Sept. 21 (Bloomberg) -- Patricia: One day in November 1982, Don Fisher came to our San Francisco store on Polk Street. Tall, balding, in his late 50s, he shook Mel’s hand and mine. With him was Maury Gregg, his chief financial officer at The Gap, and Sam Gerson, his president.
After a few words, they strolled in different directions around the store. Don looked closely at the clothing, seemed to read every word on the hangtags, studied the customer fan mail that papered the dressing-room walls.
He held up a ridiculous-looking pair of blue-and-white cotton ticking Official Royal Navy swim trunks that fastened with ties on one side.
“Do people actually wear these?” he asked Randi Hoffman, our store manager.
“I haven’t actually seen anyone brave enough to come out of the dressing room in them, but they are selling,” she replied with confidence, adding, “They are only as ludicrous as the Falklands War for which they were issued. A piece of history for six dollars.”
Mel: We went down the block to a restaurant called Henry Africa’s. Maury started by pumping us with questions. How often did we turn our merchandise?
“We haven’t calculated it,” I said, “but it seems like every month or six weeks.”
“What are your gross margins?” he asked.
That one I knew. “More than 80 percent.”
“Oh, come on, you’re lying,” Maury said, attempting to be good-natured. “That can’t be.”
“How do you plan your markdowns?”
“Markdowns?” Patricia took this one. “We don’t mark anything down. If it doesn’t sell, we mark it up.”
Don smiled. I had read about him: A bit of a scrappy start himself, although considerably better funded (old money San Francisco). He and his wife, Doris, had opened The Gap’s original store in 1969 on Ocean Avenue with the idea of selling blue jeans and records. The name came from “generation gap,” and his inspiration had been his own difficulty finding jeans to fit his tall and lanky frame.
By the time we met Don 13 years later, The Gap had grown to 500 stores across the country.
He spoke softly. He was eager to share the story of how he had licensed Ralph Lauren’s western-wear line a few years earlier. “Unfortunately, we blew it,” he said, “because we got the sizing all wrong.” It seemed odd that he was telling us about the failed partnership. He did so in great detail, in an avuncular style that made conversation with him easy.
Then came his questions, lobbed like court shots. What were our backgrounds? Had we ever been in retail before? How had we financed the company so far? More questions about the catalog, the merchandise, the mailing lists, our sources, the concept, the customers.
“Khaki is the denim of the ’80s,” I blurted at one point, not unaware that it was a tasty sound bite a denim-of-the-’60s man could chew on.
“Your store is so creative,” Don said, more animated now. “Do you think you’ll be able to keep coming up with new ideas?”
“Ideas are not our problem,” I said.
“What is your problem?”
Patricia told him we needed to manufacture our own line; we could no longer meet the demand with surplus alone; we needed a broader line of products to fill out our safari image.
I could almost hear the information settle inside him. Click. Clunk. To what use would he put the facts, tidbits, disclosures and ruminations he was vacuuming out of us?
Then, abruptly, he asked, “How much do you want for the business?”
You’d think we would have at least thought about this beforehand. We hadn’t, probably because we didn’t believe he would be interested in buying us. A New York Stock Exchange company buying a renegade company named Banana Republic?
It does pay to go to business school, or at least to get all the professional help you can find, if you ever consider making a business deal with a man like Don Fisher. He made an offer. Not surprisingly, it was for more money than we even dreamed of, probably because we weren’t dreaming of money.
The story here requires a brief digression: Patricia and I are children of the 1960s. The social upheaval came in our high-school and college years, and shattered any plans our parents had for us of living conventional lives. In our minds, our futures became all about freedom, the freedom to disengage from the safe and suffocating middle-class consumer-driven existence. We were determined to live our own way, and we saw self-sufficiency as key.
We never saw ourselves in business -- and that includes even when we were in business. We were an artist and a writer on an adventure in the wilds of business, and that was it.
And now the guy from The Gap wanted to buy us.
Perhaps our dream of handing Don Fisher the keys and running off to Ibiza fogged our judgment. If we had somehow landed on the doorstep of financial independence, wasn’t it mission accomplished, and time to go off to write and paint?
The negotiations dragged on for four months, leaving us exhausted, and the company ignored and nearly paralyzed. And then ...
Don called to say he decided he could not buy the company unless the two of us stayed on to run it.
“It depends on your ideas and your creativity,” he said. “I’ll buy it, but only if you two stay with it.”
“We aren’t looking for jobs,” I said.
“That’s not the way to think about it,” he said. “I’ll give you as much money as you need to grow the business, as long as it’s profitable. You’ll get a percentage of the profits. You can do whatever you want.”
“But you will own the company,” I interjected.
“You’ll be operating autonomously. You’ll have total creative control.”
“Total creative control.”
We were left with two stark choices: Start the whole process over again with another investor, assuming we could find one, or sell to Don, sign his five-year contract, and take the money in dribbles as an “earn-out.”
Oddly, I found myself thinking of how I could remove my name from the burglar-alarm company so somebody at The Gap could be the one to meet the 24-hour plate-glass service at the store at three in the morning.
“Don’t worry,” Patricia said. “We’ll have fun. We’ll have the money to make the company what we dreamed it could be; and we can see the world.”
By a vote of one yes and one maybe, The Gap acquired Banana Republic Inc. on Feb. 1, 1983.
(Mel Ziegler and Patricia Ziegler are the founders of Banana Republic and the Republic of Tea. This is the third in a series of three excerpts from their new book, “Wild Company: The Untold Story of Banana Republic,” which will be published Oct. 2 by Simon & Schuster. The opinions expressed are their own. Read Part 1 and Part 2.)
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