The Gap Inc. saga is certainly one of the most compelling questions and stories in specialty retailing in the last few years. Questions have abounded over the past 6 years as to whether the company became too big for its own good; whether they overexpanded and thus overexposed its brands; whether the leadership was effective enough; whether they fell out of fashion; whether they lost ‘it’ (aka “cachet” or a certain “je ne sais quoi” they had in spades during “khaki swing” and Old Navy’s launch); whether any fashion retailer can last that long etc.
It was never a question of financial strength or lack of resources (specifically cash). But perhaps it was a lack of common sense and foresight. I would love to hear about whether you shop any of their brands including Gap, Gapkids, babygap, Gapbody, Old Navy or Banana Republic. One disclaimer I will inform you is that I worked there in the late nineties and early 2000’s – but hasn’t everyone worked there at one time or another?
Here are a few theories and observations…
1) It did get too big too fast starting when it was about $5 billion in 1996. When they talked about ramping the business to $20-40 million (not a word of a lie) and spend $1 billion on advertising to ensure the brands were top of mind and rival the spending of a Coca-Cola, I thought it sounded a bit strange. We did all drink the Kool Aid, but no one asked if the organization (including the leadership) possessed the skill sets to manage this growth and lead a $15 billion plus apparel retailer. HR was not a major influence at the strategy sessions and the work force was simply overwhelmed and overmatched.
2) Because of that growth sprint, managing o company of that eventual size was not Mickey Drexler’s forte. He is brilliant, don’t get me wrong and the proof that his forte is a smaller brand with huge potential where he can be hands on in the merchandising and imaging of the brand is never clearer than today at J. Crew. What he has done with that company and that brand is nothing short of phenomenal. He did the exact same thing at Gap when it was J. Crew’s size back in the late eighties and early nineties. But at Gap Inc., it quickly became too unwieldy and did not play to his strengths and hence his departure in 2002, which was the right thing for both parties.
3) I never understood why the individual brands were allowed to compete so fiercely with each other. The race for real estate and fashion trends and key items was intense and quite frankly, obscene. Old Navy was totally bent on eating Gap’s lunch and Gap was panicked as to what to do about their assortments and their store formats. Gap built much larger footprints to give it more of a department store feel with all 4 sub-brands in one box of 20,000 square feet (which was, not coincidentally, the average size of the Old Navy standard box). Each brand took the same type of real estate space and went after the same malls and in some cases opened right next door to each other. It also forced Gap to try and go after a more upscale customer, which then started infringing on the Banana Republic business. Gap was truly “Malcolm in the Middle” and like a middle child, started kicking and screaming and making poor decisions, including, at one point, ridding itself of all its tried and true basic commodities on which the brand was built (like denim, khaki, pocket t-shirts etc.). Gap swung the pendulum toward a trendy and fashion forward look that the company dropped 25% comp overnight. Gap then scrambled to get back in stock but it took close to 12 months for the pipeline (which was constantly replenishing the basics in an orderly, just-in-time way) to refill since it was completely emptied out.
4) Old Navy stayed too boring and basic. With the influx of European players such as H & M and Zara, Old Navy did not react fast enough to the changing tide of fast fashion and fresh looks. Even Steve and Barry’s came up with a fresh approach by synergistically using celebrity endorsements to attract a new customer and create excitement and hype (I call it “news” as it were) with Stephon Marbury (for the teen athletes), Amanda Bynes (for the teen girls), Bubba Watson (for college age and older males) and Sarah Jessica Parker (for the college and young women set). Ironically, Sarah Jessica Parker was featured prominently in two global Gap ad campaigns not 2 years prior to her signing a deal at Steve and Barry’s.
5) I also believe that Gap could have taken a road less traveled at the time, grounded itself in denim of all sorts, regained its authority over the category and morphed into more of what Lucky Brand looks like today. Between Buckle and Lucky Brand, they have stolen the mid-priced, fashion and basic denim market away from Gap in the malls across the United States and soon elsewhere.
6) Through it all, babygap and Banana Republic have remained strong and sharp. Their brands are solid and the merchants in those brands have separated themselves from the competition and stayed true to their strengths. They constantly differentiate themselves very well from their sister brands, something the other namesake brands of Gap and Old Navy failed to do at the outset and throughout the turmoil.
Having said all the above, I still believe in the brands and in Gap Inc. I know a number of people who are working hard every day to regain each of the brand’s prominence in the marketplace and in share of customer’s mind. They have a new CEO, a brilliant merchant as president of Gap and a very grounded, committed and humble founding family still holding around 30% of the shares outstanding. The Fisher family are among the nicest people you will ever meet.
So I am rooting for them and so should you be as they helped define specialty retailing over the years. What doesn’t kill you only makes you stronger and I believe Gap Inc. will be stronger for this extended period of transition and education.