It’s been nine months since Gap Inc. ousted its chief executive officer. Since then, it’s ended a once-promising partnership with rapper Ye (formerly Kanye West), shaken up its executive ranks, delivered disappointing results and, so far, failed to name a successor. Reviving the half-century-old business is a tall order, but in many ways, the market is ready and waiting for a reinvention that’s been fumbled time and again.
Gap Inc.’s leadership has repeatedly promised a grand vision to return its namesake brand to its former glory and strengthen Old Navy, Banana Republic and Athleta. But none of those efforts have really worked.
In 2011, then Gap Inc. CEO Glenn Murphy told investors that an expansion into foreign markets and mainly China was the “long-term critical cornerstone of growth for the company.” It sold its business in China this year. In 2015, its plan under then CEO Art Peck was simple: make more fashionable clothes and get them on the floor quickly. It was one of the worst hit by supply chain snarls during the pandemic. More recently in 2020, then CEO Sonia Syngal announced her “Power Plan 2023″ strategy, which included closing underperforming stores and doubling down on Gap Inc.’s athleisure brand Athleta and value brand Old Navy. Both have struggled. The Yeezy partnership inked in 2020 with hopes of building a billion-dollar revenue brand became a high-profile failure last year.
And yet, year after year Gap Inc.’s pain points have been the same: a lack of coherent or distinguishing apparel design, too many stores or cluttered stores and inconsistent leadership. This has all culminated in falling same-store sales, and an operating loss of $30 million in the last quarter compared with $620 million of operating income in the comparable period back in 2004, when the company was at its peak.
It’s time to try a new tack. The next CEO — who chairman Bob Martin said would come from outside the company and be named soon — might benefit from avoiding grand statements about plans to revive the Gap brand. Instead, they should take a page out of the turnaround playbook of other previously beleaguered names such as Levi’s Strauss & Co. and Abercrombie & Fitch, which fell out of favor with shoppers during the e-commerce boom. Like them, Gap is an iconic brand that can thrive again as nostalgia for the 1990s’ and 2000s’ aesthetics dominate fashion.
For decades, Gap was one of the most popular retailers in the US. In the 1990s, the brand came to represent a middle-class optimism that grew in parallel with the country’s geopolitical dominance and, of course, the expansion of malls. For chipper mall-wandering teens, Gap was the affordable alternative to the preppiness served up to J. Crew shoppers. Teen shopping and “the Gap,” as it was called, just went together, becoming a piece of American culture that made Gap seem more institution than a brand.
Like its peers, Gap lost relevance as fewer people shopped at malls, and fast fashion and online shopping chipped away at its market share. But now, the cyclical nature of fashion trends, bolstered by the speed of TikTok and other social media platforms, have made that era of mall rats cool again.
So far, Gap has been reluctant to update its apparel designs even as Y2K and 90s fashion rebound. Even though Gap has ramped up its online business, its styles remain out of touch with the sensibilities of today’s younger shoppers. The Gap brand continues to stock brightly coloured, button-up tops and boxy khakis that give elementary school uniform vibes. Its fleet of languishing cookie-cutter Gap stores has become a burden to its profitability (though it’s closing stores across brands at a quick clip). And in 2022, heavy discounting hit revenues as it worked to clear out inventory it purchased that was outdated or in the wrong sizes.
The cleanout positions Gap to follow mall-retailer peers that have found a second life with today’s shoppers. Abercrombie & Fitch renovated its entire store fleet to focus on local styles and preferences. Its new stores are smaller, with a clear sight line so shoppers can quickly see what’s available. It ditched the sexualised marketing that defined its brand in the early aughts and has focused on social media marketing through influencers. It also dramatically increased the quality of its fabrics, zippers and jean silhouettes (its best-selling category). And, it diversified its global vendors to speed up its supply chain.
Similarly, under Chief Executive Officer Chip Bergh, Levi’s Strauss made a dramatic turnaround despite competition from new denim brands like 7 For All Mankind. Bergh wrote in a 2018 essay for Harvard Business Review about his “in-home” visits with customers, where he had them walk through their jeans collection to understand what they liked and didn’t like. He had the finance department slice and dice data to develop a plan toward profitability that focused on its core money-making categories (jeans) and identified areas of growth like tops and dresses. He moved the company’s innovation lab from Turkey to its headquarters in San Francisco, and bought the naming rights to the new home of the San Francisco 49ers, cementing the brand as a California establishment.
The Gap brand has runway for this type of turnaround. The company’s ability to carry on despite missteps hinges on Old Navy, which has held onto its appeal as a go-to-basics retailer even as Gap floundered. Despite recent inventory troubles, Old Navy should do well in today’s downbeat economy where shoppers are looking to pinch pennies. Gap Inc. also has cash on hand from the sale of real estate, including its Old Navy headquarters in San Francisco, and the planned sale of its Athleta headquarters this year.
There’s a wide-open path for Gap to fill a niche among younger shoppers looking for high-quality casual wear. But Gap’s strategy so far to win over investor confidence with grand plans and celebrity brands can’t cover up the structural issues facing the company. For that kind of revamp, slow and steady wins the race.
By Leticia Miranda
This week, everyone will be talking about Gap’s earnings (and any clues about its upcoming Yeezy line), the return of vacation travel and hopes for a rebound in makeup sales.