” and then earning an M.B.A. at Yale School of Management, Howard borrowed some money from his dad and bought Speert, a comb and hair ornament firm.

“Somewhere along the line, I figured out that I was a good manager, but I was a better deal-doer,” Howard said. He sold the business on his 29th birthday and did “quite well.”

Since then, Howard has been buying and selling businesses. He was ceo of Bear Stearns Merchant Banking when the investment bank failed in 2008 and was acquired by J.P. Morgan Chase & Co. The private equity business was spun off and renamed.

“He’s way tough, he’s a tough dealmaker,” said Mo Siegel, co-founder of Celestial Seasonings, who bought the company back from Kraft with Howard’s help in the late Eighties. “One of the real smart things about John is that he understands the downside. He’s going to run the numbers and be tough because John does not like to lose money and the best way to not lose money is not to overpay for things.”

But dealmaking is not always straightforward.

While negotiating an investment in Stuart Weitzman, Howard said the footwear firm’s founder and namesake offered him $10 million off the purchase price if the president of Bear Stearns, a good Ping-Pong player in his own right, could beat him in a match.

“He’s a younger guy, it’s probably a good bet,” Howard recalled Weitzman telling him. Howard considered the bet and consulted with his colleague, but eventually turned it down. Later Weitzman admitted that a coach had told him that he was the hands-down favorite in the matchup.

The association led to one of Howard’s minor obsessions.

“I love Ping-Pong,” he said. “I play for an hour and I come back and I’m sweating like a dog. It feels so nerdy. I have a special bag that I take that has two rackets in it.”

He’s also a foodie, with a pizza oven at home. And a conversation with him can easily range from Ping-Pong and pizza to the financing markets, Edith Pearlman’s new book “Binocular Vision,” art and Apple’s back and forth with publishers over publication rights.

That’s just the way Howard likes it.

“When I was running my own business, what I didn’t like was doing the same thing every day,” he said. “This allowed me to get the most bang for my buck out of my ADD-ish-ness and basically be exposed to a lot of different people, a lot of different, great businesses.”

Howard said he would never retire.

“Part of this is the gamesmanship of the business,” he said. “You like to do something and do it well and then sell it for a multiple of what you paid for it. But I think more fundamentally what turns me on and the reason I continue to do this…is the ability to kind of improve things and build relationships with people and allow people who maybe previously did not have a voice to have a voice; to enable people and to build a better business as a result.”

That sounds like a handy bit of public relations. Most private equity firms justify their profits by saying they improve the businesses they own. That isn’t always the case when the moves to “improve” come in the form of draconian cost cuts. But investment bankers who work in retail generally describe Howard as the real deal — an investor who at least tries to leave better companies in his wake.

“He understands brands, the world of digital marketing and what real talent is,” said Les Berglass, chairman of executive search firm Berglass + Associates. “And he’s willing to pay that talent if they perform and that combination helps him attract the best talent.”

“He really felt like an owner, not just an investor,” said Michael Egeck, who was recruited to be ceo of Seven For All Mankind. Egeck described it as a “real luxury” to work with someone who was both a financial partner and a merchandising sounding board.

“There’s a lot of private equity guys who are first and foremost bankers and really number crunchers and get great results,” Egeck said. “He has all those skills and really understands merchandising and marketing.”

Howard said he’s never been part of a hostile takeover and that his most successful deals have been divisional buyouts, such as the 2002 acquisition of New York & Co., which used to be called Lerner New York, from Limited Brands Inc.

“I don’t think [the business] was ever really loved in the way that one should love one’s children and I think at a certain point [Limited Brands chairman and ceo] Les Wexner decided that enough time had gone by that it was time to sell it,” he said.

Howard said the chain’s management had been testing the New York & Co. nameplate with good results since consumer testing showed that shoppers thought Lerner New York sold cheap plus-size apparel, which it didn’t. After the acquisition, the New York & Co. nameplate was rolled across the chain and sales gained.

“Part of this is not that complicated, it’s just listening to people who are closest to the ground,” Howard said. “We took a business that was really floundering and reinvented it with the effect that we created a lot of value, more people were employed and we created something that was positive.”

New York & Co. held a $170 million initial public offering in 2004 and, later, two secondary offerings of its stock. Howard said Irving Place still owns 51 percent of the chain and has made back about four times the money it invested.

He acknowledged the retailer’s weaker performance over the last couple of years — “we did not distinguish ourselves” — but said the company is getting back on track.

And Howard keeps returning to retail. Over the past six months or so, Irving Place has done six deals worth about $700 million, including Dots and Pets Supplies “Plus” in retail.

After the Dots deal closed in January, Howard went out to the firm’s Glenwillow, Ohio, headquarters to “basically try to explain ourselves” to several hundred employees at the discount retailer’s offices.

“You guys have something special here,” he recalled saying. “You’ve got 400 stores right now and some of those stores need reinvestment, so we’re going to invest a lot of money in existing stores and we’re going to spend a lot of money on new stores and there’s no reason that this 400-store chain that nobody knows can’t be a 1,000-store chain that everybody looks up to.”

In addition to such pep talks, Howard’s a big believer in giving management a stake in the companies they run to keep the entrepreneurial spirit alive. But that’s not the only way he motivates his managers.

Howard plans to give Dots ceo Rick Bunka rugs for under the urinals at the chain’s headquarters. They will feature the name of one of the chain’s key competitors.

“Whenever you actually stand to do your business, you will be standing on top of something that says [the competitor’s] name, so it’s a metaphor for what we plan to do,” he said with a chuckle.

In a world of hard-nosed high finance, that sense of humor sets Howard apart.

“He has an irreverence about him,” said one person who knows him. “Most of those guys aren’t funny. They’re killers.”

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