Vowing Turnaround, Gap Dubs 2007 a 'Transitional Year'

New President Says Ailing Retailer Will Clearly Define Its Products, Customer

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CHICAGO (AdAge.com) -- Calling 2007 a "transitional year," Gap Inc. aims to turn around its flagship brand with a clearer vision of its customer targets and a return to its core products, all while cutting advertising spending.
Marka Hansen
Marka Hansen

"We have disappointed our customers for too long," said Marka Hansen, newly installed Gap president, acknowledging the marketer hasn't had "all the right people in the right position for important creative areas."

Immediate priority
In the company's March 1 fourth-quarter conference call with analysts, she and other Gap Inc. executives outlined their plans for the Gap and Old Navy brands, with the immediate priority on the namesake retailer. Ms. Hansen, who was previously president of Gap sibling Banana Republic, boosted that upscale brand's sales and margins on an "accessible luxury" position.

For Gap, she vowed to improve product, customer experience and inventory management. Now the marketer is on the hunt for new talent to give product a "distinct point of view" based on a clear understanding of "who our customer is and what we stand for," she said. Clarity will come in the form of narrowing Gap's primary target of adults ages. The 18-to-35 group it has found success with in the past was deemed too broad to compete in specialty retail environments.

Gap broke an older-skewing Audrey Hepburn campaign last fall dubbed "skinny black" that was followed by a younger-skewing holiday campaign; Ms. Hansen said the efforts "didn't resonate." And while Gap will refine its primary target within that 18-to-35 age range, "it won't be the 18-year-old" end she said. Ms. Hansen hopes to reclaim Gap's "authority position" for casual-work or casual-weekend consumers looking for products based on the heritage of "great knits, clean bottoms, denim and khakis."

Narrow ad spending
She also will narrow Gap's marketing budget, which failed to boost traffic in 2006, despite spending $130.6 million, according to TNS Media Intelligence. Much of the cuts will come out of TV after the spring campaign. Gap next week will launch TV for its khakis line for four weeks.

Meanwhile, Old Navy, with its own recently installed president, Dawn Robertson, and chief marketing officer, Michael Cape, will focus on fixing its product mix, improving advertising and coordinating promotions and markdowns better than in the past. It will improve its "item of the week" promotion to represent fashion and newness every week. Marketing spending also will be cut, mainly in print and promotions. Old Navy on March 2 launched its spring TV campaign promoting dresses for five-weeks, a period one week shorter than last year.

During the call, Robert Fisher, chairman and interim CEO of Gap Inc., attempted to lower expectations for a speedy recovery. "There is no quick fix," said Mr. Fisher, the son of Gap founder Donald Fisher, adding he is confident the retailer would regain its momentum. "Bottom line, we were not clear about who we were," he said. "Our product and execution suffered and our financial results were unacceptable."

Dismal holiday sales
He blamed earlier leadership and a talent drain, centralized operations and spending that didn't boost top-line sales. His predecessor, Paul Pressler, resigned in late January following a four-year financial roller-coaster ride that peaked two years ago and plummeted since, ending 2006 with dismal holiday sales.

Attempting to quell concerns that the search for a new CEO could be lengthy, Mr. Fisher said the company was close to hiring a search firm to name a permanent CEO. He said his first priority was to fix the core business, namely Gap. Already, the company has made a slew of management changes and announced it would close the Forth & Towne concept aimed at women ages 35 and up.

"Robert Fisher seems to be bringing a dose of reality to Gap and the investment community," Mark Montagna, retail analyst with C.L. King & Associates, wrote in his post-call note to investors. "He is not creating 'hoped-for' deadlines of future achievement, nor is anyone else. We believe he has a solid understanding that a recovery at Gap could take longer than investors anticipate."
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