To view Wexner’s speech, click here.

Leslie H. Wexner, one of the giants of contemporary retailing, predicted that the “best is yet to come” in the beauty business. “The next 10 years is going to make the last 20 look like a slow walk,” he declared.

Referring to his own company, Limited Brands Inc., Wexner, the chairman and chief executive officer, added, “We think we are going to double our beauty and cosmetics business in the next five years in the lower 48 states. We’re not really excited about Hawaii and even Alaska. We’re Midwesterners, and that’s where we think our growth is. We think the industry is going to grow enormously.”

Wexner came to the summit to deliver a seemingly simple message: that he looks at the world as a shopkeeper — and that’s not easy. By the time the Limited Brands ceo had finished delivering his Thursday morning opener, the high-powered crowd had plenty to think about, and the residual buzz echoed throughout the conference.

Often viewed as a master of vertical retailing in apparel, lingerie and beauty, Wexner humbly portrayed his groundbreaking track record as one driven simply by a desperate need for survival. In retelling the now familiar anecdote about starting his first Limited store with $5,000 borrowed from an aunt, he showed a little-seen side of himself. “I wanted to be a shopkeeper, and on Aug. 10, 1963 [when the store opened], the summary of my life’s ambition was, ‘Don’t go broke,'” he admitted, as a wave of laughter welled up. “It wasn’t funny at all,” he responded. “I didn’t sleep for weeks. I developed stomach ulcers because I just didn’t want to go broke. I don’t know if I wanted to be a success, but I really didn’t want to go broke.”

So he made the pilgrimage to Seventh Avenue in New York in search of brands. There he received a lot of sympathy and total rejection; the department stores had first dibs on all the choice merchandise. “I said, ‘How do I satisfy my customers, let alone not go broke selling second-rate and third-rate merchandise?’ I thought I knew what my store would be; I thought I knew the customer. Knowing the customer comes first; knowing your store, second. So the things that were in my domain, which aren’t easy — displaying the store, providing the point of purchase, customer service, all the things that I physically could do with the help of two part-time salespersons in my little store — was kind of all for naught if I had second-rate merchandise,” Wexner reasoned. “So I began by not being rejected by the customer, but being rejected by the industry.

This story first appeared in the May 26, 2006 issue of WWD. Subscribe Today.

“The choice was go broke or go figure it out,” Wexner continued, saying that he found willing manufacturers of first-rate merchandise from Pennsylvania to Italy. His first store morphed into a chain of 500. After buying Victoria’s Secret in 1980, he ran into the same wall with intimate apparel manufacturers, then had the same experience a third time with the beauty industry in the late Eighties. “I went to every one of you,” Wexner said. “Completely rejected and for the same reasons that we were rejected in apparel, for the same reasons we were rejected in lingerie, we were rejected in personal care.”

Wexner pointed out, “I did not invent the beauty cosmetics specialty store.” That honor went to perhaps Shop Huit, the predecessor of Sephora, or maybe Body Shop, or “all those thousands of French and Italian ladies that run perfumeries in Europe.”

“But we could take our shopkeeping skills and our customer skills and begin to get started. When we got started, we visited almost every one of you — every one of you — and said, ‘We have this idea: We want to create a specialty business in beauty. Would you partner with us? Would you help us?'”

Wexner then recalled Leonard Lauder taking him on a tour of Estée Lauder’s Melville, N.Y., plant 15 years ago to demonstrate the difficulty of cosmetics manufacturing, and Wexner was overwhelmed — so much so that it convinced him to stick to what he knew. “I have no desire [to learn about manufacturing], because we don’t have the time. Our sole purpose — we begin at the end of the pipe that says first is the customer, then we’ve got to be terrific shopkeepers. And all this other stuff that you guys do infinitely better than we will ever do in apparel, in lingerie, in cosmetics and beauty — because that’s what you do. We’re shopkeepers. That’s a pretty hard thing to do, and it’s pretty damn complex, and it keeps me busy and it keeps me energized.”

He later added, “We do not want to be in your space. We’d be delighted if we never had to make anything, if all of you would sell us all the things that you make and think about us.

“It’s really a tough business,” Wexner continued. “The shopkeeper’s view is to spend all your time in the shop, spend all your time with the customer and know them like you know a friend. Not know about them, don’t research them, just know ’em. Watch their eyes, the way I did in the first store.

