Analysis: Gap Inc. faces big challenges at corporate, brand level

Gap Inc. has major challenges at both the corporate and brand level. The company has not addressed the vast changes that have occurred in fashion retail since Mickey Drexler exited in 2002 — whether it be the entry of foreign retailers such as Zara and Aritzia, the growth of the off-pricers or burgeoning online players that range from Amazon Fashion to the Real Real.  Instead, it has dabbled with concepts that have never fully gotten off the ground, starting with Forth & Towne a decade ago and moving on to Intermix and Piperlime. It now needs to digest Janie & Jack (without cannibalizing Gap Kids).

Athleta is the only healthy brand and that’s because it is the only one of the company’s formats fully in tune with today's athleisure lifestyle. The Gap, Banana Republic and Old Navy brands are all either badly dated and/or irrelevant to today's lifestyles, whether it be the concept itself or the stores.  Gap is a brand that has lost its way over the past decade, and nobody really knows what it stands for any more, while Banana Republic is serving a declining customer base for its upmarket, structured styles. Both brands must shrink more to match capacity with the falling demand.

Old Navy is only slightly healthier. It must accelerate its store remodel program, whether the spin-off still occurs or not. With rising competition from both Target and Walmart’s new own-brands, Old Navy — if it feels old — risks becoming irrelevant to its core young mom-and-kids customer. Curiously, Gap’s release [on the departure of Peck] was silent on the status or timing of the Old Navy carve-out. It did not address whether Sonia Syngal is staying as Navy's CEO, or if she is a candidate for the post-Fisher CEO slot.

This will not be Bob Fisher's first turn as interim CEO, with his first dating back to his role during the Paul Pressler change-out. His first challenge is to decide what to do on the Old Navy spin-off, which may well come under review, while optimizing an oversized corporate structure.  Once the carve-out is re-affirmed — or not — he and Bobby Martin Gap has major challenges at both the corporate and brand level. For Gap Inc. it has not addressed the vast changes that have occurred in fashion retail since Mickey Drexler exited in 2002, whether the entry of foreign retailers such as Zara and Aritzia, the growth of the off-pricers, or the burgeoning online players, from Amazon Fashion to the Real Real. Instead, it has dabbled with concepts that have never fully gotten off the ground, from Forth & Towne a decade ago, to Intermix and Piperlime — and now needs to digest Janie & Jack (without cannibalizing Gap Kids).

Athleta is the only healthy brand, because it is the only one of GPS's formats fully in tune with today's athleisure lifestyle.  But brand Gap, Banana and Old Navy are all either badly dated, irrelevant to today's lifestyles--or both, whether the concept and the stores themselves.  Gap is a brand that has lost its way over the past decade, and nobody really knows what it stands for any more, while Banana is serving a declining customer base for its upmarket, structured styles; both brands must still shrink to match capacity with the falling demand. Old Navy is only slightly healthier, and still must accelerate its store remodel program — whether the carve-out still occurs or not. With rising competition from both TGT and WMT with their new own-brands, if Navy stays old, it will risk becoming irrelevant to its core young mom-and-kids customer.  Curiously, the GPS release was virtually silent on the status or timing of the Navy carve-out, nor did it address whether Sonia Syngal is staying as Navy's CEO, or if she is a candidate for the post-Fisher CEO slot.

This will not be Bob Fisher's first turn as interim CEO, dating back to his role during the Paul Pressler change-out, but his first challenge is to decide what to do on the Old Navy spin-off, which may well come under review, while optimizing an oversized corporate structure. Once the carve-out is re-affirmed — or not — he and Bobby Martin [newly appointed lead independent director] can turn to finding the full-time successor. 

The good news is that the Gap, Banana and Navy brands all enjoy residual positive brand equity. The trick, for each of the three aging brands, is to evolve the brand's core value proposition to make it relevant to a new generation of customers, but without alienating too many of the older brand loyalists.

Craig Johnson is president of retail research firm Customer Growth Partners.

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