Gap Fills In the Retailing Holes

San Francisco–based Gap Inc., which had a challenging year in 2002, is recovering by realizing it can’t be all things to all people.

That was the message Gary Muto, president of Gap brands, gave to investors at the Goldman Sachs Global Retailing Conference in New York on Sept. 5.

Muto, who came on board last year, noted that his team has stabilized business and increased same-store sales, which had slipped for two solid years until October 2002.

“Our priority was to get the product right and have a cleaner, more balanced assortment with key iconic items that customers expect from the Gap,” Muto said. “We reduced back-end expenses and invested in advertising customer service and product quality.”

Meanwhile, Gap has identified two core customer segments it will concentrate on: the style-conscious customer and the updated classic customer.

“More than age, gender, income or lifestyle, customers in these segments share a fashion and style sensibility,” Muto said.

Style-conscious customers want to look and feel confident. They enjoy shopping and like to appear fashionable but not overly trendy. They are looking for more variety, color and quality and are willing to pay more for the clothes they love, Muto said.

The updated classic customer likes fashion that has a more traditional style and a more useful sensibility. Fashion is less of a priority, but quality and fit are important. These customers shop for versatility in their wardrobe, buying clothes for multiple occasions. They want a simple, easy shopping environment.

“Our product strategies will focus on both segments,” Muto said. “But our marketing will speak more to the style-conscious customers. hellip; To ensure that our product assortments are more targeted to our customer segments, we have developed clearly defined product guidelines for our designers and merchants.”

So far, four product lines have been developed for women’s merchandise: basics, essentials, style and trends. Basics include the perfect black pants and the perfect white blouse. Essentials are the fundamental items a woman needs in her wardrobe. Style includes items that a woman uses to project herself to the outside world. Trends include the must-have items of the season, such as cropped corduroy pants.

Muto said that during the first half of 2003, color continued to be the key driver in women’s merchandise.

“For Spring, our pink matte was a huge success,” he noted. “For Summer, our tunics further enhanced our efforts to bring more femininity and fashion back into our assortments.

We are focused on pants as the wardrobe essential.hellip; We are very pleased with the performance of our pant business, which we believe has further restored the credibility for [our women’s merchandise].”

For men, Gap is trying to rebuild its image as a destination place for casual clothes for all occasions. “For example, we relaunched woven shirts and khakis for Spring with upgraded quality and construction detail,” Muto said.

For the first time, Gap had separate advertising campaigns for men and women.

In October 2002, Gap posted its first positive monthly same-store sales results in two years. “To counter negative traffic trends, in Fall 2002 we kicked off a program to turn casual customers into Gap customers,” Muto said. “We trained sales associates to be more effective in serving customers, particularly in the fitting-room area. We are now going beyond customer service, increasing a stronger selling environment focused on regular-price selling and putting together complete outfits for customers instead of key items.”

In fiscal 2002, Gap lost $7.8 million. In fiscal 2003, the company had a profit of $477 million. —Deborah Belgum