Gap Inc (US)

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Gap Inc is America's biggest clothing retailer, offering distinctive casual clothing through three main retail brands of The Gap, Banana Republic and Old Navy. In the 1990s, The Gap gradually conquered the globe, eclipsing more established manufacturers such as Levi's with its stylish but affordable designs. Between 1996 and 1999 revenues and net income both doubled as the group extended its format into new brands and new territories. Buoyed up with its own success, the store lost sight of its core values, and an attempt to move further upmarket led to sharp falls in performance from 2000 onwards. A return to basics led the Gap brand prompted a brief recovery in 2003 and 2004 before sales went into another sharp decline from 2005. Repeated attempts to regain momentum were met with only short-lived recovery. The group continued to deliver flat performance and it was toppled as the world's biggest clothing company by both Inditex and H&M. Conditions have remained challenging, especially at core chain The Gap, which has been steadily eclipsed by more mass-market Old Navy, now the group's biggest brand by far, accounting for almost half of US revenues.

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Brands

Old Navy Baby Gap
Banana Republic Gap Maternity
Piperlime Athleta

Recent stories from Adbrands Weekly Update:

Adbrands Weekly Update 12th Jan 2017: Several US physical retailers suffered a grim holiday season, despite the apparently booming economy. Hardest-hit was fashion chain The Limited, which has been struggling to stay afloat for years. This week it announced the closure of all 250 of its remaining stores, though it will continue to trade online for the time being. Macy's said it would lay off more than 10,000 staff, or around 7% of its workforce. More than 6,000 of those redundancies will be of management-level workers. Macy's said no customer-facing jobs were being cut. The store has already announced the closure of 60 stores this year, and almost 40 more over the next three years. As had been widely rumoured in recent weeks, high-end store Neiman Marcus officially withdrew its application to issue an IPO as a result of declining sales and a net loss for its latest quarter, while bookseller Barnes & Noble reported a 9% slump in holiday sales. A solitary ray of sunshine came unexpectedly from Gap Inc's Old Navy chain, which offset the retail gloom with a better than expected same stores increase of 12%. Gap itself generated a lift of only 1%, but that was better that the decline anticipated by investors. Banana Republic, however, did worse than expected, down 7%.

Adbrands Weekly Update 29th Sep 2016: Gap Inc appointed Jamie Gersh as chief marketing officer of its Old Navy business, filling a position that has been vacant since the departure of Ivan Wicksteed earlier this year. For the past six months, Gersh has been CMO of rival fashion store Charlotte Russe; before that she spent 14 years at Gap, latterly as VP, marketing for Old Navy.

Adbrands Weekly Update 14th Jul 2016: Gap Inc, finally called an end to 14 months of declining same-store sales with a long-hoped-for increase at Old Navy, up 5% for the month of June. That offset continuing declines at Banana Republic (down 4%) and The Gap (down 1%) to deliver an overall 2% increase.

Adbrands Weekly Update 12th May 2016: Shares in global fashion retailer Gap Inc plunged to their lowest level in over four years following a profit warning. Comparable group sales for the latest quarter fell by 5%, with declines for all three main brands. Weakest of all was Banana Republic, down 11%, while Old Navy, the group's one-time star performer, slumped 6%. The Gap too was down by 3%. "Our industry is evolving and we must transform at a faster pace, while focusing our energy on what matters most to our customers," said CEO Art Peck, but he and his predecessors have been saying the same sort of thing for years now. The group seemed to suggest that it will abandon a recent strategy of expanding its global footprint. It has opened stores of its own in China, Taiwan , Italy and Australia since 2010, in addition to the existing presence in the UK, and has franchise partnerships in several markets. Now, though, the group says it is committed to North America and China, but will seek to "streamline" operations elsewhere.

Adbrands Weekly Update 14th Apr 2016: Gap named EVP group supply chain Sonia Synghal as the new president of the Old Navy brand, filling shoes vacated last year by Stefan Larsson, now running Ralph Lauren. It also disclosed that the brand's three-year chief marketing officer Ivan Wicksteed left the company last month.


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Background

Free for all users | see full profile for current activities: Gap founders Don and Doris Fisher opened the first Gap store in 1969, near San Francisco's state university. Don Fisher had already tried his hand at several property development projects with some success, but was continually frustrated at his inability to find a pair of jeans to fit his lanky frame. The initial idea for the store was to offer the best selection of Levi's jeans anywhere in the city apart from the Levi's HQ, and the name was inspired by the phrase of the moment, "the generation gap". The Fishers supplemented their range by selling records and the store quickly became a regular hang-out for hippie students. By the end of 1970 there were six stores in the US, but despite attempts to broaden the range beyond blue jeans, Gap had trouble widening its audience.

