Gap Inc. chairman and chief executive officer Glenn Murphy has triggered a sweeping shake-up of the struggling Gap brand.

This story first appeared in the February 2, 2011 issue of WWD. Subscribe Today.

Marka Hansen is out as president of Gap North America and will be succeeded by Art Peck, president of Gap Inc.’s outlet division and executive vice president of corporate strategy. Pam Wallack, president of Gap Adult North America, will become executive vice president of a new Gap Global Creative Center in New York, WWD has learned, which reflects its urgent need to attract more creative talent.

Last October, the Gap brand started shifting its design and product development teams from its offices at Sixth Avenue and 18th Street to 55 Thomas Street in TriBeCa, which will be the site of the Global Creative Center. The center will also house marketing, fashion public relations, fabric research and development, and technology services, and serve the Gap brand globally.

Also, Ogilvy & Mather Worldwide has become the new advertising agency for the Gap brand, and Seth Farbman, currently worldwide managing director at Ogilvy & Mather, has been named the retailer’s new global chief marketing officer, succeeding Ivy Ross. Farbman will also be based in New York, reporting to Wallack. He founded OgilvyEarth, a sustainability marketing practice, and developed campaigns for Coca-Cola, UPS, Unilever and Time Warner Cable.

“I expect more from our Gap business in North America,” Murphy said candidly. “The changes we’re making are intended to propel the brand to deliver the product and brand experiences our customers demand worldwide.”

Murphy characterized New York as “the global epicenter for creativity for the Gap brand, which is exactly what we need to compete effectively here at home and internationally. This move will allow us to build upon the momentum demonstrated by our successful store openings in China and Italy.”

Gap North America is the weakest division of the $14 billion Gap Inc., which also operates Old Navy, Banana Republic, Piperlime and Athleta. It’s been struggling for years with lackluster collections and a prolonged inability to gain traction and recapture customers in the U.S., though Hansen was credited by Murphy for putting “many foundational pieces in place — such as 1969 denim and our new store design — that should provide a springboard for the future.…After several conversations, Marka and I agreed this was the right time for a change in the organization in order to take the Gap brand to a new level. I am grateful for all that Marka has contributed to the company.”

Peck was promoted to head of the Gap brand based on his successful tenure running the outlets, which have been profitable, and for being the primary architect of Gap’s growing international strategy, particularly the franchising operation. “Art Peck is the ideal person to lead the next phase for Gap, and I expect him to make further enhancements to our North America business while encouraging the creative teams to think big,” said Murphy.

In 2010, Gap NA’s comparable-store sales were minus 1 percent. Last December, Gap’s comps were down a glaring 8 percent. On the other hand, Old Navy and Banana Republic reported low-single-digit gains in 2010 through December. Banana Republic was up 3 percent last year, while Old Navy rose 2 percent, although it declined 2 percent in December.

The company has also been challenged to attract the right talent, particularly in San Francisco where it’s headquartered, and like other fashion companies views New York as being richer in design talent. Gap already operates creative and design offices in New York. Wallack will move to New York from San Francisco to centralize creative resources around design, production, marketing and fashion public relations, Gap said. She’ll also work closely with the company’s divisional presidents in London, Tokyo, Shanghai and San Francisco. The global design team, led by Patrick Robinson in adult apparel and Jennifer Giangualano for kids and baby, will be a central part of the global creative center.

In another structural change, the outlet division is being merged into the Gap and Banana Republic brands. It’s hoped that some of the success of the outlets will rub off on Gap and Banana Republic. Gap also intends to save money, operate more efficiently and better reflect the needs of shoppers through the merger.

“The outlet team is known for working in a nimble and decisive manner, which has contributed to its impressive growth,” Murphy explained. “We’ll tap into the strongest leaders from both Gap and the outlet divisions to drive sustainable performance going forward.”

Hansen’s last day at Gap is Friday. She joined Gap Inc. as a Banana Republic merchant in 1987, rose to top merchandising roles at both Banana Republic and Gap, as well as in the international division when the company prepared to open units in Europe and Japan. She became president of Banana Republic in 2003, before becoming president of Gap North America in 2007.

The company stated that it is comfortable with the current First Call consensus for fiscal year 2010 earnings per share of $1.82 and will comment on its earnings outlook more specifically on Thursday when it reports January sales.

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