President-CEO Millard "Mickey" Drexler, long considered the prince of merchandising and the man behind the chain's success in the '80s, knew that by continuing to look at itself only as a retailer and not as a brand, the Gap was limiting its future.
"We also realized we had to expand what advertising and marketing mean to this company," he said.
For having acted on those instincts, and having so successfully integrated marketing into its merchandising mix, The Gap Inc. has been named Advertising Age's Marketer of the Year for 1997.
NAME BECOMES BRAND
"They made their name into a brand," said Alan Millstein, retailing analyst and publisher of Fashion Network Report. "They are one of the few retailers that has that luxury."
Gap "really picked up the focus on brand," said Alice Ruth, managing director-senior analyst, NationsBanc Montgomery Securities, San Francisco.
SALES UP 28% IN THIRD QUARTER
The results of the marketing emphasis are clear. For the first nine months of 1997, Gap sales were up 20%, $4.3 billion compared with $3.6 billion in the same period of 1996. For the third quarter alone, net sales were up 28%, to $1.7 billion, compared with the third quarter of '96. Net income jumped 22% in the quarter, which the company credited with its first significant back-to-school TV effort.
Overall, Gap Inc. 1996 sales were $5.3 billion.
At the time of what Mr. Drexler himself termed the wake-up call, he became a student of marketing and poured over information about the world's leading brands, especially Coca-Cola. In fact, Coca-Cola Co. Senior VP-Chief Marketing Officer Sergio Zyman later was invited to join the Gap's board of directors, which he did earlier this fall.
The new marketing formula the Gap implemented was fully refined this year, reaching fruition when the Gap brand returned to TV advertising after a hiatus of about 12 years.
"The Gap accelerated to the point that the brand is on fire," commented Mr. Zyman. "There is no competitor who has a kind of brand essence that can pose a threat."
It was Mr. Drexler who had renovated the Gap in 1983, devising the clean, uncluttered look with polished wooden floors and tables with neat stacks of tops in varying colors, which became the retailer's much-copied benchmark. He controlled the retail apparel process from start to finish: from design, to manufacture, to distribution, to retail presentation -- and all the elements in between, down to the mandatory greeting from salespeople when customers enter the store.
The merchandising strategy worked for a dozen years. But by 1994, the Gap's core stores were struggling. The once-groundbreaking "Individuals of Style" print and outdoor ad campaign -- in which famous photographers did b&w celebrity portraits, their Gap basics accented with pieces of their own clothing -- was old hat.
Newspaper headlines branded the stores as "mature," a lethal adjective.
"If we are a retailer, that's about having particular stores in particularly good locations," said Mr. Drexler, but "there's real finite opportunity there."
During this period of questioning -- and answering -- the Gap tested its new marketing philosophy on its 262-store Old Navy division, the one bright spot of 1995 and 1996.
Richard Crisman, senior VP-marketing for Old Navy, was given a significant advertising budget and free rein to develop the chain under the umbrella of value, family, fashion and fun.
"Fun was something new" for the retailer, said Mr. Crisman, who adopted the retro look for Old Navy's advertising, with the theme "Shopping is fun again."
He later enlisted Deutsch, New York, to work on creative projects with the retailer's in-house unit.
At first, Old Navy imitated old-time local store openings for its new outlets, setting up tables outside with free brownies and lemonade, or handing out baseball caps or water bottles. At some stores, golf carts were used to bring shoppers to the front door.
After opening day, shoppers were invited in to play an instant-win scratch game. In New York, drawings were held for an opportunity to go into a "money booth," where patrons scooped up Old Navy dollars for merchandise in front of an audience of other shoppers.
Free temporary tattoos were offered at Halloween; a free stocking-stuffer gift with $75 worth of purchases at Christmastime.
Unlikely ad vehicles also were tried. This winter, for example, coffee cups were used for ads in New York and, last month, a candy cane-scented air freshener card was given away with copies of the Chicago Tribune and the San Francisco Chronicle.
NEW MARKETING ARENAS
Old Navy -- with its canine mascot, Magic, picked because he looked like "Everyman's dog," said Mr. Crisman -- has taken the company into entirely new marketing arenas as well, such as sponsorship of an Indy 500 racing team.
In the stores themselves, young salespeople wear headsets to help shoppers find merchandise.
"The secret of the store [is] that it [doesn't] make you feel like you [are] poor," said Mr. Millstein.
While Old Navy was growing into a brand of its own, the core Gap brand faced up to its big challenge.
In the summer of '96, the company replaced its longtime marketing director, Maggie Gross, with Senior VP-Marketing Michael McCadden, a package-goods marketing executive responsible for the launch of Calvin Klein fragrances.
Mr. McCadden, working with the Gap's in-house ad agency, put a new face on the chain's outdoor advertising, with a series of giant outdoor boards in New York and Los Angeles.
