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Glenn Murphy Lays Out Vision for Gap Inc.

Murphy and the leadership team outlined the future for the $15.7 billion company during an investor meeting in San Francisco.

Glenn Murphy has fine-tuned the vision for Gap Inc. and the company’s “developing” brands — Athleta, Piperlime and Intermix.

Athleta, the company’s chairman and chief executive officer said Wednesday, could go from “the developing side to the global side….Piperlime has one store and needs stores.” And Intermix, he said, was “founded on stores and great marketing but has been weak when it comes to e-commerce.”

As far as Gap Inc., the corporate umbrella, the vision is to provide services and “great leverage” in key areas such as supply chain, real estate and IT, Murphy said.

“The new Gap Inc. is the service center and it’s bringing innovation to the brands. We’re adding value every single day. We’re not a bureaucracy. How do we bring services to them so they can be successful? That’s a big change in the organization today,” he said.

Murphy and the Gap leadership team outlined the future for the $15.7 billion company and emerging strategies at its divisions during a three-and-half-hour investor meeting in San Francisco. After years of dismal results and declining store traffic, Gap finally delivered a strong performance in 2012, suggesting Murphy has turned around the business.

While never mentioning the “T’ word, Murphy’s outlook was positive. Gap for years was a revolving door of talent, but Murphy said the talent is now in place. Then he projected that Gap can boost its North American market share from 3.9 percent of the $300 billion apparel market to 4.5 percent. The company overall posted $364 in sales per square foot last year and has set a goal to return to over $400 in sales per square foot.

“Consistent comp and revenue growth is our number-one priority,” Murphy said. “As the product continues to improve, there will be more regular-price selling, shallower promotions and shallower markdowns….It’s all about delivering consistently in the future.”

However, he said all brands under the Gap Inc. umbrella “must have their aesthetic. It’s a mix-and-match world. Nobody wants to wear a uniform.” The products have to be “consistently great.”

In January, Gap surprised the industry by purchasing Intermix for $130 million. It’s considered a growth vehicle but the Gap hopes some of Intermix’s fashion sensibility rubs off on the other divisions.

Among other opportunities for growth, Murphy cited what sounded like an offensive at omnichannel capabilities. He cited creating a seamless inventory that shouldn’t be “trapped” in any region around the world and growing “ship from store,” “find in store” and “reserve in store” capabilities so customers can get the products when and where they want them.

Officials stressed “reserve in store” (where customers order online and pick up products in the store) represents a big opportunity to build multiple sales, sell outfits and create a richer shopper experience. Gap will be beta testing “reserve in store” in late May or June, according to Art Peck, president of growth, innovation and digital.

Officials also cited upcoming personalization of the Web site landing experience, as well as personalizing promotions, and product information, as being in the company’s near future. Gap Inc. started shipping from stores last year.

Among other growth plans cited were:

• Opening 75 franchises this year, on top of the more than 300 currently operating. There’s a focus on entering new markets, including Brazil. Gap is also in the early stages of examining India.

• Shifting to universal fit around the world and focusing more on size differences rather than fit variances to satisfy customers. Murphy said to think of Gap having two different fits, one for Japan, and one for the rest of the world and pulled back from developing a fit for China. “We can get to the same issue by managing the size curve. I think it’s definitely the way to go,” Murphy said.

• Gap’s “Be Bright” campaign, which is “gaining relevancy…We will build on it,” said Steve Sunnucks, Gap global president. Design partnerships will continue, he added. Gap has found success collaborating with Diane von Furstenberg and Stella McCartney, and Banana Republic is hooking up with Milly for the next month and in August with Issa, a brand from London. Digital and social media are the fastest-growing parts of the marketing mix.

• Taking a more fashionable approach to merchandising stores in the top 20 cities, including New York, Shanghai and Tokyo. As Sunnucks said, “We are finding more similarity between key cities, probably more than there is between countries.” He also cited taking “a modular approach” to the business for the first time, entailing stocking up stores with warm weather clothes in regions that demand it, or logoed products in countries that want them. The merchandise is 70 to 80 percent the same globally, with 20 to 30 percent of the inventory left open to satisfy local requirements. “Bestsellers are bestsellers,” around the world, Sunnucks said.

Gap has also clarified its “brand filter” or mission, “to be current, not trendy; classic but not conservative; youthful but not young; reliable but not predictable, and above all, authentically American,” Sunnucks said. “It’s about a global brand that is still locally relevant.”

 

• Old Navy franchising, beginning in 2014. The Old Navy team is working on a long-term global growth plan, including potentially operating in China, said Stefan Larsson, global president. The division went international last year by opening stores in Japan, and should have 15 to 20 there by the end of this year. “The way I see it, it is just the beginning,” for Old Navy overseas, Larsson said.

“The only way to build a brand over time is to build on its foundation of strengths,” which at Old Navy are all about fun, fashion, family and value, Larsson said. “Fashion essentials should be at the core,” and used as key items, and for showing with other items to create outfits. Old Navy’s Rock Star colored skinny denim jeans have been bestsellers. “There is a huge opportunity for continuous improvement with product placement, product presentation, and with the density of how much garments we present in the space….Dollars per square foot were up 10 percent in 2012 but there’s still room for significant improvement.”

According to Sabrina Simmons, executive vice president and chief financial officer, outlets, franchises and online yield higher returns than the specialty chains, so the goal for the specialty stores is to improve productivity. The stores, at $13.4 billion in volume, represent 86 percent of Gap Inc.’s revenues. The retailer continues to reduce square footage on Gap and Old Navy while still rolling out outlets. Over the last several years, Old Navy has reduced square footage by 2.5 million square feet and Gap has reduced square footage by 3 million square feet.

• At Banana Republic, the women’s business is back on track, while the men’s continues to perform well, according to Jack Calhoun, global president. “Our biggest opportunity is to drive more traffic….We’ve got to ensure we have the right product — what I call sizzle.”

He said BR is underrepresented in Europe, citing Italy and France, where there is only one store in each country. “We are not planing to open that many stores. We will be cautious in the short term, measured in our approach. We might even be looking at different operating models,” said Calhoun.