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Gap Remodeling 50 Old Navy Units

California prototypes produce positive results for Gap unit.

Gap Inc. is accelerating its plans to put the “new” back in Old Navy.

In an effort to recapture lost market share, the company Wednesday said it would remodel 50 Old Navy stores during the third quarter, and would have new models for its namesake chain, Banana Republic and outlet stores by the fall.

The repositioning of the value-oriented Old Navy brand through product, pricing and marketing has paid dividends for the company recently. The division’s comparable-store sales rose 3 percent in May and 1 percent in April following a flat month in March and, prior to that, 23 consecutive months of declines, highlighted by a 34 percent drop-off last January.

Gap chairman and chief executive officer Glenn Murphy told attendees at Piper Jaffray’s consumer conference in New York that, through a series of investments, the company since March has “turned the trajectory of the sales that you saw — the path that Old Navy has been on for the better part of five years — by getting the brand refocused, understanding who it’s actually going after, what is the customer target.”

A vital part of Gap’s turnaround effort is revamping Old Navy, which hadn’t received a makeover since it was founded 15 years ago. “We have a model that was successful for a long time,” Murphy said. “We held on for too long. We never really went back and refreshed them and modernized them.”

Murphy said executives at the firm were “pleased” by results at a new Old Navy prototype rolled out in two California locations.

Old Navy represented 37.7 percent of Gap Inc.’s $3.13 billion in first-quarter sales. Its small comp gains in April and May stood in marked contrast to sister divisions Gap and Banana Republic, which suffered declines of 11 and 14 percent in May, respectively, and 10 and 8 percent in April.

Murphy said the retailer’s namesake brand was the next priority after Old Navy. To help reposition the Gap division, Murphy said the company planned a denim relaunch in August, to be followed by a strong marketing campaign for holiday.

As for Banana, Murphy said the goal was to grow the brand internationally: “We believe there’s a city strategy for Banana Republic, which is very important to us as we look at our future international, corporately controlled growth strategy.”

Murphy’s top goal is strengthening Gap’s brands in North America to allow them to continue to expand abroad. Growth in the outlet and online operations was also pegged as a priority, with Piperlime.com moving beyond footwear and accessories and into apparel, and new Web sites planned for the Canadian and U.K. markets, to be followed by Japan.

One of Murphy’s predecessors at Gap, J. Crew Group chairman and ceo Millard “Mickey” Drexler, also included Internet expansion in his remarks, calling cyberspace a “unique opportunity” at a time when “landlords are not adjusting [rent] prices enough.”

“There’s too much risk built into what’s going on in the world today,” he said.

J. Crew will open 24 stores this year, down from 42 in 2008, representing a 40 percent reduction in both new square footage and new units. Drexler said while the company is looking to grow, it’s focusing on online expansion, and hopes to get a Web site up and running for the Madewell brand as soon as possible.