Gap Inc. Sticks to Strict Budget

CEO Murphy Says Other Goals Must Be Met Before Marketing Funds Flow

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NEW YORK ( -- Gap Inc. continues to take a hard line when it comes to marketing budgets.

During the retailer's second-quarter conference call, Glenn Murphy, chairman-CEO, reiterated that the company would not be spending to support its retail brands until other issues were addressed, including reversing store-traffic trends.

'No release of funds'
"We recognize the fact that the trajectory of our traffic in our business is unacceptable," he said. "As we work our way down [to] how we're actually going to get the traffic, all the brands have been told, until the product and the store conditions [improve], and until the appropriate marketing messages have been identified, then there will be no release of funds to drive marketing."

Marketing outlay for the company during the second quarter was $82 million, a $6 million decline from the comparable year-ago period. Gap Inc. saw profit rise 51% to $229 million in the second quarter from $152 million in the year-ago quarter. Sales dropped 5% to $3.5 billion from $3.7 billion.

During the third quarter of last year, ad spending was cut significantly, to $124 million. The company said that figure will likely be in line with third-quarter spending this year. Old Navy will be on TV for three weeks and have three circulars in the third quarter, as opposed to four weeks on TV and four circulars in last year's period. Third-quarter plans at Banana Republic are similar to last year.

At Gap, direct-mail plans are similar for the third quarter, but there will be more print advertising. The brand last week announced the "Create your own Gap" campaign, which features celebrities, albeit lesser-known "style makers" like DJ Leigh Lezark, editor Cecilia Dean and blogger Scott Schuman. Gap's creative agency, Laird & Partners, New York, worked on the campaign.

"We're cutting costs to make sure when the time is right we can afford [marketing]," Mr. Murphy said. "I think Gap is a brand that [is] pretty close. They're much closer in the way of the journey of product, store, what's the message. Then, if there's a return for that marketing, there's no question we'll spend it."

Focus on 'influencers'
Mr. Murphy also noted that the Gap brand's "Influencer Campaign," which has included several designer partnerships, as well as collaborations with artists, will be expanding. He said those programs would be executed in a "much more macro way" than they have been during the past six to nine months.

The company also announced yesterday that Tom Wyatt will become president of Old Navy. Mr. Wyatt had served in an interim role following the departure of Dawn Robertson in February. Mr. Wyatt has been charged with refocusing the chain, which briefly flirted with targeting fashion-savvy 20-somethings. Now, the target for the retailer is 25- to 35-year-old women who are budget-conscious and shopping for their families and themselves.

Mr. Murphy noted that improvements in Old Navy's merchandising mix had become apparent this month, as the retailer moved away from the fast-fashion product that had proved unsuccessful. In October, customers will see the influence of creative director Todd Oldham for the first time. Mr. Oldham joined the retailer in October of last year.

A marketing shift will accompany Old Navy's revamped direction, although Mr. Murphy was not specific about what it would entail. "It will be more appropriate, to not only that demographic but to the brand personality that Old Navy has, which is one of its strongest attributes," he said. "We've kind of abandoned that a little bit over the last number of years, but it's going to return."
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