Old Navy makes TV push to drive slumping sales

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Old Navy's sales are sinking, and Gap Inc.'s discount unit is counting on a TV campaign featuring a sitcom co-star to help right the ship.

Old Navy is turning to Megan Mullally, who plays wacky assistant Karen Walker in NBC's "Will & Grace," in four holiday spots breaking this week. In each, Ms. Mullally dances with a group of men in an abstract set reminiscent of an Old Navy store. The tune is "Jingle Bells" in which the title line has been replaced with the words "item of the week." Wayne Newton sings the tune, joined by a chorus that croons "priced so low you can't say no."

Or so Old Navy hopes. Old Navy's soaring sales, which had been keeping the $13 billion Gap Inc. afloat in the eyes of Wall Street, has taken some serious shots across the bow from rivals such as Target Stores and Wal-Mart Stores. Last week, Gap Inc. reported third-quarter sales at Old Navy stores open at least a year registered a percentage drop in the "negative high-teens" vs. a "low double digits" gain a year ago.

Heidi Kunz, Gap Inc.'s exec VP-chief financial officer, told analysts that traffic at Old Navy is "not where we need it to be," adding, "We look forward to having Old Navy back on TV" with a significant presence.

Aside from a fall back-to-school push, Old Navy had a modest spring TV effort.

SWEATERS TO FLEECE

Each spot in the new effort emphasizes the featured "item of the week," a staple of Old Navy marketing. Items featured start with sweaters priced at $12 to $22 and rotate to other products, including the chain's so-called performance fleece wear, popularized in ads featuring Old Navy's dog, Magic, and former fashion editor Carrie Donovan.

"`We just decided to try something fresh and new and to surprise our customer," said Dennis Leggett, VP-creative director at Old Navy. "The goal is to entertain and inform," he said. Like the popular Gap khakis "Swing" spot from 1998, Matthew Rolston directed Old Navy's latest commercials.

Other aspects of the campaign include direct mail to 19 million households, radio, newspaper ads in major markets and outdoor in Chicago, Los Angeles, New York, San Francisco and Seattle.

An Old Navy promotion that begins around Thanksgiving will give customers a $10 gift card for a $50 purchase. Magazine ads in CosmoGirl, People and Teen People also will feature a gift card giveaway of up to $100 per winner.

The campaign was created in-house; budget was undisclosed.

The spots, which break on the Nov. 16 episode of "Will & Grace" as well as a celebrity version of ABC's "Who Wants to Be a Millionaire," will run for six weeks through the holiday period. In the "Will & Grace" episode, another Gap Inc. division gets a plug when a character gets a job as a sales associate at Banana Republic, showing off new fashion lines, Ms. Kunz said.

CANNIBALIZATION PROBLEM

The campaign comes at a challenging time. Gap Inc. last week reported profit dropped 41% to $186 million in the third fiscal quarter that ended Oct. 28. Net sales grew 12% to $3.4 billion, reflecting store openings. But sales at stores open more than a year were down at all divisions -- with Old Navy showing the biggest decline. Gap stock closed Nov. 10 at $23.69, down from its 52-week high of $53.75.

Gap is facing another problem: anticipated cannibalization between Old Navy and sibling shops has begun to materialize. A report this fall by Salomon Smith Barney indicated prices for Old Navy's children's line, for example, are getting closer to GapKids' as Old Navy's prices trend upward.

Still, Gap Inc., known for its ability to change its fortune from rags to riches, is relying on President-CEO Millard "Mickey" Drexler to make the necessary adjustments. Mr. Drexler has begun searches for new heads of marketing for Gap's core stores (The Gap, GapKids, babyGap and GapBody) to replace Exec VP-Marketing Jim Nevins, who left in September, and for Old Navy to replace Senior VP-Marketing Richard Crisman, who left for medical reasons.

At the same time, Mr. Drexler has placed advertising for the important core Gap stores' holiday season in the hands of Banana Republic Marketing Director Amy Schoening. She has hired Boston shop Modernista! on a project basis to help The Gap's in-house agency produced a holiday campaign of six spots -- four targeting adults and two aimed at kids. Those also break this week on NBC's "West Wing," Fox's "The Street" and the WB's "Dawson Creek" and "Felicity."

Ms. Kunz said going forward Gap Inc. will put 3% to 4% of sales into advertising. That would be about $465 million. Some analysts said Gap should boost spending to 4.5% of sales and that Old Navy went adrift by focusing too much on the fickle teen target.

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