“Probably my best friend in retail was Sam Walton — one hell of a shopkeeper. Sam could go on for an hour telling you the merits of salt licks in midsize cities and villages, and how that was the key to the success of the Wal-Mart store in that place. And he could look at the customer and take him apart with his X-ray vision — the clothes they were wearing, the car they were driving — and imagine the kinds of products and the price that he would put on those products that he would sell.

“The obsession that the shopkeeper has with the shop and the store is our full-time job,” Wexner added. “We integrate backward and deliberately don’t want to know what you know. We don’t have the bandwidth, we don’t have the time. We’ll never be as smart in product development, we’ll never be as smart in marketing, we’ll never be as smart in efficiencies, we’ll never know all the things that you know almost intuitively about bottles and glass and molds and colors and dyes. We have this important, dumb skill of knowing about stores and customers.”

Wexner added that he never moved his headquarters out of Columbus, Ohio, to New York, Paris or Milan because “our business is centered where the customer is, where most of the stores are.”

Some of his sharpest observations came during the question-and-answer period, particularly when an audience member compared him to a fox in a henhouse, with his vertical retailing. Wexner laughed and replied that years ago, conventional wisdom predicted he would torpedo department stores. “Never did,” he replied. “I don’t think we dented them. They have their own set of issues, and they’ve been reinvented.

“Wal-Mart is a reinvention of a department store, Target is a reinvention of a department store,” he continued. “Kohl’s is a reinvention of a department store. Montgomery Ward doesn’t exist. Sears perhaps is rising from the ashes, maybe Penney’s is, too. There’s a cyclical nature on a global basis. We haven’t hurt them.

“I say this kind of in a challenging way,” he continued. “People say you’re the fox in the henhouse, and everybody is now in the henhouse business in one way or another. None of the major cosmetics brands wants to be known as retailers, because it kind of hurts your [price/earnings ratio]. But you know, you have 1,000 stores or so, and people might begin to notice.

“I’ve never seen in the history of the world a branded manufacturer become a retailer — the kind of two-headed monster — successfully,” Wexner asserted, pointing to Michael Eisner’s difficulties in launching Disney stores. “It’s a hell of a bandwidth to go from labs to stores and all the parts in between and understand them. And you can look at cars, you can look at apparel, you can look at a lot of things, but over a period of time, no one has sustained it. That dumb skill of running stores and seeing it and being responsive is an enormous, complicated and detailed thing.”

Returning to the question, he said, “It’s easy to see us as the enemy. I think we’re the opportunity. And from a customer point of view, there are people that want to buy personal care products in department stores. There are people obviously that want to buy them in specialty stores. There are other people that want to buy them in drugstores and supermarkets, and some people over the Internet and at airports and all kinds of ways. That’s great. All this stuff is going to be sold in all these places.”

Addressing another question, Wexner returned to the theme. “Over a period of time — and I am very optimistic — I think we will have partnerships with almost all of you, because it’s not in your interest, not in our interest and certainly not in our customer’s interest to tell people where they have to buy things. They’re not going to behave that way. So our migration is a result of being accepted from absolute stonewall rejection, that’s what you’re seeing. We’re in the business of running stores to sell things to our customers that really make them happy.”

Wexner ended his speech with a hopeful prediction. “Globalization, technology, segments of lifestyles, products that are going to be invented that you haven’t even dreamed of to satisfy men and women and different needs. The emotional content that you bring to people’s lives — I mean for $15, it’s entertainment, for $50, it’s better than going to the opera.

“I think the industry is tremendously creative,” he continued. “The channels of distribution, the countries of distribution are just going to be explosive in growth. The partnerships that have been created, will be created, are the tip of the iceberg.

“In a world that is commoditized, there’s always an opportunity for products that make people smile, that have emotional content,” he continued, asserting that what inspired the birth of Starbucks and its famous $4 drink was “McDonalds selling all that mediocre coffee at 25 cents a cup.

“The world is full of commodities, very little opportunity for self-expression, very few people have tailor-made clothes, tailor-made houses, tailor-made shoes, tailor-made cars. So how do we enrich people’s lives? I think it’s more than what happens on the Internet and more than what you can get out of an iPod,” Wexner declared. “I think it’s those touches, those feels, those smell-goods, those feel-goods that change your life.”