Monday was a dark day at Gap Inc., when the $16 billion retailer pulled the trigger on massive store closings and layoffs.
On Tuesday, executives shed light on what’s being done to turn around the ailing Gap and Banana Republic brands, citing chief executive officer Art Peck’s rapid formation of new design and executive teams at the two divisions; greater collaboration within and between brands; a stronger focus on the 25- to 35-year-old female customer at Gap brand; “pulling out the promotional needle,” and prioritizing the tailored clothing, sweaters, pants and outerwear categories at Banana Republic.
The overarching objective, according to Peck, is to deliver “better and more consistent product, which has been the critical issue for us and our Achilles’ heel.”
Gap brand, Peck said, while speaking at the specialty retailer’s annual investors’ day in San Francisco, is in the middle of a turnaround, confronting problems – “some frankly self-inflicted” and others related to macro-conditions such as currency rates, and the West Coast port slowdown.
“The number-one callout at Gap is how the team has come together,” Peck said, putting a hopeful spin on a national chain that has been stalled for years. “Where we have gone wrong often as a company is that we put the burden of running the brand on the shoulder of an individual. You need that great designer, that great talent. But we need the team to be highly collaborative.”
He acknowledged that the store closings disclosed Monday — 175 specialty stores in North America over the next few years, including 140 this year, representing almost 25 percent of the fleet — means losing market share. “Some of that wallet is going to go to the competition, but it positions the remaining fleet to be in the right real estate and simplifies the job Jeff has to do,” said Peck, referring to Jeff Kirwan, global president for Gap brand.
With Gap Inc.’s other divisions, “We are sharing a lot of learnings as to how we design into value,” Stefan Larsson, global president of Old Navy, said.
The store reductions will bring the Gap fleet down to about 800 stores, including 500 Gap specialty locations and 300 Gap outlets. At the end of the fourth quarter there were 977 units in North America. However, it will maintain its presence in more than 50 countries with about 1,600 company-operated and franchise locations around the world.
Gap brand comparable-store sales were down 5 percent last year worldwide, while the Old Navy division comped up 5 percent and Banana Republic was flat.
More closings could occur beyond what was just announced. “I won’t say there is never any more. We are always focused on real estate,” and opening and closing the right locations, Peck said. He characterized the current wave of closings as “a big tranche, an overdue tranche.”
Another mistake — “We started down the global brand model and there was work to be done inside Gap that was never completed,” though Peck did say he was “really encouraged by continued growth in China.”
Peck called Banana Republic “a work in process right now.” He said he was bullish on the business, but “not happy with performance over the last couple of years — especially the women’s business.”
On price promoting, the ceo said that while value is critical across all Gap Inc. brands, “value isn’t 40 [percent] off every day. We have way too much 40-off every day.”
Asking, “How do you pull the promotional needle out?” Peck said it involves buying product more tightly so products are less available, forcing customers to buy more quickly and reducing the need for promotions.
He also mentioned a push for greater collaboration between brands, including taking sourcing lessons from Old Navy so other brands are quicker to jump on trends and reduce the product cycle time, and tapping into the currency of Intermix and its designer and contemporary offerings. “Intermix is never going to be the size of Old Navy, but it connects us to the heart of the fashion industry,” Peck said. He called Intermix “the ecosystem to the contemporary space.”
Kirwan said that during his first 180 days at Gap brand, “We have been real busy. When I first got into the role, it was really apparent we needed to very very quickly build a world-class team. …For me that was the number-one priority — to quickly move on talent…a lot of people put in place have worked for Gap before.” Last week at Gap brand, Steven Sare, formerly of Uniqlo, Express, PacSun and Banana Republic, was hired as senior vice president of global merchandising, and Alessandra Brunialti, formerly with Alice + Olivia, Vince, Calvin Klein and Banana Republic, was named vice president of women’s design. Sare is overseeing the brand’s merchandising and working closely with Gap’s executive vice president of product design and development, Wendi Goldman.
