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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.
Who handles Gap's advertising? Click here for agency account assignments for Gap from Adbrands.net. The group declared marketing expense of $601m in 2016. In the US, Kantar (in Advertising Age) reported measured media expenditure of $177m in 2016, out of an estimated total of $464m. Biggest spending brands were Old Navy (measured spend $132m), Gap ($16m) and Banana Republic ($11m).
Gap has to some extent been a victim of its own success since the end of the 1990s. Having built a market for stylish low-cost clothing, the group then struggled to consolidate its position. More seriously it has failed consistently to find the right balance between fashionable and casual, erring between too trendy one season, and not trendy enough the next. Its biggest weakness became a slow turnaround of designs from drawing board to shop floor. In this The Gap was consistently beaten to market by European competitors H&M and Zara, each of whom developed its own significant presence in North America at Gap's expense.
For many years the main Gap brand defined itself as "simple, classic style for everybody", but the group appeared to have trouble identifying just who it meant by "everybody". In 2000, it began an uncomfortable transition into high-fashion territory, which led to a sharp decline in sales as it alienated its traditional core market. As a result, Gap made determined efforts to regain its former niche, with marketing that re-emphasized the brand's everyday appeal and played down the fashion magazine posturing. It recruited a string of street-wise celebrities to endorse its products, commencing with music stars Madonna and Missy Elliott in 2003. Actress Sarah Jessica Parker and rock musician Lenny Kravitz featured in the campaigns for 2004, followed by Joss Stone in 2005. However there was a renewed decline in sales from 2005, especially in the US, where the store watched helplessly as its share was steadily eroded by the expansion of European rivals H&M and Zara. More recently, Gap has attempted to redefine itself as clean classic American design targeting men and women in the 25 to 35 age range. Yet sales have continued to fall steadily.
There are several subsidiary brands alongside the main adult Gap brand, including GapKids, BabyGap and GapBody. The group launched website-only GapMaternity in 2001. Sales for the Gap brand have been in steady decline in North America for several years, from highs of $5.5bn in 2004 to a low of $3.6bn for 2011. That fall persuaded the group to make a full overhaul of its marketing at the end of 2010, dropping longtime agency Laird & Partners in favour of Ogilvy. Performance finally seemed to turn around during 2012, with a modest increase in North American revenues for the first time in several years. Yet even those slender gains were later lost, despite several further tweaks to marketing. Perhaps the most extravagant involved recruiting edgy star directors Sofia Coppola and David Fincher to helm separate campaigns, but with lasting effect. For 2015, North American revenues for the Gap brand slipped back by 8% to $3.65bn. Global sales including international and online, were $5.75bn, down 7% on the year before.
Separate brand Banana Republic is positioned above Gap, offering "affordable luxury": more sophisticated casual clothing at generally higher prices. After steady growth during the 2000s, this business too has felt the pain of the economic downturn since 2008, with same-store sales slipping 10% that year and by another 9% in 2009. There was a slight recovery in 2010, boosted in 2011 by expansion in other markets. After many years without any international presence, Banana Republic opened its first stores in the UK in 2008 and in Italy in 2011. Other markets have followed. However, performance has been patchy, especially outside North America. Total revenues in 2015 slipped 9% to $2.66bn, with the US alone contributing $2.2bn. The UK stores closed by the end of 2016.
Old Navy slots in below Gap as the group's value-priced family fashion brand, defined as "great fashion at a great price in a fun shopping environment". Reflecting general market conditions, it became the group's single biggest operating division in 2002. However sales have been mercurial since then, declining by a startling 17% in 2008. To a certain extent the decline reflected a disconnection from Old Navy's traditional customers, considered to be 25 to 35 year-old females, shopping for themselves or for husbands and kids. During 2008, the brand made the same mistake that the Gap brand had committed eight years earlier, briefly attempting to reposition further upscale, with a greater emphasis on women's fashion, and playing down the family angle. That approach failed to gel with shoppers, however, and was quickly abandoned.
A new marketing campaign devised by Crispin Porter & Bogusky introduced brand mascots the Super Modelquins. They helped to deliver a much-needed improvement in 2009, followed by a further 2% lift in 2010. The Super Modelquins were retired at the end of 2010, but a new music-centred approach failed to deliver results in 2011. Another revamp of marketing helped lift performance in 2012. At the same time, there was a concerted effort to lift the quality of both design and manufacturing, offering significantly better apparel at the same low pricing. More recently, Old Navy has recruited a series of high-profile female comediennes to star in its advertising. So far, they have included Amy Poehler, Julia Louis-Dreyfus, Elizabeth Banks and Amy Schumer. Revenues edged up by less than 1% in 2015 to $6.68bn, of which just under $6bn came from the US. The first international Old Navy stores opened in Asia during 2013.
