Art Peck, president and chief executive officer of Gap Inc., will step down from his position after years of struggling to revive the Gap brand and more recently seeing Old Navy flounder.
Gap Inc. said late Thursday afternoon that Peck will depart from the company and its board after a brief transition. Effective immediately, Robert J. Fisher, non-executive chairman of the board and son of the late founder of Gap, Don Fisher, will also serve as president and ceo on an interim basis.
Wall Street reacted swiftly to the news, dragging Gap Inc. stock down 7 percent in after-hours trading.
Additionally, the board has appointed Bobby Martin, chair of its compensation and management development committee, as lead independent director. Martin is the former ceo of Walmart International and chief information officer for Walmart Stores Inc.
“On behalf of the entire board, I want to thank Art for his many contributions to Gap Inc., spanning a nearly 15-year career with the company,” said Fisher. “Under Art’s tenure as ceo, we have made progress investing in capabilities that bode well for the future such as expanding the omnichannel customer experience and building our digital capabilities.”
Peck’s departure comes at a critical time for Gap Inc. because of its plan to spin off Old Navy, long the cash cow of the group, into a separate public company next year. In recent investor conference calls, Peck expressed confidence that the spin-off would happen despite Old Navy’s flagging performance. Thursday’s announcement of Peck’s exit raises questions about the plan. The “transition” phase for Peck’s departure could be tied to a need to keep him around for a while to help see the spin-off through, as the company seeks a permanent successor. Peck was supposed to lead Gap Inc.’s remaining divisions — Gap, Athleta, Banana Republic — after the Old Navy split.
Gap Inc.’s weak performance was underscored Thursday when the $16 billion, San Francisco-based company released comparable sales for the third quarter and provided revised earnings per share guidance for fiscal-year 2019.
Overall, comparable sales for the third quarter of 2019 were down 4 percent. By brand, Gap Global was negative 7 percent; Banana Republic Global was negative 3 percent, and Old Navy Global was negative 4 percent.
The specialty retailer expects 2019 adjusted diluted earnings per share in the range of $1.70 to $1.75, versus previous guidance of $2.05 to $2.15.
“This was a challenging quarter, as macro impacts and slower traffic further pressured results that have been hampered by product and operating challenges across key brands,” said Teri List-Stoll, executive vice president and chief financial officer of Gap Inc. “We have tremendous confidence in our brands and the talented organization that supports them, and we are seeing progress in some key areas. However, there is more work to do to leverage the capabilities we have invested in and deliver the profitable growth we know these brands are capable of delivering.”
Peck did lead efforts to launch new businesses, including Athleta, the women’s active brand that continues to grow at a good clip, by opening stores. Over a year ago, Hill City, a men’s counterpart to Athleta, was introduced.
When Peck became ceo in February 2015, there was wide perception that his strengths were in technology, the Internet and outlets, though he did have a cross-section of assignments at Gap Inc. From 2012 to January 2015, he was president of the company’s growth, innovation and digital division, with responsibility for the corporation’s e-commerce business across the globe. He drove the innovation agenda for the company across its digital platforms and more than 3,000 stores around the world. He led omnichannel initiatives, helping to create a smoother shopping path for consumers across the physical and digital shopping experience.
Peck also led the efforts to acquire Athleta, in 2008, and the Intermix brand in 2012. He added responsibility for the Gap Inc. technology division, and worked with the company’s chief information officer.
He also served as president of Gap North America from February 2011 to November 2012, and is credited with some uptick in the business for awhile.
From 2008 to 2011, Peck led the outlet division “delivering strong sales and earnings growth for the value expressions of Gap and Banana Republic,” according to Gap Inc. Outlets in Canada and Europe opened.
But much of Peck’s tenure as ceo was stormy, involving hundreds of Gap store closings and other restructurings, a revolving door of management changes, fashion misses, fit issues and challenges to get younger customers to wear Gap and recapture a cool factor. Other Gap Inc. ceo’s, including Paul Pressman and Glenn Murphy, didn’t fare any better. Prior to joining Gap Inc., Peck worked at Boston Consulting and Seagram Co.
After peaking in the Nineties, Gap began losing out to higher-priced denim brands such as Levi’s, Seven For All Mankind and Citizens of Humanity. The brand has also been losing market share to stronger retail purveyors of denim and related casual styles such as American Eagle Outfitters, Abercrombie & Fitch and Madewell. Neil Fiske, a 20-year veteran of specialty retailing, has been president and ceo of Gap brand since June 2018.
“Gap Inc. has major challenges at both the corporate and brand level,” said Craig Johnson, president of Customer Growth Partners. “It has not addressed the sea change that has occurred in fashion retail over the past decade, whether the rise in foreign entrants such as Zara and Aritzia, the rise of the off-pricers, or the burgeoning online players, from Amazon on down. Instead, it has dabbled with concepts that have never really gotten off the ground, from Forth & Towne a decade ago, to Intermix and Piperlime.
“Gap is a brand that has lost its way over the years, and nobody really knows what it stands for, while Banana is serving a shrinking customer base for its upmarket, preppy brands,” Johnson added. “Both brands need to further right-size so as to match demand with capacity. Old Navy needs to ramp up its store remodel program — whether the carve-out still occurs or is delayed.”
Interestingly, at the WWD CEO Summit last week, Peck alluded to the competition during his presentation. “If you feel that incessant nibbling at your ankles, it’s ankle biting by small competitors. They’re leading the way today, and if you’re a big company like us — a $16 billion global company — if you’re not moving, then the customer is leaving you behind.”
But he made only a passing reference to Old Navy, which intends to be a $10 billion business. “We’re splitting the company up. We’re letting Old Navy run on its own and allowing it to really fulfill its destiny,” he said. Old Navy’s negative performance in recent seasons is surprising considering its long track record of strong results as well as its family appeal and catchy advertising.
Fisher has had a 35-year history with Gap Inc., where he has served in a variety of senior executive positions, including interim president and ceo. He’s been on the board since 1990 and has been non-executive chairman since February 2015.
Martin has been on the board since 2002 including serving as the lead independent director from 2003 to 2015.
“As the board evaluates potential successors, our focus will be on strong leadership candidates with operational excellence to drive greater efficiency, speed and profitability,” said Fisher. “In the meantime, we will continue to focus on leveraging the power of our brands and the talented teams that lead them to improve execution and better position the portfolio for growth.”