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Gap Outlines Strategies for Turnaround

On Wednesday, chairman and ceo Glenn Murphy spelled out key strategies aimed at getting the juggernaut back on track.

Gap Inc.’s turnaround of its North American operations has been elusive and frustrating. But on Wednesday, chairman and chief executive officer Glenn Murphy spelled out key strategies aimed at getting the juggernaut back on track.

The initiatives include:

• Shifting marketing dollars to woo new customers, particularly younger ones, as well as African-, Asian- and Hispanic-Americans, where in all cases, Gap’s market share is too low. In the past, “we didn’t put enough money into acquiring new customers,” Murphy said during his presentation at the Bank of America Merrill Lynch 2011 Consumer Conference.

• “Maximizing” the pipeline, which the ceo said is faster after being overhauled last year. He cited “a huge opportunity…to fill in with trend-right product and chase products that make sense to us…and focus on new category development,” which have been shortfalls. At Old Navy, he said, jewelry will become “a significant category.”

• By 2013, closing 200 Gaps, bringing the fleet down to 700 units, and “skinnying down” Banana Republic to 425 units from the current 456. “We are in too many malls because there are too many malls,” Murphy said. Old Navy will pare down to 950 units from 1,027.

• Driving sales through new RFID technology that can locate products online and in stores.

While the cash flow and the balance sheet have been strengthened, the performance in North America by Gap, Banana Republic and Old Navy must be more consistent, Murphy stressed. “Those three brand presidents know very firmly they have to deliver.…We want to get moderate steady comps in our North American business.”

Last year was the first since 2003 that the company comped positive.“But we’re still not happy. There isn’t a day that goes by that we don’t turn over a rock and find opportunity,” Murphy said.

He’s got other concerns, including the rising cost of cotton and the impact on prices, particularly at Old Navy and the outlets, where there’s less flexibility on pricing compared with more upscale businesses. “We will do everything we can in terms of the size, to use our leverage as best as we can, but we have to be careful. We are not going to take the price increase and spread it mindlessly.”

Growth at the $14.66 billion Gap will primarily come via global expansion, online and outlets. Gap sees international and online operations representing 30 percent of total revenues by 2013, from 22 percent last year.