Banana Republic and Old Navy have launched spin-off ranges in the style of Gap, including Old Navy Maternity and Old Navy Plus larger sizes, and Banana Republic Petites. Until recently Gap's online sales had been restricted to North America, but the group opened up this service to Europe for the first time in summer 2010, and the store now delivers to more than 90 countries worldwide.
In 2005 the group launched a fourth retail brand, Forth & Towne. Five test stores opened in New York and Chicago, offering casual clothing for women aged 35 and over, positioned between Gap and Banana Republic in style and pricing. Sales were modest and the business was shuttered two years later. Towards the end of 2006, Gap opened online retailer Piperlime, selling an extensive collection of third-party footwear and accessories. That business also failed to gain a strong following and it too was shuttered in early 2015.
In a departure from the group's normal strategy it acquired direct-to-consumer women's sportswear manufacturer Athleta in 2008. Purchase price was $148m. It was the first acquisition by Gap Inc since Banana Republic 25 years earlier. In 2013, the group took a step in a new direction with the acquisition of US-based speciality retailer Intermix for $130m. Unlike the group's other businesses which mostly sell their own apparel, Intermix sells a broad range of third-party designer clothing and accessories. It has around 30 stores in the US, as well as an ecommerce business. Combined sales from secondary brands were $729m in 2014, all from the US.
Gap Inc managed an estate of 3,721 stores worldwide by the end of January 2016, including 446 franchised outlets. North America is far and away the group's biggest market, with 866 Gap-branded locations, 1,030 Old Navy stores and 612 Banana Republic outlets, as well as 120 Athleta outlets and 41 Intermix.
Outside North America, the group operates 175 Gap outlets and 10 Banana Republic in Europe, mostly in the UK, but with a small number in France, Ireland and now Italy. The group sold its 20 Gap stores in Germany in 2004. There are also now more than 420 company-operated Gap, Banana Republic and Old Navy stores in Asia, originally mainly in Japan but now with a growing presence in China. By the beginning of 2014 there were more than 80 stores in China, and the group believes it can build sales there to over $1bn by 2017. The group made an entrance into its first new directly controlled markets for more than a decade when it opened stores in China, Italy and Australia in 2010 and 2011. Taiwan joined the estate in 2014. However, the group's international business has performed poorly in recent years. In 2016, the group said it would shutter all 50 stores in Japan as well as several more in other markets.
Gap also operates a franchise partnership with Singaporean retailer FJ Benjamin to run Gap and Banana Republic stores in other Asia Pacific markets. Similar franchise arrangements have followed in the Middle East and Eastern Europe.
After peaking in 2004 at $16.3bn, Gap group sales steadily slipped lower for the next five years, hitting a low of $14.2bn for 2009, about the same level as in 2001. There was a much needed recovery in 2010 to $14.7bn. After a shock 12% decrease in 2008, comparable group store sales fell by only 3% in 2009, and then recovered 1% for 2010 (despite a further 1% decline at Gap North America). Performance has continued to improve since then, though sales have yet to reach 2004's levels.
For the year to January 2013, group revenues rose almost 8% to $15.65bn, including $1.9bn from online. Net income jumped 36% to $1.14bn. For the year to January 2014, revenues rose 3% to $16.15bn, still just below 2004's record high. Net income made another solid increase of 13% to $1.28bn.
Another modest lift took revenues to $16.44bn for the year to 2015, finally topping the record set a decade earlier. Online accounted for $2.5bn, or 15% of total sales. However net income slipped to $1.26bn. The US still accounts for 77% of sales, or $12.67bn. That's still well below the $13.3bn generated in the US in 2004. Asia overtook both Canada and Europe as the biggest international region in 2008, contributing over $1.5bn in 2014.
For the year to Jan 2016, full year revenues fell back from the previous year's high to $15.80bn, while net income plunged 27% to $920m, its lowest level since 2011.
Donald Fisher retired as chairman of Gap Inc at the end of 2003 and died in September 2009 after a battle with cancer. Their sons Robert and William worked in the company for several years, but gave up executive roles in the 1990s. They remain directors, along with their mother Doris Fisher. The family controls around 16% of the group's equity, and over the years has amassed one of the world's finest modern art collections, now managed on their behalf by the San Francisco Museum of Modern Art.
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.
Glenn Murphy was named as Gap's new CEO in July 2007, and took on the role of chairman as well in 2008. After eight gruelling years he stepped down in Feb 2015, to be replaced as CEO by Art Peck, previously president, growth, innovation & digital.
Last full revision 21st October 2016
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