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Gap’s Loss of Old Navy Chief Brings New Storm to Retailer Adrift

Gap Inc. Chief Executive Officer Art Peck, working to turn around the sluggish apparel giant, has been able to count on one source of stability: the company’s Old Navy chain. Now that too is in question.
Gap Inc | Source: Shutterstock
By
  • Bloomberg

NEW YORK, United States — Gap Inc. Chief Executive Officer Art Peck, working to turn around the sluggish apparel giant, has been able to count on one source of stability: the company's Old Navy chain. Now that too is in question.

With Old Navy President Stefan Larsson leaving this week to become CEO of Ralph Lauren Corp., Peck has to shore up that business at the same time as he works on improving his other major chains, Gap and Banana Republic. Investors are pessimistic about the effort. Gap's stock tumbled as much as 8.3 percent to $27.72 on Wednesday after Larsson's departure was announced.

“Old Navy is the concept that’s been holding up the underperformance of the other concepts, and Stefan was the captain of the ship,” said Simeon Siegel, an analyst at Nomura Securities. “It’s easy to look at that and say there’s now a big hole in the only thing that was working at the Gap.”

Jill Stanton, executive vice president of global product at Old Navy, will become interim head of the division on Oct. 2. That brings a degree of continuity to the chain, but Peck declined to say when he would name a permanent replacement.

Stanton is a “great choice” as an interim head and has a “deep bench” of internal talent, Peck said in an interview.

“Stefan is a leader, and we appreciate his contribution, but we have a team that built the operating model, and we’ve got momentum,” Peck said. “It takes great teams working together for these businesses to run well.”

The shake-up comes as Gap heads into the holiday season, putting additional pressure on a company that has seen uneven results. The Old Navy brand, which touts lower prices and more athletic-style apparel, has beaten the Gap and Banana Republic chains in same-store sales growth for the last six quarters. Peck, who took the CEO job in February, is trying to revive the retailer’s other two major brands by implementing Old Navy’s speedy test-and-react model.

“The biggest concern is that he’s been orchestrating the entire turnaround at Old Navy, and without him it’s going to fall into the same rut as the Gap,” Siegel said. “That remains to be seen.”

H&M Experience

Thanks in part to changes adopted by Larsson, Old Navy has an efficient supply chain and can roll out new products relatively quickly. Larsson joined Gap in 2012 after almost 15 years at Hennes & Mauritz AB, a company famous for quickly reacting to fashion trends.

“Larsson is largely credited with leading the cultural and process improvements that have contributed to Old Navy’s success,” Brian Tunick, an analyst at RBC Capital Markets, said in a note.

Peck, who was Gap’s president of growth and innovation before ascending to the top job, has shuttered underperforming locations and reshuffled his leadership team in a bid to reinvigorate the company. He named new presidents for Gap and Banana Republic, tasking them with trying to duplicate the success of Old Navy.

In June, the retailer announced it would close about a quarter of full-price Gap locations and cut about 250 corporate jobs. Peck said he doesn’t expect Larsson’s departure to delay the progress the Gap and Banana Republic brands have made in implementing Old Navy’s operating model. Still, the company doesn’t expect the Gap brand to start showing product improvements until the spring.

Gap also is contending with a strong U.S. dollar hurting the value of overseas sales and excess inventory from delays at West Coast ports. Last quarter, companywide comparable sales fell 2 percent from a year earlier. The stock, meanwhile, has been mired in a slump. Even before Wednesday’s tumble, the shares were down 28 percent this year. The compares with an 8.5 percent decline for the Standard & Poor’s 500 Index.

“I’ve got a business to run and a back half to deliver," Peck said. "I’m focused on everyone understanding the momentum we have.”

By Lindsey Rupp; editors: Nick Turner and Kevin Orland.

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