Former CEO of Gap and J. Crew Mickey Drexler says retail is in a very tough spot heading into the back half of the year amid high levels of inflation and a cooling economy.

"I have never — maybe I don't remember — seen as much discounting with as much merchandise with high percents off," the retail legend, who is now the CEO of higher-end apparel player Alex Mill, told Yahoo Finance Live (video above).

The current retail backdrop has been brutal.

In early June, Target kicked off concerns about the retail sector's health with a shocking decision to liquidate massive amounts of slow-moving inventory and take a more cautious view on near-term profits.

Since then, discretionary retailers such as RH, Bed Bath & Beyond, and Kohl's (KSS) issued financial warnings for the second quarter. Nike took a more measured approach to its full-year financial outlook when it reported quarterly earnings.

Drexler's former employer Gap also fired its CEO last week after another lackluster quarter.

Amid the concerns about profits for retailers, the Consumer Discretionary Select Sector SPDR Fund has tanked 27% so far in 2022 compared to an 18% decline for the S&P 500.

The upside to the pickup in retail discounting is that consumers are noticing, allowing companies to clear through goods ahead of the more important holiday selling season. June retail sales popped 1% according to new data from the Commerce Department. The increase was a major jump from a 0.1% drop in May.

"Our business is quite small but growing rapidly," Drexler said of Alex Mill, which launched in 2012. "So we are doing pretty well. But I think we are all being affected by the tough economy, inflation, and so on and so forth. Since I look every day, I was happy this morning because we had a good comp [sales] yesterday. But the last few weeks have been tough."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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