What Gap Needs to Do Now

With the CEO out, the chain is hunting a new chief and a new direction. Here's what various experts advise

January was a brutal month for executives at embattled retail giant Gap (GPS). The New Year brought confirmation that it hadn't been a merry holiday season at all (see BusinessWeek.com, 1/5/07, "Sales Gap at the Gap"): In December, same-store sales fell 8% compared with December, 2005, while net sales for the month were $2.34 billion, down 4% on the previous year.

Then came rumors that Gap might sell off all or part of itself (see BusinessWeek.com, 1/8/07, "Gap on the Block"). And finally, the icing on the January cake, the announcement that Chief Executive Paul Pressler was stepping down (see BusinessWeek.com, 1/23/07, "CEO Wanted: Gap's Search for a Savior").

So now the company is seeking a new chief executive officer (CEO), a position that won't be easy to fill. In the meantime, Robert Fisher, the son of Gap's founder and the company's non-executive board chairman, will serve as president and CEO. While the company searches for a new leader, we searched out experts in retail, trends, and branding to get their recommendations on fixing Gap, in particular its core Gap brand.

Personality Disorder

Gene Pressman, former CEO of upscale retailer Barneyís and co-author of the forthcoming book, Chasing Cool: Standing Out in Today's Cluttered Marketplace, thinks going private could be just the thing. "What they really need is a true merchant who can come in and redirect through his vision and his taste what the merchandise and marketing should be," he says. "But if they went private, then, without scrutiny, they could fix themselves with their own, new leadership. This is not about restructuring. The past CEO did more than a yeoman's job in that area: There's almost no debt and a tremendous amount of cash on hand."

Addressing Gap's merchandise problem will be a top priority for the new CEO. The shelves have displayed everything from classic casual to trendy to professional too many times in the past years, causing consumers to wonder what the brand even stands for. The offerings of other Gap Inc. brands, Banana Republic, Old Navy, and Forth & Towne, have essentially cannibalized Gap's core offering, leaving it with little room to maneuver.

"They've flip-flopped from basics to fashion-forward assortments and back again numerous times over the years," says Robyn Waters, president of RW Trend and former vice-president for trend, design, and product development at Target (TGT). "They need to find a way to offer true classics and current fashion trends. I think there's an opportunity to design a new 'basic deluxe' American wardrobe that would allow customers to define their own sense of style while keeping up with the trends."

Restoring Credibility

"There's always going to be a demand for what Gap supplies," says Andrew Essex, CEO of New York City-based advertising and communications agency Droga5.

"But my goodness, there's got to be a more compelling position than commodified ubiquity and middle-of-the-road competence! Gap needs to remember that consumers define themselves by their brand affiliations. Does anyone consider Gap an ally at the moment? I think they should focus more on what the brand stands for and less on individual items. A pair of black pants just doesn't resonate without some context in which to appreciate them. That said, Gap still has massive reach. If they had an equally massive idea, they could really influence the culture and restore that rapidly dwindling cred. Remember, the pendulum swings both ways."

In addition to the merchandise, the new CEO must focus particularly on the namesake Gap brand.

In the 90s, Gap's marketing was held up as an example for other brands to behold. Cool and understated, the brand defined hip, with great TV ads directed by directors du jour such as Spike Jonze, complete with catchy soundtracks from on-the-rise bands such as French duo Daft Punk. Hipster Hollywood types infused the brand with a sense of down-home cool until, well, the wheel turned, Gap didn't evolve, and suddenly it just didn't feel quite so hip any more.

Missing the Point

"They became a tired cliché," says Jeffrey Sonnenfeld, senior associate dean for executive programs, Lester Crown Professor in the Practice of Management at Yale School of Management, and author of Firing Back: How Great Leaders Rebound After Career Disasters. "One challenge now is to shake the aura of disappointment. They look like they're cowed and scared where they used to be the reigning fashion mogul. Where once they were a force of change, now they're listless."

Even the company's recent "Fall into the Gap" campaign missed the mark. "They hired great choreographers, but the people in the ad are just moving mannequins. They've created a story about the clothes, when they should have made it about the people wearing the clothes," says Ron Pompei, principal of multidisciplinary design and branding firm Pompei AD. "Communities are not built around products alone. They are built around relationships, experiences, values. That requires a different approach to branding."

Some of Gap's recent branding problems stem from the fact that it seems out of touch with the new generation of consumers. Ten years ago a teenager might have worn one brand head to toe. The younger generation of consumers expresses itself through how they put things together. They don't want a fashion authority—they want options.

"It's still true that young people want to be a part of a group," points out Kerry Feuerman, executive creative director of Minneapolis-based ad agency Fallon. "But these days you need to make them feel like they're an individual within the group. The technology exists for them to do that."

Falling Behind

Finally, the new CEO will have to focus on the retail experience. There are nearly 1,250 Gap stores within the domestic U.S. (as well as nearly 500 Banana Republic stores and nearly 1,000 Old Navys). With an additional 282 stores overseas, that's a lot of real estate. It's both a powerful retail network—and a millstone round the brand's neck. "We believe that a retailer needs to remodel its store base every five to seven years," says Dana Telsey, chief executive and chief research officer, Telsey Advisory Group. "They haven't been doing that, and certainly an updated and refreshed store look would be helpful."

Not only has the Gap lagged the retail industry's five- to seven-year remodel cycle, it has fallen behind the larger trends towards experience design. "People no longer benchmark one shopping experiences against another shopping experience," says Brian Collins, chief creative officer at the Brand Innovation Group, Ogilvy & Mather Worldwide. "They now benchmark it against going to see a good movie or playing an afternoon game of soccer with their friends. So a total Gap store experience in itself must be as engaging, if not more so, as any other experience people can choose. Gap must become irresistible again—and to do that the store platform itself must be transformed."

For its part, on Feb. 1, Gap announced the beginnings of a new approach, with the appointment of Marka Hansen, a veteran Gap employee (and former president of Banana Republic) as president, Gap North America. It's a sign that perhaps the brand itself realizes the importance of merchandise.

At the end of the day most experts seem to agree that the product is what matters. "I don't talk about marketing, not that it isn't important. But quite frankly, and excuse my language, but without the merchandise, it's like putting whipped cream on s---," concludes Gene Pressman.

"What's the point of having a really cool story to tell if you don't have anything to sell? Marketing might get people through the doors, but they'll walk out the door when there's nothing to buy." With the appointment of Hansen and a new fiscal year, the company can take a deep breath and try again.

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