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Gap CEO was made by fashion missteps and fading brands

No longer the khaki king of the 1990s, Gap Inc. has needed a review for a very long time – and Art Peck is not the one to deliver it after all.

Gap dismissed his CEO late on Thursday after his turnaround efforts failed to reignite the sales increase. The clothing company, which includes the name Gap brand, Athleta, Banana Republic and Old Navy, took back a member of the founding family to lead while figuring out a long-term plan.

The stock fell 7.6% on Friday. By Thursday's end, before Gap announced Peck's radiance and disappointing performance for the third quarter, it had dropped about 30% for the year so far.

Peck's dismissal comes after years of fighting in the company. Although the retailer made several public mistakes in recent years ̵

1; such as making blazers with armpits too small for an average woman and jumping on the lamentable "normcore" bandwagon – many of its problem areas are not even unique in today's difficult retail environment: relying on routine 50% discounts and maintaining a large presence in declining US malls.

"It was probably the most delayed management change we have seen in a while," said Stacey Widlitz, president of SW Retail Advisors. "There comes a point … when you can't sit and do the same thing over and over."

After a short transition, Peck will leave the President and CEO and leave his position on the dealer's board. Robert Fisher, the company's current chairman and son of Gap founders Don and Doris, will take over as CEO and CEO on a temporary basis.

Decline in sales

Peck is entitled to severance pay based on his dismissal without cause, the company said in an application. He will receive $ 2.33 million in severance pay and a payment of share awards worth several million dollars, applications show. He will also be entitled to health benefits and financial advice for 18 months.

Years of worstles

Gap, founded in 1969 in San Francisco, rose to prominence as a denim emporium selling jeans from Levi Strauss & Co., another Bay Area institution. It helped pioneer the vertical integration of retail and began producing their own branded products. By the 1990s, it had been transformed into a fashion rack when it jumped on the khaki pants trend and built robust secondary brands in Banana Republic and Old Navy.

But fighters began brewing in the middle of the next decade, from reducing mall traffic to operational issues. One of the most famous mistakes came in 2010 when the company unveiled a new Gap logo. Some buyers complained, so it pulled down the new logo just a week later.

To try to turn things around, it turned to new CEO Glenn Murphy in 2007, who came from a pharmacy chain. He closed a number of American stores, expanded abroad and invested in the supply chain. But the recession hit shortly after and prevented momentum by turning a generation of shoppers into discounts. Low-priced fashion chains like Zara and Forever 21 caught the attention of millennials and pushed Gap further in favor. After a decade at the company in various roles, Peck replaced Murphy in early 2015 as part of a succession plan.

Peck, a former consultant, tried to shake up leadership and experiment. But sales continued to decline and business declined, with the company deciding to start Old Navy, its best profit and engine for the company's sales in recent years. The company did not even attach an official name to its new company when it announced the separation in February, but referred to it as NewCo.

Old Navy, which had anchored the parent company for several years, was given to Shepherd Sonia Syngal. Peck was left saddled with Banana Republic, stuck in a fall in sales and the aging name of the Gap brand. He tried to place the Athleta chain – a Lululemon competitor – as the bright spot in the portfolio he would run, but it has not been enough to turn things around.

The company must find a way to sell more goods at full price and figure out a way to capture a new, younger consumer base, said Dana Telsey, CEO of Telsey Advisory Group, at Bloomberg Television.

"If you don't have the right product, you can't sell goods at full price," Telsey said. "There's work to be done with the core product."

Old Navy spinoff

Gap said on Friday that goes ahead with the planned spinoff from the Old Navy after Peck's shooting got investors to take a critical look at the proposed deal.

"The board continues to believe in the strategic basis for the planned separation," Gap said in a statement via email It said that all "additional perspectives" would be provided in its income statement on November 21.

The company, and Peck in particular, had created the move as a way to unlock value for investors, but now that Old Navy, which once was the undisputed shining star of the clothing giant, declining with the rest of the company, analysts wonder if it's still worth it.

"You have to think this will be a hard sell" to investors, Davi said d Swartz, analyst for Morningstar Investment Service. "Maybe Old Navy has reached the top? If it clearly went better than Gap and Banana [Republic]it makes much more sense. ”

Old Navy sees potential in China. Years ago, management suggested operating the brand abroad, but these efforts fell.

High season

“Gap is a company that clearly needed a change. Peck did not touch the needle except move it back, "says Craig Johnson, president of the retail research firm Customer Growth Partners. "It is still a company with a big brand, but its remaining brand needs to be updated."

Although sales have been poor, the market did not see his departure coming – at least not so close to the crucial holiday trading season. Peck was well established as Gap's face. In September, he and Old Navy Chief Syngal hosted an event for analysts about the planned spinoff and their vision for the future of the companies. Peck spoke at length about how Gap had to expand its appeal, including with larger sizes and more diversity.

Although the holidays were a make-or-break time in retail, Peck's departure may actually be a good turning point for the company, said SW Retail Advisors & # 39; Widlitz, adding that goods and products have already been decided for this season.

"It leaves the door open" No matter how bad December is, let's think about the future, "she said.

Townsend and Holman write for Bloomberg.

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