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Old Navy Makeover Replaces ‘Dungeons’ With 1980s Nostalgia to Boost Sales

Tom Wyatt, president of Gap Inc.’s Old Navy chain, says the best part of shopping at his stores comes when it’s time to leave.

As part of a remodeling of the shops, Old Navy revamped its “cash wrap” -- the area where customers wait to pay for clothes. It used to be a plain-old checkout lane. Now Old Navy has added freeze-dried astronaut ice cream and specialty sodas from Jones Soda Co., as well as super-hero lunch boxes, glitter- covered piggy banks and Mad Libs books.

They’re meant to stir nostalgia for the chain’s target customers, who grew up in the 1980s. Even buttoned-down bankers are susceptible, Wyatt said. During an Old Navy tour with analysts, one bought four packets of the astronaut ice cream, he said. “He hadn’t seen them in years.”

Customers shopping at the updated stores typically spend $1 to $2 more a trip than they did before, Wyatt said. Those results spurred Gap to greenlight an expansion from two test stores in 2008 to almost a third of its more than 1,020 locations by the end of this month. About 100 locations will get the revamped look this year at Old Navy, which is Gap Inc. (GPS)’s biggest source of revenue in North America.

Wyatt, 56, has led a comeback at Old Navy since he took charge in 2008. At the time, the brand was reeling from five years of declining same-store sales and its locations hadn’t been modernized since the apparel chain debuted in 1994. Worse: Wyatt realized that no one seemed to know who Old Navy was designing its clothes for, he said.

‘Holy Heck Moment’

“I had a holy heck moment,” he said while strolling through racks of clothing at an Old Navy store in San Mateo, California. “So we spent a lot of time re-engaging who our current customer is.”

The result was “Jenny,” Old Navy’s typical customer: a fictional 25- to 35-year-old mother who earns $50,000 and is pressed for time. Deciding on one personality helped the company focus its clothing styles, marketing campaigns and store designs.

The change has helped increase same-store sales every year since Wyatt took over, even during the worst recession since the Great Depression. Old Navy sales, which overtook those of Gap- branded stores in 2005, ticked up 2 percent in the fiscal year ended Jan. 29. That compared with a 1 percent drop for Gap’s North American stores.

“We have 45,000 associates that literally talk about Jenny,” Wyatt said. “What that did for us was normalized what the interpretation of what the product should be.”

Commodity Prices

Old Navy still faces challenges, including soaring costs of cotton and other materials. In May, San Francisco-based Gap Inc. cut its full-year profit forecast by 22 percent as costs to make clothes rose faster than expected. The stock suffered its biggest one-day drop in almost 10 years.

Old Navy also has had some marketing misfires under Wyatt. After years of advertising with talking mannequins, the company switched back to people this year. That campaign has taken time to resonate shoppers, contributing to a 2 percent sales decline in the first quarter, Wyatt said.

“It wasn’t really that fun,” he said.

Old Navy also faces mounting competition from Hennes & Mauritz AB and other low-cost, fashion-oriented rivals, as well as Wal-Mart Stores Inc. and Target Corp. (TGT) H&M plans to add more than 150 stores in the second half, and the U.S. is one of the biggest growth markets for the Stockholm-based company.

Early Days

That’s the sort of expansion Old Navy experienced in its early days. The chain, named after a bar in Paris, reached $1 billion in sales in 1997. It was the first retailer to hit that milestone within less than four years of operation, according to the company.

The new cash-wrap area is a small part of helping reinvigorate growth, though it’s spurring sales of products besides clothes, Wyatt said. The old setup was a “miserable way to end your shopping experience at Old Navy,” he said. “Mad Libs is a significant business for us, and didn’t exist a year ago.”

The total layout of the store is now what the company calls a “race track.” It lets shoppers wind their way around one level and see from one end to the other.

Before, tall displays near entrances blocked views of merchandise farther down. New light bulbs and spotlights are brighter than the previous lamps. And they’re more efficient, saving $2 million a year in energy costs. The company also has added more expensive clothing, along with its lower-end apparel, giving shoppers more options, Wyatt said.

The changing rooms -- typically located at the back of the store in a walled-off room and referred to by some customers as “the dungeon,” according to Wyatt -- were moved to a lounge- like area in the middle of the store. The company also installed quick-change booths in various spots.

“It helps bring some of the excitement back to the store,” said Edward Yruma, a retail analyst for KeyBanc Capital Markets in New York. “The old concept was north of 14 years old and was looking very tired.”

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Photographer: David Paul Morris/Bloomberg

Old Navy President Tom Wyatt.

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Photographer: David Paul Morris/Bloomberg

Old Navy President Tom Wyatt. Close

Old Navy President Tom Wyatt.

Photographer: David Paul Morris/Bloomberg

Clothes are displayed at an Old Navy store in San Mateo, California. Close

Clothes are displayed at an Old Navy store in San Mateo, California.

Photographer: David Paul Morris/Bloomberg

A woman prepares to pay for merchandise at an Old Navy store in San Mateo, California. Close

A woman prepares to pay for merchandise at an Old Navy store in San Mateo, California.

Photographer: David Paul Morris/Bloomberg

Shoppers look at clothes at an Old Navy store in San Mateo, California. Close

Shoppers look at clothes at an Old Navy store in San Mateo, California.

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