California Apparel News

The Gap Inc. is ready to take over the world, if only it could get over its identity crisis.

The largest specialty retailer in the world has plans to make major expansions in Europe and Asia, but it can’t seem to find any solid footing for the merchandise that populates the Gap brand of stores.

In recent years, Gap seemed to be on a high after spending a fortune to tout its then-new designer, Patrick Robinson, hired four years ago to add some spice to the clothes carried at the 1,430 Gap stores internationally. Within months, billboards blasted news of Robinson’s first creation: the 1969 blue jean, which was stylish but reasonably priced at around $69. Then came the little black pant, agrave; la Audrey Hepburn style.

But in early May, Gap abruptly cut Robinson loose and sent out word it was looking for a new designer to nudge the San Francisco retailer and its Gap merchandise in the right direction, whatever that may be.

“Gap has lost its way,” said Jeff Van Sinderen, a retail analyst for financial-services company B. Riley & Co. “They have tried different strategies that have confused the customers.” Van Sinderen does not officially track the retailer, but for anyone studying American fashion, Gap’s influence looms large. It was the first retailer to turn basics such as T-shirts and jeans into a massive vertical retail business, paving the way for other companies as diverse as American Apparel, James Perse and Aeropostale.

Marshal Cohen, chief retail industry analyst at The NPD Group, said that in this era, consumers have changed dramatically, which makes it difficult to be a multiple-store chain and be nimble. “They have to find ways to be nimble. They have to be more patient, more relevant and more connected,” he said. “The challenge is that they have to find the right balance between the core business and the innovation side of the equation. Finding the base product as well as the forward product will give them the leg up on the competition. They also can’t change their formula; they must stick to it.”

He noted there have been a thousand good ideas that have sifted through the company’s creative staff—maybe not at the right time and with the right people—but perhaps it’s time to revisit those ideas. “Don’t be so quick to abandon everything,” he said. “Sometimes, every couple of years, you need to cleanse and go to the bottom of what works and what doesn’t. You need to rebalance the formula.”

Mercedes Gonzalez, president of the New York–based Global Purchasing Companies buying office, thought the company could start paving the road back to mall dominance by taking inspiration from the many retailers it influenced.“Gap needs the speed-to-market of Zara, the fashion forwardness of Forever 21 and maybe the fabric innovation of Uniqlo,” she said.

“There is nothing wrong with Gap,” said Kelsi Smith, president of Two Point Oh! LA, a community of 125 fashion bloggers. “They have really great clothes. But they are missing an opportunity. Gap could keep doing jeans, T-shirts and chinos. But if they had five key fashion pieces every season, they’d get people in the door. That’s all Gap needs—to get people in the door.”

But something has to be done. Even though the company has seen improvement in same-store sales lately, revenue is down over the past few years. Adrienne Tennant of Janney Capital Markets wrote in a February research note that doubts about the company’s performance would fade if “we were to see evidence of a product turnaround and more consistency at the Gap division, as well as consistent comp performances across all brands.”

The company—whose other stores include Old Navy, Banana Republic, Athleta and online store Piperlime—is looking overseas to fuel its next revenue jump. This is new territory that was foreign to the corporation before 2006.

Gap Inc.’s expansion plans include its Old Navy division, which is scheduled to debut in Japan in 2012. The company also aims to open more Gap stores in Europe and Canada as well as expand its Banana Republic nameplate in Europe. Currently, it maintains 3,246 company and franchise stores worldwide.Retail evolutionWhen Gap started in 1969, it was a place to buy Levi’s.Soon the company became a vertical retailer and made its own jeans, which proved to be a hit. By manufacturing T-shirts, sweaters and outerwear, it became California’s and the United States’ dominant retailer for basic fashion. It reached its height of style influence in 1996 when Sharon Stone wore a Gap turtleneck shirt to the Academy Awards ceremony. But in the past decade, Gap’s influence has declined and the company has struggled to regain its dominant position.

For the past few years, the company reported declining or mediocre sales. In 2006, the company’s revenues totaled nearly $16 billion, but by 2010 that had declined to nearly $14.7 billion. Sales have grown consistently at its Old Navy stores, with their moderately priced goods, and have been better this year at the Banana Republic stores, which carry more-fashionable and expensive fare.

There was a bright spot in April. Same-store sales for all Gap Inc. stores increased 8 percent, and the company had $1.7 billion in cash and cash equivalents, according to financial documents filed March 28. But the company warned its profits for its first quarter of 2011 would be lower than expectations. The muddle of the recent past and an uncertain fashion direction have left some Wall Street analysts frustrated with Gap Inc.

One of the biggest challenges for Gap stores is that malls are filled with other retailers that are selling basics. “If someone has a significant price advantage in selling basics, they will steal market share,” retail analyst Van Sinderen said. “It has happened for a long time, and it will continue to happen.”

Gap attempted to differentiate the brand with different forays into fashion. One month before Robinson joined the company in May 2007, Gap introduced a capsule collection of white shirts designed by then-up-and-coming fashion labels such as Rodarte and Thakoon. However, the Gap brand cannot experiment too much with its look or it risks outraging its legions of loyal customers, said Howard Forman, an assistant professor of marketing at California State University, Fullerton.

That was seen last October, when Gap announced it would replace the blue logo it had used since the 1990s with a more up-to-date logo. Shortly after the logo’s debut, Gap’s Facebook page, as well as various blogs, was mobbed with demands to drop the new logo and revive the old one. Gap management relented and brought back the old logo. Inciting mass customer rebellion is never good for business, Forman said.

Staying with a proven product of basic fashions has continued to support a giant operation that employs 134,000 people across the world. “They’ve carved out a brand image that they are doing okay with,” Forman said.

Gap’s angle on the basic American look has a lot of potential in the international market. According to a Gap statement, the 2010 debut of a store in Milan, its first Italian location, was the company’s best store opening of the year. The retailer’s management became convinced that overseas expansion would serve as its best potential for growth.

In March, a glitzy Gap-brand shop debuted in Tokyo’s influential Ginza shopping district. Later this year, Gap stores are planned to open in Paris and Rome. By 2013, overseas and ecommerce sales will make up 30 percent of the corporation’s revenues, according to Gap Inc. Chief Executive Glenn Murphy.