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What the hell happened to the Gap?

Fisher planned to call the store Pants and Discs, but his wife Doris came up with the winning name: “The Gap,” short for generation gap.

The Gap capitalized on the rise of denim as a go-to look for a generation of young Americans, then expanded into khakis, t-shirts, tops, hoodies and other basics. The brand has won over everyone from moms to office workers to celebrities like Sharon Stone, who wore a black Valentino skirt and $26 Gap faux turtleneck to the 1996 Oscars.
At the time, it was a symbol of cool, laid-back style. “As ubiquitous as McDonald’s, as centralized as the former Soviet Union, and as American as Mickey Mouse, The Gap Inc. has you covered, from cradle to grave,” The New York Times said in 1992.

But sales for the flagship Gap brand have plummeted for years and it’s become an afterthought for many American shoppers. The company’s other brands, including Old Navy and Banana Republic, also struggled.

On Monday, the company announced that CEO Sonia Syngal would step down after less than three years. She will be replaced by an interim CEO while the company searches for a permanent leader.

Here’s what the next CEO will fall into Difference (GPS).

Overexpansion and competition

The Gap benefited from the expansion of suburban malls in the 1980s and 1990s, becoming one of the largest mall stores in the United States. Its fortunes are therefore largely linked to that of shopping malls – good news in the 90s, but terrible news now. Malls quickly lost customers to online shopping and big box stores.

Gap said in 2020 that it would close 30% of its Gap and Banana Republic stores in North America by 2024 – mostly in malls.

In the decades since the heyday of the malls, Gap has lost touch with the baby boomers who grew up with the brand and failed to appeal to the Gen Z and millennials who are at home. origin of fashion trends today, according to analysts.

At the same time, brands and retailers such as Levi (LEVI), Target (TGT) and fast-fashion sellers H&M and Zara lured denim shoppers from Gap. Direct-to-consumer online brands have also reduced Gap’s audience.

“When they were great, there just wasn’t the ecosystem for smaller, niche players,” said Ken Pilot, former Gap chairman and longtime company executive. “Gap was competing with department stores and killing them.”

Gap has also cannibalized its own brand with similar styles at Old Navy and Banana Republic, he added: “It was smart the way they built their portfolio, but even these created their own form of competition to the Gap brand.”

Gap has tried several strategies to revitalize its flagship brand, including partnering with Kanye West for a Yeezy-branded clothing line. But the partnership did not significantly increase sales.

Its initiatives “have been piecemeal rather than part of a larger, cohesive revitalization plan,” GlobalData Retail analyst Neil Saunders said in a note to clients on Monday.

Moreover, the flagship brand is less and less important for the company. Old Navy and Athleta are its future: Together they will account for about 70% of Gap’s total sales by 2023, according to the company.

Leadership faux pas

Whoever becomes Gap’s new leader will not be the first of its CEOs to face challenges.

Mickey Drexler, known as the “Merchant Prince”, was the person who made Gap a powerhouse in the 1990s. First president of the Gap division and then CEO of the company from 1995, Drexler has pushed Gap to expand beyond jeans into khakis and oversaw the creation of budget chain Old Navy in 1994.

But it was also during Drexler’s tenure that Gap lost its connection with its key customers. He suffered 24 consecutive quarters of declining same-store sales towards the end of his reign, and he resigned in 2002.
The company then brought in several CEOs, including former disney (SAY) executive Paul Pressler, pharmacy executive Glenn Murphy and Gap veteran Art Peck. Sonia Syngal succeeded Peck in 2020.

“Gap’s failure is entirely due to its lack of leadership,” said Mark Cohen, director of retail studies at Columbia University’s business school. “They had a brilliant period of growth and popularity, which they squandered.”

More recently, Gap attempted to spin off from Old Navy, which is now the company’s largest brand. But it reversed course in 2020 after sales plummeted.
Since then, Old Navy has continued to struggle, including with a failed attempt to revamp sizing to make it more inclusive. The move was initially welcomed, but the brand ended up offering too many extra-small and extra-large items and not enough of its most popular medium sizes. In May, Old Navy announced that it would revisit this strategy.

Old Navy’s “challenges are taking much longer than expected to resolve,” B. Riley Financial analyst Susan Anderson said in a note to clients on Tuesday. “A fresh look across the whole business could be good for the brand.”

Hazel J. Edmonds

The author Hazel J. Edmonds