In 1976, the company floated part of its stock, and used the funds to expand nationally. Fisher used his keen eye for promising real estate to hand-pick the best site for each new store, and his brother Bob was tasked with all the building and refurbishment work. However, a Federal Trade Commission investigation the same year found Levi's guilty of price-fixing and the market was quickly flooded with discounted denim. Gap's profits plunged, and as a result, the company began to launch its own line of discount clothing to stock alongside Levi's jeans. However progress was slow. An attempt to move upscale during the early 1980s in a partnership with Ralph Lauren stalled, as did diversification into other retail segments. The Fishers acquired home decoration chain Pottery Barn, but it too slipped into losses, and was eventually sold at a loss in 1986.

In the mean time, however, the Fishers had hired experienced industry veteran Millard "Mickey" Drexler in 1983 to run the company, although Don Fisher initially retained the title of CEO. Drexler concentrated his attention on dumping the cheap clothing the company had introduced, but instead establish the core Gap brand as a mid-price label, offering comfortable high quality at affordable prices. The same year, the company acquired jungle-themed Banana Republic, then just two shops, eventually pushing that brand further upmarket to target a slightly older, more affluent audience. Two years later, the group shifted its attention to the lower end of the age range, launching GapKids.

The next big push came in 1987 when Gap opened its first store outside North America. The London operation was a quick success, and was followed by openings in Canada (1990) and France (1993). Meanwhile, new clothing brand BabyGap launched through GapKids, subsequently spinning out into a separately branded store chain. This allowed for a new take on the store's name in a marketing campaign which promised "For every generation there's a Gap." In 1991, the group stopped selling its last third party brand, Levi's jeans. (Gap's own jeans are now among Levi's biggest competitors). Over-expansion brought some problems in the early 1990s, but the launch of discount line Old Navy in 1994 renewed the business's focus. Most products cost less than $30. A big hit with the teenage market, Old Navy was the first retail clothing brand ever to reach sales of $1bn within in its first four years. Fisher ceded the role of CEO to Drexler in 1995, and by the end of 1998, the group operated 2,400 stores around the world, all wholly owned, and many in expensive prime retail locations.

The founders' son and apparent heir Robert became executive VP of the group in 1997, under Drexler. However, by most accounts he struggled to keep up with the relentless pressure imposed by the company's rapid growth. Two years later he announced his surprise resignation from the group, although he was persuaded to remain on the board. Shortly afterwards, the group confirmed that sales growth had begun to slow dramatically. Gap announced it would cut around 10% of its global workforce during 2000. Sales for the year ending 2001 rose 17.5% to $13.7m, but net income fell more than 22%. Gap's share price plunged along with its profits.

However, there was no clear vision of what sort of strategy was needed to stop the decline. Restructuring took its toll on the business over the next 12 months as well as cancellation of unpopular lines. But the company continued to shift further upmarket, moving away from its core casual lines to more fashion-led apparel. A new head of global marketing was appointed in Autumn 2001, but lasted only six months. After a disastrous final quarter for the year ending 2002, Gap reported a loss of $8m on sales up just 1%. The group vowed to abandon its move upscale and return to the simpler casualwear that first made its name. Yet a new spring 2002 line failed to attract shoppers - US sales fell by 17% in February 2002, and by 22% in the international division. In the face of this continuing erosion and relentless pressure from the Fishers, Mickey Drexler announced his resignation in May 2002.

Finding a replacement was not easy, but Paul Pressler, previously head of Disney's theme parks division, was eventually appointed towards the end of the year. Meanwhile sales continued lower though not as sharply down as during the previous year. Pressler introduced a new way of working to the company, replacing Drexler's gut instinct with carefully considered research and a rigorous attention to profit margins. Gradually the company's new styles began to encourage shoppers back into stores, and in October 2002, the group reported the first monthly increase in same-store sales since 2000. The majority of The Gap's marketing had always been handled inhouse. However, as a result of disappointing performance the group appointed its first-ever creative agency in 2002, New York-based Laird+Partners.

Yet sharper marketing in some ways only created further problems for the brand, since the clothes offered in-store in many cases failed to live up the glamour suggested by its high-style ads. Gap's long-awaited upturn in sales continued for a couple of years, but eventually stalled again during 2005. In the mean time, Pressler's careful financially-oriented approach had led to the departure of many of Gap's more creative designers, so that when the slump started, the company was ill-prepared to reverse it. After another disappointing year in 2006, the group admitted that its attempt to revamp the business had so far been a failure. Paul Pressler resigned in January 2007, and was followed by Cynthia Harriss, president of the Gap brand since 2005, a few weeks later. See full profile for current activities


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