A rude awakening for retailers.

What a difference a year makes. With the retail industry riding high at this time last year, ICSC's 2008 New York National Conference and Deal Making took on a remarkably subdued--even somber--tone this time around. And even some of the industry's most successful minds conveyed fears to the several thousand professionals in attendance.

"I've never seen anything like this in my life," said Millard "Mickey" Drexler, chairman and CEO of J.Crew, addressing the crowd as the event's keynote speaker.

Now that the popular apparel retailer has eliminated 50% of freelancers and temps, instituted a company-wide hiring freeze, marked down merchandise by 20-30% and seen "miserable" traffic (even here in New York, now that European tourists have pulled back), it was impossible for Drexler to exude anything but uncertainty in regards to the retail industry.

Drexler said creativity has dried up in the industry, and retailers are too complacent with the status quo--and too focused on the transactional aspect of the business. Product saturation, lack of innovation and cookie cutter retail concepts are crippling the business, he believes.

Meanwhile, brand building, job creation, fresh products and an emphasis on customer service have fallen by the wayside.

"We were in some kind of fantasy bubble in the last five to seven years," said Drexler, meaning people in the industry believed in the false assumption that business would continue doubling growth.

If anything, Drexler said, the recession should serve as a wake-up call for retailers to get the creative juices flowing once again.

First, he called for specialty apparel retailers to re-think their distribution practices. Citing product saturation as a threat to brand building, Drexler railed on high-end companies that distribute their products to discount stores like T.J. Maxx and Marshall's.

"Everything in this world is becoming a commodity ... the more ubiquitous fashion becomes, the less fashionable it is," Drexler said.

After spending nearly 20 years at the helm of Gap, Drexler developed expansion concepts like Gap Body, Gap Kids, Baby Gap, and helped make fashion affordable with the Old Navy rollout.

He's also credited with doubling the size of Arm Taylor, after becoming president of the retailer in 1980.

But, today, he says growth is a double-edged sword for higher-end apparel stores (according to ICSC figures, luxury stores saw a 10.5% sales decline in November).

Drexler said J.Crew's goal is not one that involves rapid growth, or making their products accessible to the masses through broader distribution, a strategy that he says "dilutes" the brand. He plans to maintain J.Crew as a specialty, niche apparel store--a store more focused on creating a unique shopping experience rather than transactional volume or mass distribution.

But just because Drexler isn't interested in rapid growth of J.Crew, that doesn't mean the company isn't developing new concepts.

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The retailer recently unveiled its Madewell line, a denim-based store that offers a mix of low and high-end apparel.

The new concept, which offers jeans starting $20 less than J.Crew's traditional stores, now has 10 stores and is cautiously eying controlled expansion. In addition, Drexler is rolling out Crewcuts, a J. Crew children's line catering to kids under age 10. Further proving his emphasis on creativity, the company also invested in a downtown Manhattan bar.

But Drexler noted the need for creativity goes well beyond the retailer; shopping centers and malls need to establish more innovative and welcoming environments.

He cited problematic parking, lack of green initiatives, brand saturation, lack of health food options and overly aggressive kiosk attendants as a few shopping center pitfalls today.

And he said that while cookie-cutter layouts may work for restaurants, customers seek more unique shopping experiences, calling for more emphasis on storefront design, floor displays, creative atmospheres and visible management.

While the better-than-expected results of Black Friday have given some retailers hope, most aren't jumping for joy just yet. With the biggest shopping day of the season falling so late in the calendar year, many stores still expect holiday sales to fall flat.

With the last economic recession spelling the demise of national retailers like Montgomery Ward, Ames and Service Merchandise, one thing is clear: in today's challenging environment, only the strong--or as Drexler explained, the creative--will survive.

"I don't know when we're going to come out of it," he said. "But I think a lot of people won't be around."