RETURN TO TV
The Gap then "fell back" into TV advertising after being off the airwaves about a dozen years. Starting with some ads for babyGap during last year's holiday shopping season, the Gap had by this past May launched a full-blown TV campaign, reviving its classic "Fall into the Gap" theme -- with hip, original renditions of the well-known music offered by stars ranging from rapper LL Cool J to dancer Nikolaj Hubbe to singer Lena Horne.
"TV was critical for us," said Mr. Drexler. "You can't consider yourself a serious marketer without, in fact, having a major presence in TV long-term."
Creatively, all the Gap stores' ads, from babyGap to GapKids to adult, featured a clean white background -- a different executional approach from the retro ads produced by its discounting sister Old Navy.
Also, the Gap rediscovered the six miles of outdoor boards it already owned: its store windows. The Gap has 1,006 stores in the U.S., Canada, France, Germany, Japan and the U.K., plus 558 GapKids and babyGaps.
Mr. McCadden, whose department is now fully integrated into the Gap's merchandising management, helps develop merchandise concepts translated into 52 different window displays each year.
The Gap is employing a number of below-the-line marketing techniques, working with public relations as well as event marketing and promotion specialists.
In September, at a so-called "Gap at Work" event, Mr. Drexler and Gap officials rang the opening bell at the New York Stock Exchange. The exchange, of course, has a shirt-and-tie dress code, but allowed floor workers to wear the khaki pants and blue shirts the Gap handed out to all.
The retailer also built a Gap Web site, then followed it with an e-commerce site that, in typical Gap fashion, will sell products that are featured in the store windows.
Not only will shoppers be able to buy merchandise online, but the products will be changed every four to six weeks, reflecting changes in the Gap's store merchandise.
In another innovation -- with broad implications for boosting the acceptability of online shopping -- products purchased online can be exchanged or returned at any Gap store.
While Mr. Drexler was skeptical about e-commerce, after just two weeks of online selling, he said the company was very excited.
ADS TO HIT $150 MIL
In 1996, the Gap spent $100 million on marketing, including costs for its in-house marketing team. This year, the company said, expenditures will rise to $150 million.
As a percentage of sales, ad expenditures have gone from 1.3% in 1995 to 1.7% in 1996, said Warren Hashagen, senior VP-finance, and will climb to an expected 2.5% of sales in the next few years.
Measured media expenditures for the company increased from $17.6 million from January through August 1996 to $33.3 million for the same period in 1997, according to Competitive Media Reporting.
Marketing efforts don't stop at the marketing department. "[Our] stores are as much of a marketing message as anything else," said Mr. Drexler.
The Gap recently made a major push to retrain every salesperson.
"Marketing is not just TV or newspaper advertising -- it's frankly every person," he continued, "Everyone in the stores is a marketing agent for our company."
FEW MANAGEMENT LAYERS
As with all of the Gap's marketing efforts, decisions are made with some research but with minimal layers of management, haggling or politicking, company executives said.
"We decide, 'Is it the right thing for the business?' " said Mr. Crisman. And, added Mr. McCadden, "When the Gap decides to do something, they do it. It's a rare thing in a company."
The corporate culture allows for risks, and mistakes are considered an opportunity at the Gap.
"We've made a fair amount of mistakes, but one of the things about our company: We make a mistake, we learn from it," said Mr. Drexler. "We move forward. That's part of our culture."
Gap initiatives on a half-dozen products have come and gone; shoes are out, more outerwear styles and even new pants sizes are coming in.
"The supply business at Old Navy, frankly, hasn't worked out as well as we would like," said Mr. Drexler of what he calls the "tchotchke business" -- Old Navy's seasonal items such as alarm clocks and garden watering cans.
New initiatives are planned at upscale chain Banana Republic, with 251 stores in the U.S. and Canada. It will launch a catalog next fall, with other divisions possibly following. Exploring relationship marketing, Banana Republic also will experiment with a credit card, which will be tied to a frequency program still in development.
Baron & Baron, New York, is the agency for Banana Republic; media buying is handled by Space Time, Chicago.
As the parent pursues an overall strategy of building new stores for each division in prime retail locations, it's beginning to fill smaller markets -- such as Medford, Ore. -- with combination stores that sell a mix of men's, women's and children's clothing.
All the stores, from the flagship stores to the new, smaller combo shops, will be supported by the new corporate commitment to advertising, said Mr. Hashagen.
"In this industry, advertising is treated as discretionary," he said. But for the Gap, advertising funds "will not be cut if sales are soft."
'EASY' WITH A BRAND
Mr. Hashagen acknowledged that many consumers just don't like to shop. But the Gap's positioning is built around comfortable casual clothes and easy shopping. In its first big TV branding push, LL Cool J kicked off a rap that asked, "How easy is this?"
For the Gap, that answer has been pretty easy.
"Easy is at the core" of the Gap, said Coca-Cola's Mr. Zyman. "[A company's corporate branding is] pretty easy to do when they understand the essence of