What the hell happened to Gap?

New York
CNN Business

In 1969, real estate investor Don Fisher opened a store in San Francisco geared toward teens and college kids, offering blue Levi’s jeans along with records and tapes.

Fisher planned to call the store Pants and Discs, but his wife Doris came up with the winning name: “The Gap,” short for generation gap.

The Gap capitalized on the rise of denim as the favorite look of a generation of young Americans and later expanded into khakis, t-shirts, tank tops, hoodies and other staples. The brand won over everyone from moms to office workers to celebrities like Sharon Stone, who wore a black Valentino skirt and a $26 Gap turtleneck to the Academy Awards in 1996.

At that time it was a symbol of cool and informal style. “As ubiquitous as McDonald’s, as centrally managed as the former Soviet Union, and as American as Mickey Mouse, Gap Inc. has you covered, from cradle to grave,” said the New York Times in 1992.

But sales of the flagship Gap brand have been plummeting for years and it has become an afterthought for many American shoppers. The company’s other brands, including Old Navy and Banana Republic, have also struggled.

On Monday, the company announced that CEO Sonia Syngal would step down after less than three years. She will be replaced by an interim CEO while the company searches for a permanent leader.

This is what the next CEO in Gap (GPS) will fall into.

The Gap took advantage of the expansion of suburban shopping malls in the 1980s and 1990s, becoming one of the largest mall stores in the United States. Thus, their fortunes have been largely tied to those of the malls: great news in the ’90s, but terrible news now. Malls have been rapidly losing customers to online shopping and big box stores.

Gap said in 2020 that it would close 30% of its Gap and Banana Republic stores in North America by 2024, mostly in malls.

Over the decades since the heyday of the mall stores, Gap fell out of touch with the Baby Boomers who grew up with the brand and failed to attract the Gen Z and Millennials who drive the trends of the brand. fashion today, analysts say.

At the same time, brands and retailers such as Levi’s, Target (TGT) and fast-fashion sellers H&M and Zara attracted denim shoppers from Gap. Online direct-to-consumer brands have also undermined Gap’s audience.

“When they were great, the ecosystem of smaller niche players just didn’t exist,” said Ken Pilot, former Gap president and longtime executive at the company. “Gap was competing against department stores and killing them.”

Gap has also cannibalized its own brand with similar styles at Old Navy and Banana Republic, adding: “It was clever the way they built their portfolio, but even those created their own form of competition for the Gap brand.”

Gap has tried several strategies to reinvigorate its flagship brand, including a partnership with Kanye West for a Yeezy-branded clothing line. But the partnership hasn’t significantly boosted sales.

Its initiatives “have been piecemeal rather than part of a large, coherent revitalization plan,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients on Monday.

In addition, the flagship brand is less and less significant for the company. Old Navy and Athleta are its future: Combined, they will account for about 70% of Gap’s total sales by 2023, the company says.

Whoever becomes the new leader of Gap will not be the first of its CEOs to face challenges.

Mickey Drexler, known as the “merchant prince,” was the person who built Gap into a powerhouse during the 1990s. First as president of the Gap division and then as CEO of the company beginning in 1995, Drexler propelled Gap to expand beyond jeans to khakis and oversaw the creation of the budget chain Old Navy in 1994.

But it was also during Drexler’s tenure that Gap lost touch with its major customers. He suffered 24 consecutive quarters of same-store sales declines toward the end of his reign, and resigned in 2002.

The company then rotated among several CEOs, including former Disney (DIS) executive Paul Pressler, drugstore executive Glenn Murphy, and Gap veteran Art Peck. Sonia Syngal replaced Peck in 2020.

“Gap’s failure is due to its lack of leadership,” said Mark Cohen, director of retail studies at Columbia University’s business school. “They had a brilliant period of growth and popularity, which they squandered.”

More recently, Gap tried to spin off Old Navy, now the company’s biggest brand. But it changed course in 2020 after sales fell.

Since then, Old Navy has continued to struggle, even with a failed attempt to resize to make it more inclusive. The move initially won praise, but the brand ended up selling too many extra-small and extra-large items and not enough of its most popular medium sizes. In May, Old Navy said it would rebrand this strategy.

Old Navy’s “challenges are taking much longer than expected to resolve,” Susan Anderson, an analyst at B. Riley Financial, said in a note to clients on Tuesday. “A new set of eyes across the company could be good for the brand.”

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