Art Peck ceo gap old navy banana repulbic

Gap Inc. president and chief executive officer Art Peck closed his keynote address at Shoptalk on Monday with three simple words that could haunt some of the retailers in attendance: “Change or fail.”

It’s a bracing mandate for an industry that, for the most part, has stayed relatively static for generations.

But those were Gap founder Don Fisher’s words, and the message still clearly informs the 50-year-old business he left behind.

Peck ran through a heady list of examples, most notably his company’s new $35 million acquisition of children’s brand Janie and Jack. The purchase gave the Gap Inc. “an incredible jewel box of a business out of the Gymboree catastrophic nightmare bankruptcy meltdown,” he said.

Now the tally of Gap brands sits at seven, including namesake Gap, Banana Republic, Intermix, Athleta, Hill City and Old Navy — though the latter will be spinning off into its own company over the next 12 to 18 months.

“We do believe that we’ll have two companies that are stronger than ever,” he said. Then dropped a cryptic teaser: “And I would say, watch this space. I think there are some very interesting things to come.”

He’s clearly proud of Old Navy. “You may not know this, it’s the number-two apparel brand in the U.S., [with] 1,100 stores in North America,” he said. The brand was founded in 1994 “on the simple principle of fun, family, fashion and value. And it sounds obvious, but it’s the fastest retail concept to a billion dollars ever,” he said. “And it’s closing $8 billion today [in sales] with a path toward $10 billion, and a ramp well beyond that.”

The reason goes beyond inexpensive product. Peck applies a set of tenets, or “compromises,” as he calls them, across his organization. It has to do with understanding today’s “converged customer” — which is somehow a step beyond the multichannel shopper — making sure inventory moves quickly in real time and isn’t held up in separate online and off-line buckets, instead of being available to customers. And, not least importantly, being strategic about where to place brick-and-mortar locations. (Hint: Not in malls. Peck is no fan of malls these days.)

It’s easy to see how the company spends a billion dollar per year on technology, infrastructure and logistics. The online and off-line need to work together. And the former shouldn’t overshadow the latter either. For Peck, physical stores are still the bread and butter for large-scale apparel retailers.

Today’s epidemic of shuttered storefronts might seem to contradict that line of thinking, particularly since some Gap locations are now among them.

Here’s how he explained it: “Eighty percent of apparel purchases happen in stores.…When I closed 230 stores, it’s because it’s the wrong stores in the wrong locations. I want to talk about the right stores in the right locations.” In one example, he told the tale of a Gap store placed near a Trader Joe’s that had less foot traffic than mall locations, but actually had higher conversion rates.

The final piece of the puzzle is not a business objective, but a matter of social good. Last year, Athleta was certified as a B Corp. and Hill City launched as a B Corp. The designations refer to “benefit corporations” that allows companies to pursue both profit and social good. Part of the effort is going into shrinking production and shipment timelines, to reduce their negative impact on the environment.

On the tech front, Peck waxed enthusiastic about the company’s big data push and analytics. “It starts with a longitudinal view of the customer,” he said. “Who is she? Who is your best customer? And what do they buy? How do they shop? How frequently do they shop? What’s the family composition, etc.

“It’s connected to a personalized digital and in-store experience — what I call the digital shopkeeper. It morphs into mobilized assortments, it customizes the assortment for that store, and not just on ‘hot store’ or ‘cold store,’” he added. “It’s size, curves, aesthetics, the entire population demographics, psychographics, etc, and it builds in predictive demand.”

He calls it a game-changer. “It fundamentally changes the service we deliver in our stores. We’re scratching the surface.”

This is the sort of change retailers should move on, and quickly: “If you’re not doing it this year, next year, five years from now, you won’t be around.”