Gap is still waiting for a turnaround
When Art Peck came on as the CEO of Gap Inc., the plan called for him to breath new life into the company with the tech-savvy approach displayed in his previous role as the president of the company’s Growth, Innovation and Digital division.
An expansive feature article in Fast Company earlier this year discussed Mr. Peck’s forward-looking, mobile-centric omnichannel strategy, dubbed Retail 3.0, for which he had been testing digital walls and theorizing about clothing vending machines. Mr. Peck also expressed concerns with bringing Gap’s clothing back to being high quality and on-trend. But the company’s Q1 earnings, released earlier this week, indicate that his plan for a turnaround have yet to yield results.
Bloomberg reported that for the first time in nearly eight years, Gap failed to beat analysts’ estimates. This is not good news for a company that, according to data the news organization had compiled, had previously beat estimates 31 times in a row. Total same-store sales for Gap also dropped by four percent, following a 10 percent drop in its same-store numbers last quarter.
Photos: Gap
It wasn’t all bad news, however, as Gap-owned Old Navy experienced a three percent rise in same-store sales. Old Navy’s success is attributed to its transition to a more fashionable, yet still affordable, selection. Kudos have gone to Stefan Larsson, who was named global president of Old Navy in October of 2012. Previously, Mr. Larsson presided over H&M’s U.S. expansion.
"It’s a thing of beauty when Old Navy is firing on all cylinders and has now for several seasons running," Mr. Peck said on a conference call, as reported by Bloomberg. "On the flip side, I continue to be disappointed but not surprised by Gap’s performance. I can promise you that the team is all over it."
A significant area of concern is Gap’s sluggishness executing on new ideas. Mr. Peck told Fast Company that it currently takes 10 months for stores to get new concepts onto their shelves, a timeframe he intends to cut down drastically.
Discussion Questions
What should Art Peck’s course of action be to revitalize the Gap brand in light of the company’s recent performance? Does Old Navy’s success provide a blueprint for Gap Inc.’s other businesses?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
Zel Bianco
President, founder and CEO Interactive Edge
The extreme discounts offered seemingly non-stop at Gap, Abercrombie and others has led me to believe that it is the only lever they know. Unless they get customers to pay full price for something, they won’t get traction. A turnaround has to look and feel like more than “fresh merchandise.”
On a separate note, I just saw their new Banana Republic store in South Coast Plaza — a welcome departure from their dark and dated look.
I think that there is an excellent opportunity for Gap to complement Old Navy’s offerings. As Old Navy embraces a more fast-fashion approach Gap can provide the more classic, well-made counterpart that many shoppers (particularly young women) like to combine in their wardrobes. H&M has done this within their stores by providing a range of prices that generally correspond to quality and a combination of both fashionable and basic clothing.
It’s not easy to shop at Gap. Stores are frequently out of sizes, there are price discrepancies between stores and online, and customer service can be a hassle. Plus Gap is no longer considered a hip place to shop. This all adds up to trouble. I would suggest that Mr. Peck look at streamlining operations, bringing new products to stores more quickly and truly adopting an omnichannel strategy.
Gap is so interesting, as they really have caused their own issues. When they expanded their thriving brand into new territories with Banana Republic and Old Navy years ago, they put their signature brand in a very tight style box. As trends emerged over the decades, we saw Banana follow them with their unique style and culturally appealing “stories” (e.g., the Mad Men collection, the many guest collection designers) and of course Old Navy captures all low-cost flash trends. But Gap stays tried and true to the classic style that they emerged with years ago even the stores don’t feel much different than they did when I was a teenager and worked holidays there in the ’80s.
Watching them, I often wonder if splitting their brands into such a bifurcated quality and fashion spectrum left them with no special appeal. It’s all about their products/fashion, but where do they have to go, when changing it will likely cannibalize one of their other brands? Interesting dilemma.
Prioritize and focus!
It appears Mr. Peck may have a few too many balls in the air right now. Old Navy is different from Gap, so it may not be wise to follow that lead too closely.
This is a relatively small scale setback which may only need a focus on house cleaning and rollout, and down stocking, and fewer out-of-stocks, and a wake up call to merchandising, and so on and so forth. I am not so sure that Mr. Peck has a handle on any of this with his background and experience, so I look to see more bad news as time goes by. Perhaps I’m making a mistake here, but I wouldn’t bet money on it as in an investment for profit sake.
Former CEO, Glenn Murphy may have cleaned up a few spills in his seven years on the job, but he certainly didn’t set the world on fire when it comes to teeing up Gap’s future. Most of Gap’s issues are unforced errors. It went from having an off-putting dictatorial point-of-view years ago to a series of ditch-to-ditch strategy shifts. Throw in inconsistent sizing and quality, cannibalization from its low and high-end banners (Old Navy and Banana Republic), and Mr. Peck is in quite a pickle. In the meantime, fast-fashion players have perfected their game, Uniqlo is ramping up, and retail grande dames like Macy’s are finding their omni-channel footing.
Focus on faster turnaround and new product implementations while building on lower store costs and fashion implementations. Higher quality is very important for both stores, and realizing this may take time, but trying to use merchandising concepts like vending machines will not change the fashions or in-store products that buyers are looking for—and thus the profits the chain is missing.
Gap and most of its businesses, perhaps save Old Navy, are struggling for relevance, in an area of retail that itself is struggling.
Technology alone doesn’t solve its problems, which start at a brand level and carry through to its merchandise, merchandising and transcend a wide range of offerings, none of which are terribly focused except for Old Navy.
Too bad Gap can’t hire Mickey Drexler back!