Monday, August 07, 2006

The Tragedy of Gap Stores: A Lesson In Poor Leadership


Above is the five year price chart of Gap Stores. Obviously not a good time for The Gap, Banana Republic and Old Navy. This bull market from 2002 till today was a consumer driven recovery while the technology sector took a break from its massive blowoff of the late 1990s. Yet, The Gap has languished with very poor same store comps, slow revenue growth and poor profitability. In my estimation, this is due solely to ineffective leadership. For the first time in its history, The Gap is under leadership of someone other than the founder.

That being said, could someone please tell me how it is possible to screw up anything more closely tied to Americana than the Gap brand? The Gap was once an unassailable powerhouse of marketing, fashionable merchandising, quality and superior customer service. Loyal customers kept coming back year after year as the Gap became synonymous with retailing success. The specialty retailing lineup of losers never seemed to be able to crack The Gap code. The Gap and its Banana Republic & Old Navy brands are now under water. A company which cannot seem to fight its way out of a paper bag. The brand equity has diminished greatly as loyal customers left in droves for more innovative specialty merchants which provided customers with what they wanted while The Gap kept missing the mark.

Is it a coincidence that the founder stepped aside and a former Disney executive and now CEO of The Gap (since 2002) has been left to run pell mell in his effort to destroy a piece of Americana? Well, under Donald Fisher $1,000 invested in The Gap at their IPO would have returned $214,000. That is after a devastating bubble market correction in 2000 which wiped away alot of Gap shareholder value. The new CEO? Well, my information is not completely up to date but not too long ago he had $50+ million in stock options. He received this for destroying shareholder value, destroying brand equity, losing loyal customers and likely forcing strong merchandising talent out the door. Hey Gap board, where the hell is the CEO improvement plan? At that level of pay, you perform or you are out. Isn't four years of losing customers enough? So, when the board doesn't do its job and police the CEO, who polices the board? It should be the shareholders but they seem unable to build a consensus either.

So, what went wrong? Technology? Supply Chain? Product cycle times? Costs out of control? What? All of these things are important if you are a bank like Wal-mart which basically feeds off of its float. Obviously all of this is important but. That's a big but. For specialty retailers it's all about merchandise. You've got to know your customer, what they want and merchandise your store with the right mix and environment of goods. They do not have merchandise the customer wants. Frankly, I wonder if The Gap even knows who its customer is anymore. What does The Gap need to do? It's actually quite simple.

1) They need new leadership. If you can't make it work after four years, you don't have the right stuff.
2) Recognize the failures are your own and take responsibility. ie, Our strategy is failing our loyal customers.
3) Refocus on your core strengths and core brand values which made you the envy of specialty retailing
3) Listen to your customers and then give the customers what they want
4) Develop a plan of action
5) Execute, execute, execute
posted by TimingLogic at 1:09 PM