Donald and Doris Fisher opened a little shop in San Francisco in 1969 with $63,000. The first year's sales were about $2 million, mostly in Levi's jeans and LP records. BY 2014, some 45 years later, Gap Inc., including its namesake Gap brand, Banana Republic, Old Navy, Athleta, Intermix, and the now-closed Piperlime, reached almost $16.5 billion in sales, with about 3,700 stores worldwide.
Stop here, and it sounds like a colossal success story. However, as we are all well aware, and as the numbers so vividly show, Gap Inc. rose like a rocket in its growth phase, but is now on the edge of a slippery slope down, further greased by the Great Recession and a lingering global economic mess. And its leadership trajectory looks a slow, Sears-like descent to the bottom.
What went wrong?
Under the watch of then CEO, Millard "Mickey" Drexler, the brand was driven into ubiquity in the late '90s and first two years of the Millennium. With a Gap on every corner, cool turned to cold and its descent began. Ironically, Drexler would leave the helm of the brand that he guided through two decades of meteoric growth from $480 million in revenues upon his arrival in 1983 as president, to almost $14 billion in 2000, an amazing 2,400 percent increase when he left. Indeed, his success earned him the moniker of the "prince of all merchant princes." Unable to right the ship when it started to sink, Drexler retired in 2002. Comp store sales had dropped 5 percent in 2000, their first decline since 1989, and then a whopping 13 percent in 2001, with the overall Gap brand down 12 percent.
Somewhere in the blur of skyrocketing growth, opening 731 new stores in 2000 and hitting sales of $13.6 billion, Mickey Drexler and his Gap brands lost their cool. The rapid growth and store openings made the brand ubiquitous, and today ubiquity is antiquity--the anti-cool to the Gap's core consumers, the young. As a result, Gap began to lose their customers in droves.
Enter Paul Pressler From the "Magic Kingdom"
Paul Pressler came in as the new turnaround CEO in the fall of 2002. An alumnus of the Disney store chain, his strengths were supposedly in the areas of operations and supply chain. Pressler was essentially a numbers guy who knew little of the nuances of fashion. Were his operational skills what Gap needed? It took Gap's board and owners five long years to answer that question, precious years that could have been used working toward a turnaround.
Instead, by 2005 the brand was led into its descent by inexperience at best, and what would turn out to be a total lack of merchandising skills at worst. As Gap's business fell into a more accelerated decline, and the brand's relevance, positioning, image, consumer base and business continued to unravel, Wall Street bestowed Pressler the nickname of "dead man walking."
Between June 2004 and December 2006 (eight months before Pressler would be replaced), comparative store sales declined in every month but three. Pressler stepped down in 2007. It shouldn't surprise anyone that Gap Inc.'s publicly stated qualifications for its next CEO at the time read: "...with deep retailing and merchandising experience, ideally in apparel, and who understands the creative process."
The search firm that served up the next CEO apparently did not read those qualifications, however--or else Gap's board and owners decided to override them with their own qualifications. Because what came next was, if possible, even worse.
From the Magic Kingdom to Canadian Drug Stores
In July 2007, Gap announced that Glenn Murphy, previously CEO of Shoppers Drug Mart in Canada, was to be the new CEO of Gap Inc. I scratched my head then. And of course, seven years hence, while the Gap brand may have yet another new CEO--Art Peck--it is still without a compass.
The proverbial Gap brand star was indeed falling when Murphy came on board. By 2010, sales at Gap Inc. were about $14.6 billion, merely a smidgeon higher than their 2000 level. The Gap brand had lost 30 percent of revenues, or $1.5 billion, since 2004.
Unfortunately, it took Murphy another four years to learn that the organizational changes made prior to his arrival--essentially replacing the key staffers of Paul Pressler-- did not, in fact, accomplish the necessary support of placing high-quality management in those areas of the business where he had less experience.
In 2011, Murphy fired Marka Hanson, then President of the Gap brand, and replaced her with Art Peck. Peck had been president of Gap's outlet Stores, and before that, had spent 20 years at the Boston Consulting Group. This is the man who replaced Murphy as CEO in the fall of 2014.
As an aside, but a really, really big one, back in 2011 Art Peck wrote a blog as Gap's new president, saying that if anyone Googled him, "...you won't find much." He went on to say, "That's right. I'm not a merchant."
Again, am I missing something? The new president of the Gap is not a merchant? And now this guy is its new CEO?
Designer Déjà Vu
Amazingly, even after a decade of -1 percent (yes, that's a minus), topline growth and less than 10 percent bottom line growth, Mr. Murphy (and his predecessors) never figured out that the Gap brand's real problem was not just product. It was the brand name itself and all that it stood for, both real and perceived by its consumers. And those consumers that left the brand at the turn of the century did, in fact, leave the brand altogether, and product alone will not bring them back.
Mr. Murphy apparently thought that another high-profile designer would save the brand, and he hired Rebekka Bay as creative director in 2012. Ms. Bay was the highly respected designer of H&M's minimalist brand, Cos. At least Murphy selected someone with experience in the fast fashion business, which had been stealing many of Gap's targeted millennial consumers.
But too little, too late.
Catch a Falling Star
Glenn Murphy exits. Art Peck takes over. It matters not who the players are because there has been a revolving door full of them for the past 15 years, all declaring how they would return Gap to its once dominant position as the cool apparel brand for America's youth. All of them failed to do so, and there is no reason to believe Art Peck will have any better luck. Actually, even luck would not be enough to reverse the ultimate fate of this storied brand.
The point I want to make is that once a hot, cool brand turns cold and boring in a world of an excessive over-abundance of equally compelling brands, it's finished. And nailing the Gap coffin were the up-and-coming Millennials, who were then, and still are, redefining cool. Gap is not in their lexicon. No matter how much capital and time is invested in attempting to return the brand to its cool status and an energetic growth trajectory, at best it will simply limp along, lucky to eke out a living. I predict it will eventually die, not unlike this last dying decade for Sears. Like the once iconic and enormous Sears brand, Gap will continue its descent with a whimper and sink slowly. Or in a worse case, it may finalize the collapse that started at the turn of the century with a quick and loud bang, as the Gap brand crashes and burns.
About the Author
Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women's Wear Daily (WWD), and Goldman Sachs, among others, and has consulted for dozens of retail, consumer products and other companies. In addition to his role as CEO and Editorial Director of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.