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Gap Studies Old Navy’s Blockbuster Pixie Pants to Spur Comeback

The speed in turning ideas into sales has helped Old Navy become Gap Inc.’s star performer and shows how the company’s namesake brand and upscale Banana Republic chain should operate, chief executive officer Art Peck said.
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  • Bloomberg

SAN FRANCISCO, United States — Gap has a lot to learn from Old Navy's pixie pants.

The design team at Old Navy identified pixies — slim, cropped women's pants — as a potentially hot trend for spring last year. In quick succession, Old Navy's sourcing team and suppliers developed a versatile, cost-effective fabric, tested the pants in stores, then ramped up marketing and production. The product has been a runaway success, selling briskly and winning glowing reviews online.

That speed in turning ideas into sales has helped Old Navy become Gap Inc.'s star performer and shows how the company's namesake brand and upscale Banana Republic chain should operate, Chief Executive Officer Art Peck said. Bargain-focused Old Navy posted U.S. sales last quarter that were almost double those of the Gap brand, which is closing a quarter of its full-price locations in North America after more than a year of declining comparable-store sales.

“Old Navy is pulling the cart, with Gap and Banana following,” Peck said at the company’s annual meeting with analysts in San Francisco Tuesday. “It’s a commitment to a high degree of collaboration inside the business and a high degree of cross-functionality to learn and exploit proven best practices in one part of the company and transplant it.”

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Jeff Kirwan, global president of the Gap brand, told analysts at the meeting that he’s already copying Old Navy’s strategy. Clothing developed using the faster processes will start appearing between the holiday and spring seasons, Peck said.

Fixing Gap

Fixing the Gap brand has been the top priority for Peck since he was named CEO in October. Kirwan was tapped as the brand’s president in November and the creative director job was eliminated in January.

Gap, started in 1969, was one of the first U.S. specialty- apparel retailers and was once a leader in how it did business. Competitors have since improved on the model Gap established and now bring products to stores quicker. The company is looking to retake the lead in speed, collaboration and design, Peck said.

“It isn’t about catching up; it’s about leapfrogging,” Peck said in an interview. “Catching up isn’t the path to glory. How do we take the elements that are working today and move forward with our particular spin?”

Old Navy President Stefan Larsson said at the meeting that the brands’ new product-development process is a systematic, disciplined approach to getting fashion into stores more quickly. First, the brands must funnel down trends into those most relevant to their customers, then apply unique designs. The brands will order small quantities of fabrics to test products, and if they’re successful, they’ll buy more rapidly.

Larsson’s Approach

Larsson came to Old Navy from fast-fashion giant Hennes & Mauritz AB, which is probably influencing his approach, Howard Tubin, an analyst at Guggenheim Securities, said in a note to clients Tuesday. Yet it’s not certain that the strategy can revive Gap and Banana Republic.

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“It remains ‘early days’ for these divisions, and meaningful improvement may not be seen until spring 2016,” wrote Tubin, who has a neutral rating on the shares.

Quality and consistency will be the keys to Gap's success, said Oliver Chen, an analyst at Cowen & Co. with a market perform rating on the shares.

“The Gap division has an aesthetic journey ahead — and we will monitor for more alluring product,” Chen said in a note.

Courting Millennials

Peck himself embodies the balance of detail and style he’s aiming for with Gap’s brands. He knows minutiae like the weight of the jeans he’s wearing and the yarn they’re made of, but also has a unique aesthetic: His office, overlooking San Francisco’s Bay Bridge, displays headlight lenses from antique cars.

The ability for a clothing brand to be both affordable and high-quality is essential in an age when customers expect low prices but won’t hesitate to post photos and negative reviews of defective items. Peck says his own daughters, millennials now living on their own, are the kind of shoppers who once might have bought clothes based on price and now seek versatile pieces that will last.

“I won’t say there’s a backlash against cheap, disposable clothing, but there’s a little of that going on,” he said. “That group is growing up a bit.”

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

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