Yes, We Have A New Banana

The casual outfitter is moving smartly from khakis to high fashion

For Marka Hansen, last year's holiday season was an early test of her mettle as a fashion prophet. The 51-year-old president of Banana Republic, appointed last June, had bet that blue would be the top-selling color in stretch merino wool sweaters. She was wrong. "The No. 1 seller was moss green," says Hansen. "We didn't have enough."

Hansen is about to face many more such risky decisions as she transforms the 435-store Banana Republic, a unit of San Francisco's Gap Inc. (GPS ), into a more fashion-conscious retailer. Not long ago, Banana was a purveyor of chic basics -- casual office wear in black or beige. But take a look around the mall-based chain these days, and you'll find $128 strapless dresses with pink and green flowers and $68 black tops with tiers of ruffles on the bodice. For men, Banana offers shirts made of Italian fabrics with details like collar stays. Banana hopes the offerings will help distinguish it from sister store Gap, known for khakis and other basics.

So far, Hansen seems to be getting more right than wrong. Last year, Banana accounted for about 13% of Gap Inc.'s $15.9 billion in sales. For the quarter ended May 1, Banana's same-store sales jumped 21%, compared with just 7% for Gap overall. Analysts applaud how Banana is renewing itself. "It's a good strategy," says Cynthia R. Cohen of Miami consultants Strategic Mindshare. "It could attract new customers and get old customers to come in more often."

Still, why go to the trouble of reinventing a store that wasn't really broken? Doing well isn't enough for Banana. It needs to prosper without cannibalizing sisters Gap and Old Navy. Gap Inc. headed into a three-year downturn in late 1999, at least partly because overlap between the two other chains led Gap shoppers to head for lower-priced Old Navy. Gap stores got back on track starting last year by returning to basics such as cropped pants, jeans, and khakis. That, of course, created a new problem. Gap no longer looked like Old Navy. Now it looked like Banana Republic. The solution: Shift Banana away from staples and toward trends. Sticking with basics "wouldn't be good for us or Gap Inc.," says Banana marketing chief Jack Calhoun, who joined the company a year ago.

Banana successfully made itself over once before -- in the late 1980s, when it shed its safari-style merchandise in favor of clothes for the dressed-down workplace, a strategy that sustained it through the dot-com era. The current transformation is harder because Banana is far larger than it was 15 years ago, and its image as a store for staples is more ingrained. When Banana surveyed consumers before embarking on its current makeover, shoppers "didn't think of us for fashion," says Hansen, a 17-year company veteran who started out as a Banana merchandise manager and later headed Gap brand's adult merchandising. "We weren't seen as the place for color and new feminine styles."

CUT THE VOGUEING. Indeed, Banana is joining a segment of the apparel business that's already crowded with brands ranging from Polo Ralph Lauren (RL ) and Calvin Klein to AnnTaylor (ANN ) and Ellen Tracy. As the newcomer, it is trying to build a name in fashion and design circles, hiring new talent, including a men's designer from Nautica Enterprises Inc. Banana has moved its shows out of the showroom and recently presented its fall line at New York's Chelsea Art Museum. And it's trying to get its clothes seen in fashion magazines. It has had some success: Vogue and Elle have photographed Banana's clothes, and last fall, George Clooney appeared in Vanity Fair sporting Banana's blue-linen shirt.

Still, Banana wants to make sure ordinary folks see its moderately priced clothes as accessible. Ads show models in comfortable settings such as lounging at home or meeting for drinks. "They're not vogueing and posing," says Calhoun. "We're creating a genuine moment so you can see yourself in these clothes."

Customers have noticed the changes. "They have a much better selection now, not just for work but for going out, too," says nursing student Michelle McKenney, eyeing a $68 top with a ruffle at the shoulder at a store in San Mateo, Calif. But even if Banana hits the mark with McKenney, its new lines are sure to scare off longtime customers. Cheryl Swanson, a New York branding consultant says Banana "has gotten so frou-frou, it's cheesy."

In the past, Banana didn't have to worry much about making the wrong fashion call since it sold mostly basics. "Now, we have to be on trend at the same time as the rest of the fashion business," says Hansen. That leaves little room for error. If Hansen and her crew make too many wrong fashion calls, profits could disappear faster than last year's moss-green sweaters.

By Louise Lee in San Francisco

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