A sign of the Gap’s troubled times was when Rebekka Bay, executive vice president and creative director of Gap brand, left the company in January and her position was eliminated. At the same time, Gap Inc. veteran Scott Key was named senior vice president and general manager of customer experience at Gap to oversee a newly combined e-commerce and marketing organization, in an effort to make the brand more customer-centric.
Kirwan said that now the Gap team has a common understanding of the proper product aesthetic. For every single product in the Gap assortment, “If they don’t get through the filters they don’t show up in the stores.”
There’s “a lot of opportunity in increasing speed to market, to be more predictive and demand-driven. …We are really expanding our trend prediction process” so there’s a larger creative ecosystem to pull information.” Kirwan said the team “broke the product pipeline and rebuilt it. The foundations have been built. The power of [the new] pipeline will really show up in 2016.”
Regarding the store closings, “We put a lot of different thought processes into which stores are going to close,” he said, including examining each store’s financial results, productivity, physical plant and whether it just simply failed to properly represent Gap.
In cities around the world, “We set out about six months ago on a pretty aggressive plan to identify who our target customer is and learn what is important to them,” Kirwan said. “The 25-to-35 [year-old] female customer thinks she’s got her style pretty well down, she feels she pretty much knows how to shop, and that she wants to be taken more seriously. The 25-to-35 [year-old] adult customer, both male and female with a slightly above-average spend, a lot are interested in presenting themselves well. The customers in that age group we want to go after and acquire. They are evolving their own individual style, getting inspiration from everywhere, but want to express their own individual style. We need to be the trusted source to help them evolve their own individual style.”
Among Gap’s priorities, Kirwan cited:
• Introducing new items and getting them tested quickly.
• Offering premium product at accessible price points.
• Strategic investments into fabric for higher-quality, innovative styles.
Though the brand has been losing customers and market share, Peck said, “It’s hard to overstate the consumer affection that exists for this brand.”
At Banana, “Our current performance, particularly in women’s, has not reached our full potential,” said Andi Owen, global president, in her presentation to investors. She said the division lost sight of what women wanted, in particular, polished, feminine styles, and has lacked color, relying too much on black-and-whites.
To rectify the situation, Banana, said Owen, is “focusing on categories that matter to our customers — modern, tailored suitings, sweaters, pants and outerwear.”
She cited a “more collaborative design process moving forward,” with design, merchandising and production all involved from beginning to end.
Other changes going forward involve amplified digital marketing, broadcasting product attributes regarding detailing, versatility and styling design. So, for example, with a linen blazer, shoppers can learn more about reinforced stitching and construction and color. Or, to demonstrate the versatility of a garment, Banana in its communications will highlight three ways to wear a trenchcoat in the summer.
Owen also cited:
• “Taking the stock-keeping-unit count down as we adjust to a less promotional model.”
• Elevated photography on the Web site, which was upgraded to be faster.
• Merchandising local craftsmen for candles, jewelry and other products, for a fresh approach in the stores.
• Getting out of some knits for a stronger structured fashion approach.
Asked where Banana has been losing customers to, Owen said it’s “surprisingly” been Nordstrom and Macy’s, and less so, specialty chains.
Larssen, of Old Navy, which has been carrying the corporation with ongoing strong performances, told investors, “We see customers demanding on-trend and current products, want to be inspired than ever before, want a more convenient experience, want to do other things with their time other than trying to find the right product.”
The strategy at Old Navy, said Larsson, revolves around “becoming the first aspirational American brand in the value space.”
He cited five growth accelerators: online, by building out the product experience and value stories; growing active really fast; men’s wear, which has “big potential”; kids, which he described as “white space” in the value sector; and international growth.
“We have just started our international journey with fully owned stores in China and Japan and [are] about to start up in Mexico,” Larssen noted.
He also said Old Navy will start rolling out a new store design in spring 2016, with a different customer flow, functionality improvements and a more aspirational feel.