By  on May 21, 2013

Gap Inc.’s Glenn Murphy is counting on his company’s new emphasis on innovation and digital expertise to help the retailer elevate its small market share outside North America.

Speaking to shareholders at the annual meeting in San Francisco Tuesday, Murphy, chairman and chief executive officer, initiated what he said would be an annual report card on domestic and international market share.

The initial grades were decidedly mixed: While Gap holds 3.9 percent of the North American retail apparel market of about $300 billion, its portion of the $1.1 trillion in retail apparel sales outside North America is just 0.25 percent.

That’s despite the corporate mantra of being “the world’s favorite for American style” and efforts that have seen the Gap brand establish itself in 47 countries outside North America versus eight in 2007, Banana Republic in 24 from three five years ago and Old Navy, with the addition of Japan, in three from two. Outlets are now in six countries, up from four, and the company operates online in more than 25 markets, up from just the U.S. five years ago.

He noted that Gap brand is expected to be in 54 countries by the end of the year, but neither identified the new markets nor laid out plans for the other company nameplates.

The company’s new structure, instituted in February, has its three main brands managed individually across all channels and geographies, with its more recent additions — Athleta, Piperlime and, following its $130 million acquisition in January, Intermix — led by Art Peck as president of growth, innovation and digital.

The innovation and digital components are expected to be key drivers of growth both in North America and abroad, Murphy said, in combination with “consistent, great product” and “compelling marketing.”

“The customer is changing and continues to change and continues to evolve,” he said, “so what we have to do in order to win is to marry [merchandising and marketing] up with a second dimension, which is a seamless experience for our customers, whether customers want to shop online, outlet, stores, have it delivered, want to pick it up in the store, want to buy it in a store and have it delivered to their home. Whatever they want, we have to be much more accessible and seamless to them in the transaction.”

Later, he noted, “The worst thing that can happen to any of our businesses is to become commoditized. You have to always have a unique offering, a point of differentiation and something — I was taught a long time ago — your competitors are unwilling or unable to do.”

He pointed out that 2012 was a good year for Gap in that its market share grew as comparable-store sales expanded 5 percent and revenues hit $15.7 billion. He had previously set a goal for North American market share of 4.5 percent with sales per square foot, at $364 last year, again exceeding $400. Merchandise margins last year were up 200 basis points, and operating margins 250 basis points, to 12.4 percent.

With its consistent emphasis on American fashion, Murphy pointed to Gap’s brand portfolio as a distinct competitive advantage, with Old Navy, Gap outlet and Banana Republic outlet holding the “value” position; Gap, Banana Republic and Athleta occupying the “premium” rung, and Piperlime and Intermix occupying the “luxury” segment.

He said companies attempting to penetrate North America from outside “don’t have the lineup of unique integrated brands [that are] in some ways complementary to each other. Our formula for success…is to look at our business on this continuum of value all the way to luxury.”

The newer brands don’t yet have a presence outside North America.

Murphy received just two questions from shareholders following the formal presentation, and both concerned the company’s decision not to sign the Accord on Fire and Building Safety in Bangladesh that so far has been agreed to by just two U.S.-based firms, PVH Corp. and Abercrombie & Fitch Co.

He advised the shareholders not to confuse nonparticipation with lack of concern, adding that he “hasn’t given up” hope that a global accord of some kind can be reached, and that the company agrees with “90 percent” of the current framework. He said the company was working with the European authors of the accord, orchestrated by the IndustriALL Global Union, on a possible alternative agreement. Gap, he said, uses only 73 factories in Bangladesh, out of more than 6,500, and will have conducted both fire and engineering audits in all of them by October.

“There’ll be more to come forward on this issue in the next number of weeks,” he concluded.

After hitting a 52-week high of $41.86 in midday trading, Gap shares closed at 41.67, up 61 cents, or 1.5 percent.

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