BRIDGING THE GAP

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A slump at The Gap, whose campaigns such as "Khakis swing" have been lauded as shining examples of TV advertising done by retailers, is causing the chain to re-evaluate its ad strategy, shifting to a stronger emphasis on in-store promotion.

Long accustomed to spectacular growth, The Gap this fall finds itself in a position where not only its clothing but its marketing style have been widely imitated. It also is facing, for the first time, a significant PR challenge with demonstrators decrying its labor policies and environmentalists protesting the logging of old-growth redwood trees by the founder's family.

Perhaps just as troubling, it has seen sales at stores open for more than a year dive from double-digit increases. Gap's stock price, at a high of 52 in July, dropped into the 30s as analysts have become concerned about core Gap stores losing sales to competitors and even to the company's own more fashionable Banana Republic and value-price Old Navy. And in the not-too distant future, Old Navy sales might surpass Gap stores sales.

`TOUGH BEING MIDDLE CHILD'

"They've got some issues," said Richard Baum, retail analyst with Credit Suisse First Boston. In a company stratified along good/better/best lines, "It's tough being the middle child."

And the effects are being felt in The Gap's marketing department. The latest defection is Lisa Prisco, an acclaimed creative director responsible for the khaki TV commercials and others.

A Gap spokesman said the parting was mutual. But some associates attributed her departure to "artistic differences," while others referred to it as a firing. Ms. Prisco didn't return phone calls.

Her exit is but the latest fallout after the resignation this fall of the Gap stores division president, Robert Fisher, son of founder Donald Fisher; at that time, the reins for the centerpiece of the brand were turned over to Gap merchandising guru and CEO Mickey Drexler.

Jim Nevins, who worked on The Gap's earlier "Individual of style" advertising, took over as VP-marketing in October 1998.

While Ms. Prisco was largely responsible for bringing The Gap back onto TV in 1996, the company said her departure is unrelated to a shift in media direction.

The spokesman said Gap will now spread the 4% of sales it devotes to marketing among a mix that adds in-store promotion and print and online advertising, as well as other joint online ventures, although "Strategically, we are not backing away from TV."

The Gap is an anchor tenant on America Online and maintains marketing alliances with Fashionmall.com and gift registry Della.com, as well as a partnership with eToys.

BIG PROMISES

The Gap has indicated to analysts it will spend $500 million on advertising in fiscal 1999, a figure that includes paid media and the extensive in-house ad operations for each of its three brands. In fiscal 1998, it spent $419 million.

For the first six months of 1999, Competitive Media Reporting put the Gap store division's spending at $60 million, with $36 million going to network TV and $10 million to magazines. For 1998, the Gap division spent $103 million on advertising -- $55 million on network TV and $20 million on magazines.

RETURN TO TV

Those figure were up significantly from 1996, the year Ms. Prisco nudged The Gap back onto TV after an absence of almost six years. Gap stores received only $25 million in advertising that year, none of it in TV and the great bulk of it in magazine and newspapers.

Her first campaign, backing jeans, featured rapper LL Cool J performing against a white background and doing his own version of the classic "Fall into the Gap" musical line. Later, she used the "frozen moment" camera technique for the "Khakis swing" campaign.

HOLIDAY COLOR

Most recently, The Gap has focused its holiday efforts on a campaign tagged "That's holiday," featuring colorful clothing such as brightly striped scarves and shirts. In previous such campaigns, The Gap offered viewers a musical greeting card of sorts with famous performers, such as Johnny Mathis.

The overall look Ms. Prisco gave to the ads has been widely imitated by competing clothing companies and retailers as well as by marketers of non-apparel products.

"The Gap has ceased to be unique," both in its advertising and its merchandise, said Kurt Barnard, president, Barnard's Retail Trend Report. "No question, it is coming to grips with the fact that it ain't any longer the only kid on the block. They really need to come up with something new."

Speculation in fashion circles is that The Gap might just do that. It is said to be considering offering home furnishings, a move previously experimented with at Banana Republic but subsequently scaled back. The Gap also is rolling out a new group of stores, called Gap Body, which feature personal care and intimate apparel.

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