Gap Inc. Says Marketing Has Been Ineffective

CEO Calls Out Old Navy in Particular, as Brand Says It Will Fine-tune Current Crispin Campaign

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Gap Inc. reported a lackluster second quarter, and marketing, it seems, is at least in part to blame.

Chairman-CEO Glenn Murphy told analysts that the retail company's ad offering in the first half was "ineffective," and it will be one of two key priorities for the second half. The other priority is improving women's products.

"We've had some ineffective marketing in the first half," Mr. Murphy said. "Not that it was bad; it was just less effective than we wanted it to be."

Old Navy Records
Old Navy Records

Old Navy took the brunt of Mr. Murphy's complaints, as he told analysts he was disappointed that more customers weren't getting in the door to see the improved product. Mr. Murphy said that when there's a traffic issue, he always looks at product first, because it's easy to blame store execution or marketing. But, in this case, he said he felt good about the product Old Navy has been stocking for the last three months.

"Old Navy, we had some story lines, but the marketing did not pull, did not drive traffic as much as we wanted," Mr. Murphy said. "So, I'm disappointed in the brand. I'm disappointed in the leadership that we've been unable to get enough people and the customers we target to come in and see what [Nancy Green, Old Navy's chief creative officer] has actually put into the store."

Old Navy introduced a new campaign, "Old Navy Records: Original hits. Original styles," in February. The campaign, led by Senior VP-Marketing Amy Curtis-McIntyre, who joined the company last year, replaced the "Supermodelquins." CP&B is Old Navy's creative agency.

But executives appear to be unhappy with that campaign, which incidentally, also prompted a lawsuit. Last month Kim Kardashian filed suit against the retail brand because an actress in the campaign's "Super C-U-T-E" commercial bears too much of a likeness to her.

A Gap Inc. spokeswoman said Old Navy Records has been evolving since its launch. And an ad slated to break this weekend will build on the work that has been done to date. "We have been acknowledging recently that traffic is still a challenge, and we've been working to adjust the balance since March to drive more loyalty, through promoting the surprising quality in the product, the right blend on price and to hit on the fun and fashion elements of Old Navy," the spokeswoman said.

Mr. Murphy highlighted the importance of finding a balance between brand marketing and a strong value message. And he said the campaign initially focused too much on Mom and not enough on her family. "When we do marketing that registers about her family, she tends to respond quite well," he said. "The message, while people thought it was good and they remembered it, it wasn't anywhere near the call to action needed to get somebody to get into the car and make a trip to Old Navy."

The creative launching this weekend will serve as a "stop gap" while the retailer fine-tunes the Old Navy Records concept. "But if we can't fix what we have, we'll have a brand new [campaign]," Mr. Murphy said.

Gap Inc. reported it spent $114 million on marketing during the second quarter, up $13 million compared to a year ago. Execs expect third-quarter spending, which includes the back-to-school season, will also be up, driven in part by Old Navy. Earnings for the second quarter fell 19% to $189 million, while sales at stores open at least a year fell 3% at Gap, 2% at Banana Republic and were flat at Old Navy.

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