NEW YORK — It has the makings of TV du jour: Extreme Makeover, Gap Inc.
Since his arrival 18 months ago after an unlikely move from Disney, Gap president and chief executive officer Paul Pressler has set about to right what ailed the company that had fallen into, if not turmoil, then at least a state of consumer-driven ennui. The company that made basics cool and then penetrated new markets with highly targeted additions had lost its edge.
Pressler immediately set about to redefine and refocus the firm’s brands, jump-starting a company-wide renaissance. It has gone from a net loss of $8 million in the fiscal year 2001 to profits of $1 billion last year on net sales that have increased 14 percent from $13.8 billion in 2001 to $15.9 billion in 2003. After slogging through 1999, 2000 and 2001 with negative comparable-store sales, the group posted a same-store sales gain of 9.9 percent. And the increases have been notched while 220 underperforming stores closed.
“We’ve demonstrated through our positive momentum and our comps and our earnings that we do understand our customers well,” he said in an interview, “and we feel we have found some sweet spots in terms of where our strengths are.”
This week, the firm puts some of those strengths on display — tonight, at the Gap brand’s party and informal showing of its fall 2004 lineup, and Thursday, at Banana Republic’s second runway show, conceived to flaunt its new, more fashion-conscious direction.
Previews last week indicated two strong collections. Now, with those two brands and Old Navy each on a positive course, Gap Inc. is focused on growth, both internally and externally. Pressler confirmed that the company is investigating acquisition opportunities.
“We haven’t really discussed it externally yet,” he said, “but needless to say, we’re spending a lot of time internally [on research].”
And the firm’s executives have their minds wide open. Asked whether he might consider a venture positioned well north of Banana Republic in the true luxury sector and/or a nonretail operation, Pressler noted, “I wouldn’t take anything off the table.”Still, the early inclination is toward what he called the “big-value world out there.”
“There are markets that we don’t compete in today, or that we underpenetrate,” he said. “There are lots of people entering the Boomer market, so there are lots of choices for us to think about.”
One such choice centers on whether or not potential targets should be limited to retail operations. “Certainly our going-in bias today is that,” Pressler noted. “Having said that, as we continue to focus on international expansion, we will explore other alternative business models.”
In addition, the firm will continue to expand within existing brands. Pressler’s first order of business upon arrival was to clean up, clarify and redirect existing businesses, making clear the boundaries that had faded in recent years, causing the brands to collide.
“In Banana Republic, it meant some reinvention,” he said, referencing the brand’s turn toward an accessible fashion focus. “In the case of Gap, it was clearly going back to our heart and soul, and in the case of Old Navy, it was about driving deeper to take share from our value sector.”
To that end, Pressler said the essential point of differentiation at Old Navy is “a much stronger point of view, but still competing in the value sector, which means pricing, assortment, selection and accessibility for those customers.”
Such housekeeping accomplished, Pressler sees plenty of “white space” into which the current brands can expand. He views Banana Republic’s increasing emphasis on accessories and jewelry as a “tremendous opportunity.” Both Gap and Old Navy, meanwhile, are making inroads with maternity, while focusing on other market pockets and segments, as well. Gap is testing swimwear via GapBody and at Old Navy, “we’re focusing on the traditional mom, we’re focusing on the young adult and we’re focusing on teens,” Pressler said.
At the Gap brand, Gary Muto, who’s been its president for the last year and a half, said the improved performance is a result of the combination of the artistic vision of head designer Pina Ferlisi and customer profile research gathered from Gallup polls, focus groups and feedback from every 10th transaction that netted information from 322,000 customers last year.Sounds simple enough, but “it was a pretty big ‘Ah ha!’ for us,” Muto said via telephone from the company’s corporate headquarters in San Francisco. “We don’t know everything, but we’re getting smarter about who women are and how they buy.”
The 44-year-old executive and his team have learned that women shop very differently from men, are in a feminine fashion moment and price is no object when it comes to quality and fit.
Failing to recognize those facts is what had earlier resulted in Gap’s two and a half years of negative same-store sales, Muto said.
