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Can Rebekka Bay Save Gap?

Once one of the world’s most successful specialty retailers, Gap has been mired in decline for over a decade. Following a series of cost-cutting measures, will the arrival of creative director Rebekka Bay and a new focus on product help the American retail giant get back on its feet?
  • Lauren Sherman

NEW YORK, United States — It may have been October 15, but the weather in New York City had yet to chill. Indian summer light bathed the expansive Tribeca loft space where creative director Rebekka Bay was showing her first full collection for Gap. The early morning presentation was the kind of event that draws out all sorts of important editors and stylists: Lucky's Eva Chen was there, as well as Teen Vogue's Amy Astley. British Vogue's Sarah Harris had even made her way across the pond, presumably for a profile on Bay, who was hired by the world's third-largest clothing retailer just over a year ago.

There was a lot riding on the presentation given the inconsistent product assortment that has plagued Gap for the last decade: one season, the company’s creative team focused on denim; the next, it was glittery club clothes. “It’s been generally schizophrenic for a while,” said Robert Passikoff, founder of Brand Keys, a brand research consultancy.

It wasn’t always so. Founded in 1969 in San Francisco by Donald and Doris Fisher as a purveyor of Levi’s and LPs, Gap was one of the world’s first specialty retailers — neither an indie boutique nor a department store — and reached $2 million in sales in its first year of operation. But when their core clientele of Baby Boomers abandoned their hippie jeans for yuppie sweaters in the early 1980s, the company began to falter. In 1984, the now-legendary merchant Millard “Mickey” Drexler was brought onboard as chief executive. He revamped the product offering and focused the company on its in-house line. By the late 1990s, Gap had grown into a globally recognised behemoth. But over-expansion, a two-year slump in sales, and tensions with the Fisher family, resulted in Drexler’s ouster in 2002.

In 2004, net sales at Gap Inc. (which then included Gap, Old Navy and Banana Republic) were $15.9 billion. Eight years later, in 2012, net sales at the company, which now also includes Athleta, Intermix and Piperlime, totaled only $15.7 billion. There were ups and downs, but the fact remains that Gap Inc. hasn't grown revenues in over a decade.


The global recession dealt the company a major blow, as did the rise of "fast fashion" competitors like Zara and H&M, now the largest and second largest apparel retailers in the world, respectively. Competition also came in the form of specialty retailers like J.Crew and Uniqlo, whose minimalist basics earned it the accolade "the new Gap."

The hiring of Patrick Robinson, Gap’s previous creative director, in the spring of 2007, failed to lift sales and Robinson was dismissed in May 2011. On the other hand, while Glenn Murphy — former chief of Canadian drugstore chain Shoppers Drug Mart and Gap’s CEO since 2007 — lacks expertise in apparel, he clearly knows how to run a business. Under his stewardship, Gap has reduced costs by operating on a leaner structure and eliminating redundancies. In 2011, Murphy also announced that he would close 189 Gap stores in North America by the end of 2013.

At the same time, he grew the business in global markets, increasing the number of directly-owned stores in Asia to 220 from 135 just two years ago. Franchised stores increased to 355 from 178 in the same period. (In 2012, namesake Gap stores in the US brought in just $3.3 billion, with $2.1 billion coming from international markets). And while Gap Inc.’s net sales for 2012 were unimpressive, the company’s gross margin was 39.4 percent. Just this past quarter, earnings were up 9.4 percent.

“It’s really quite genius,” said Barbara Wyckoff, managing director of CLSA Americas, a brokerage and investment group, who has covered Gap for more than a decade. “For the first six months to a year on the job, Murphy visited every store. He reorganized the structure of the company and I think the right structure is in place. Now, they are figuring out a future path.”

Much, if not all, of that path will have to do with what the company’s creative and merchandising teams can accomplish together. “If a turnaround is a three-stage process, Gap is in stage two,” continued Wyckoff. “Now it’s about the right mix of merchandise.”

After the firing of Robinson, it took Murphy more than a year to bring in Bay, a Danish branding consultant who had been hired by H&M in 2006 to launch COS, the fast fashion retailer's foray into better quality apparel, where she was highly successful with a moderately priced, but sophisticated product assortment, known for its minimalist bent. "To put COS into perspective, there are only 75 stores out of a portfolio that [currently] totals 2,964 stores across the group and H&M doesn't split out COS' results separately, so we have no real idea how the division is performing, although management normally indicates COS is performing very well," explained Anthony Sleeman, an analyst at Sanford C. Bernstein.

Bay is "very good at getting down to a brand's DNA and knowing how to communicate it; she's extremely analytical," said Penny Martin, editor of The Gentlewoman. "She's also fantastic at working across those huge corporations — and that's part of the reason her work is so powerful at a mass level."

“It takes a bit of magic to choose the right colours, to create new twists on the basics,” added Wyckoff. And, so far, Bay and her team have shown quite a bit of promise. “The first collection feels very definitive and economical,” said Martin of Bay’s acid-wash denim jackets, striped chambray dresses and floral button-ups, “kind of like a Jenny Holzer truism.”


At the Spring presentation, the outlook was equally hopeful. “It looks good!” whispered one editor to another. “She’s exactly what Gap needs,” said Chen. “Every single run-through now, it’s Gap, Gap, Gap. And that’s a good sign.”

But, of course, editorial support alone does not a turnaround make. Whether Bay can create the same kind of magic on the sales floor in one of the most challenging markets Gap has ever faced remains to be seen. This is not the first time that Gap has had to reinvent itself, but in order for it to compete in today’s market, it’s going to have to do so — and pronto.

Gap declined to comment for this story.

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