“There was an opinion that we should appeal to everyone,” he said. “We started to lose a little bit of relevance, partly due to not understanding who the customer was. And fashion really took a very different type of turn. With the advent of low-rise [denim], fashion was skewing young. You can easily get wrapped up in your own world and not know if [the customer] hears and sees in the same way we believe we communicate it. We have filters now that interpret what’s going on that allow us to assort our products to our customers.”
Gap is currently reaping the rewards from the expertise of top Seventh Avenue talent. In April of last year, Muto cut out a layer of management and hired head designer Ferlisi, who has worked closely with Marc Jacobs, Tommy Hilfiger and Elie Tahari at different points in her career. Louise Trotter, who lists Calvin Klein on her résumé, became vice president of women’s design, and Emma Hill, also from Marc Jacobs, headed up accessories as vice president.
The team’s first collection — spring 2004 — is a bright, sweet interpretation of Fifties silhouettes, including stretch pink, black and white flowered sundresses, $58, black Indian-print sundresses, $58, and black and white printed flair skirts punctuated with black Indian-print hems, $49.50.
Then there is the limited-edition high-end 1969 collection, Gap’s nonshowy way of marking its 35th birthday. There are no other formal celebrations planned. The collection includes washed brown leather asymmetrical skirts, $288, off white quilted corset vests, $118, and unfinished-edged, tie-neck blouses, $88.Muto would not comment on what specific items are driving sales, but the numbers tell the story. The looks recorded an 8 percent same-store-sales increase in March, soundly beating analysts’ 5.9 percent predictions.
Gap’s informal presentation tonight of its fall collection at the Biltmore Room here will incorporate the continuation of color, as well as new blazer and denim silhouettes, Muto said.
“The thing I love about Pina is her fine understanding of aesthetic and the ability to interpret trends in a Gap-appropriate way,” he said. “The purpose of the insights is not that customers are going to tell us what to design, but turning that insight into strategies to drive the business. “
“We’re figuring out the right positioning, and you’ll see more of these expressions across the board.” He noted that flexible sizing offers added value; thus, the brand has focused on ‘the right waist and size and expandability capability for mom. So there are a lot of organic adjacencies of product that we think we can grow within our existing businesses.”
All of which is happening at an exciting moment. Given their new editorial outreach and dual events this week, one could infer there’s a little friendly in-house competition. Not so, said Pressler, exactly because the recent brand clarification has rendered such tendencies pointless. “If you look at our business overall two years ago compared to today, the criticism then was that the brands were really on top of each other,” he said. “Our strategy was to understand and rationalize the positioning for each of these businesses, and then to make the overall Gap Inc. portfolio far more robust in terms of our ability to grow our market share.”
Research is telling Muto there are now two distinct Gap women: a style-conscious customer who is a young professional, age 25 to 30, who may or may not have a family, and an updated classics woman, ranging in age from the mid-30s to 50 years old, who, above all, cares about comfort.
For both groups, femininity is the order of the day. So gone are the androgynous one-size-fits-all, same-color-palette approach to both sexes so prevalent under Millard Drexler’s reign. “That was the one thing we heard loud and clear, that we were androgynous,” said Muto. “You can understand how it was perceived as androgynous, but again, that was an ‘Ah ha!’ for us.”Fit was another issue and was, in fact, “women’s single biggest complaint,” said Muto. Two years ago, Gap pulled stretch bottoms off the shelves only to reintroduce two classic and two modern versions last year, a category that will grow to include more body types in the future, he said.
To dispel the notion that Gap is just a “weekend” brand, stores are currently being reorganized to draw customers to “occasions” rather than “key items,” or say, a wall of flip-flops. Gap has moved these flip-flops near skirts, sundresses and chinos, for example, and has introduced casual lifestyle areas that are separate and distinct from clothes for work or clothes for evening.
Gap for evening? Not out of the realm of possibility, said Muto. “There’s definitely a sexier element that we could absolutely capitalize on,” he said. “Not sensual, but feminine.”
And as Gap sharpens its image on its two core customer groups, Banana Republic is continuing its progression from a basics image to one now overtly fashion-conscious yet still accessible. On Thursday, the brand will present its second runway show, this one at the Chelsea Art Museum.
This shift, according to president Marka Hansen, happened gradually with the arrival at the company of Deborah Lloyd, executive vice president of product and design, who previously designed the Burberry London collection. “It was a strategy that’s been evolving,” Hansen said at Gap Inc. headquarters here on Wednesday, “but I think the moment it all came together in a different way was fall ’03.” She attributes the timing to Lloyd’s increased confidence and grasp of the brand after a few settling-in seasons.
The need for the evolution was obvious, Hansen acknowledged, and reflects an expanding consumer interest in clothes more feminine and more colorful than those widely thought typical of Banana Republic. “We were known as the place for work essentials,” she said, insisting that the brand is not abdicating dominance in that market. Rather, today, “it’s just multidimensional. You look at the store and you say, ‘I’m seeing that there’s a fashion message in this brand. I‘m seeing that there’s a go-to-work message,’ whatever that might mean. Today it might be the return of a jacket. Another time it might be the quintessential twinset.”To wit, according to Pressler, the current direction does not stray all that dramatically from Banana Republic’s original intention. “If you look at the brand history, it’s indicative of what we have done for the last 10 years, since we first bought that safari store,” he said. He called the initial safari motif itself a fashion moment in time, and said that, with the emergence of the more casual workplace, the brand became a go-to resource. But given the market’s ongoing evolution, it became clear that staying put would hinder Banana Republic in reaching that proverbial next level. Thus, identifying the market shift and moving with it toward more fashion became the brand strategy.
While Pressler and Hansen expect this fashion-centric mood to prevail for some time, they will, he said, “be at the same time very cognizant of the fact that our evolving our sensibility is part of what makes this brand so strong.”
None of which indicates that brand executives have deliberately tried to skew younger. “A great collection dresses many ages and it’s really more of a state of mind,” Lloyd said. “We’re very careful with our fits. There are three fits of pants so you can fit a cross-section of the population, but we don’t compromise the fit. If it’s meant to be a great little skinny jacket, that’s what it will be, but there will be something else that’s appropriate for another customer.”
To facilitate such customer diversity, Lloyd has hit the season’s trends with savvy and appropriate restraint. For fall and holiday, she covers Seventies London boho, a hint of Twenties, boy-meets-girl and a mood she described as “my grandmother’s attic,” complete with all sorts of vintage-y accoutrements, from rose prints and brocades to little shrugs to embroidered brooches. That that notion carries a waft of Prada is something both she and Hansen sidestepped at first, Lloyd noting that she started the collection back in June and citing various references — an exhibition at the Victoria & Albert museum and an Ossie Clark retrospective book among them. “It’s in the air,” she explained, invoking a familiar designer refrain.Lloyd is absolutely right: At any given moment there are certain influences circling the cosmos. Currently, one of those is Prada, which is referenced discreetly, to delightful effect in the Banana Republic lineup. The show will put them in context for the market while flaunting some recently embraced categories — evening in addition to accessories and jewelry. While Hansen thinks the latter has explosive potential, she sees evening as “an aspect of the brand, but not a focus.”
Asked whether it’s more difficult to compete full-on in a fashion context than in Banana Republic’s traditional career basics context, Hansen offered a vehement no, noting that what the brand brings to fashion’s trend-happy picture is inclusiveness in price, sizing (two to 16) and a deft approach to fashion. “What’s the hook or the differentiation?” she posed. “It’s an affordable, covetable luxury. And there’s an accessibility to the brand. It’s just a great relationship for the customer.We’re bringing fashion to a wider audience. With the success we’ve had — obviously the comps in February, the comps in March, what we did in the fourth quarter — it’s all telling us we’re on the right track.”
Pressler concurred, and sees a sunny future for all of Gap Inc. “I think we’ve demonstrated success,” he said. “We don’t take yesterday’s success as a guarantee for tomorrow, but I love the positioning of our brands today, and I love that we are building tremendous capabilities to grow this company in the future.”
At the same time, he will not for a moment discount the vagaries of fashion. “I’ve learned,” Pressler said, “fashion can be fickle.”
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