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Inside Gap Inc.’s 20-Year Struggle to Revive Its Namesake Brand

Why the retail group appears to be in constant turnaround mode — and the measures it may need to take to change the narrative.
Gap Inc. has struggled to regain its footing.
Gap Inc. has struggled to regain its footing. (Shutterstock)

Key insights

  • Gap Inc. has struggled to find the balance between quick money-making solutions and the desire to rebuild long-term brand equity.
  • Sonia Syngal, the group’s most recent CEO, made some important changes during her two-year tenure, but they weren’t enough to turn the company around.
  • The founding family behind the group, the Fishers, is still hugely influential when it comes to hiring and managing executive talent. They’ve struggled to find the right leader.

In the weeks leading up to Sonia Syngal’s firing as CEO of Gap Inc. in July, opinions about her turnaround plan were mixed.

Some saw Syngal, who previously ran the Old Navy brand at the peak of its success, as a moderniser, willing to make bold moves to pull the company out of its downward spiral. Since her appointment in March 2020, she had sold or closed unsuccessful brands, set in motion a badly needed revamp of the Banana Republic label and hired the rapper then known as Kanye West to a 10-year deal with Gap.

“If anyone could [make real changes], though, Sonia could,” said one former executive, who asked for anonymity.

The company’s founding Fisher family and its allies on the board were less enthralled. They believed Syngal’s strategy was taking too long to show results, and there were questions about the April firing of Nancy Green, the Old Navy CEO who started with Gap in 1988. While Green’s reputation as a people manager was less than stellar, some executives believed she unfairly took the fall for the cheap chic family brand’s botched extended-sizing campaign, which spurred a 19 percent drop in year-over-year sales at the group’s biggest moneymaker. (A representative for Gap Inc. declined to comment on Green’s departure, only to say that Old Navy leadership is committed to providing sizes 0-30 for women online, with no price increase for larger sizes.)

Ultimately, as is usually the case at Gap Inc., it was the family that won out.

Despite working at Gap Inc. for nearly 20 years, Syngal wasn’t necessarily viewed as a lifer. She arrived in 2004, too late to have participated in the company’s glory days. Millard “Mickey” Drexler, the merchant prince who had transformed the Gap brand into a global fashion force in the 1980s, had been fired two years earlier, and sales were off their peak. As a supply chain expert, she played a crucial role behind the scenes, but was not viewed internally as an expert in the areas that had made Gap a globally recognised brand, and the Fisher family billionaires.

Nevertheless, there was optimism internally about her appointment as CEO, just as the pandemic was kicking into high gear in the US. (Barely two weeks into the job, the company temporarily closed North American stores across its brands.) Syngal had boosted sales at Old Navy by an extra billion dollars during her four-year tenure at the brand. She was viewed by some as an innovator who would at least try to make significant changes to turn around the company’s long-term prospects, according to people who worked with her in several different capacities.

Even before the pandemic, Gap Inc. was in desperate need of fresh ideas. Syngal’s predecessor, Art Peck, a former management consultant, was responsible for Gap brand’s only significant merchandising win since Drexler’s departure — coloured jeans — in the early 2010s. But he was unable to rationalise Gap Inc.’s mixed-bag portfolio of booming category leaders (Old Navy, Athleta), bad-fit acquisitions (Intermix, Janie and Jack) and legacy names struggling to regain relevance (Gap, Banana Republic). In 2019, sales at the Gap brand were $4.6 billion, down from $6 billion in 2009.

Syngal quickly got to work, closing Hill City — a men’s activewear brand incubated within the group — and selling off Janie and Jack and Intermix within a year. Alongside longtime company executive Mark Breitbard, Syngal negotiated a 10-year deal with the designer and musician then known as Kanye West, and greenlit a revamp of Banana Republic. She ordered hundreds of underperforming stores permanently closed.

The problem was that these moves were either too small to meaningfully reverse Gap Inc.’s slide, or too slow to pay off. Most disturbingly, there was the trouble at Old Navy, which had almost singlehandedly buoyed the whole company’s results for over a decade. Syngal was fired in July, the shortest tenure of any of the group’s other permanent CEOs.

Analysts, on average, expect Gap Inc.’s revenue to fall by 6 percent this year, even as some other mall brands, including J.Crew and Abercrombie & Fitch, continue benefiting from the late-pandemic shopping boom. The company’s stock trades not much higher than the 25-year low it hit during the worst of the pandemic in 2020. It reports second-quarter results Thursday.

For all the moves Syngal made, her biggest mistake, analysts say, was in her oversight of the Gap brand during the pandemic. Her serious swing — Yeezy Gap — is generating a massive amount of press, but the product is so removed from Gap itself that there’s little proof it’s inspiring people to shop the main line.

But she may not have been given the agency to take more risks. While executives believe that the board recognises that things need to change, there is a reticence at the top to make any drastic shifts that could cause further deterioration of the stock, according to current and former executives.

A representative for Gap Inc. said the company has made progress since 2020 by shutting down stores, moving out of underperforming malls, adopting the franchise model in several overseas markets, launching licenses and expanding collaborations like Yeezy.

However, many executives feel there’s a conflict between the desire to find quick money-making (or saving) solutions — a typical strategy for public retail companies — and the desire to rebuild long-term brand equity.

“In the Covid era, brands that looked inward and were willing to make the largest and deepest changes are the ones that are benefiting now,” said Simeon Siegel, an analyst at BMO Capital Markets. “The Gap, on the other hand, announced store closures.

The Golden Years

At this point, the story of Gap’s ascendance is the stuff of retail fairytales. Drexler, in partnership with Maggie Gross, a marketing and advertising executive, revamped the product just as mall culture was at its peak. Gap’s streamlined basics became the first word in accessible fashion.

“The Gap is the 7-11 of style,” wrote Jonathan Van Meter in a 1990 article for Vogue. “Fast, affordable, on every corner.”

Drexler had success with Banana Republic, too, transforming it from a niche, safari-inspired brand into a workwear alternative whose popularity coincided with the emergence of the “metrosexual” in the late 1990s. Cheap-and-cheerful Old Navy launched in 1994.

But while Old Navy continued to thrive after Drexler’s departure, Gap and Banana Republic appeared to be in a state of constant turnaround. Many pin the blame on group CEO Glenn Murphy, who ran the business from 2007 until 2015 and was best known as a cost-cutter. His interest in product quality and design, as well as store experience and marketing, was superseded by his desire to maintain margins.

As Banana Republic receded into the background, Gap was kept top of mind by a series of failed attempts to resuscitate the label’s reputation and make it fresh-and-cool, first with designer collaborations, then with the hiring of Patrick Robinson and finally, Rebekka Bay. All the brands became dependent on markdowns, and brand equity eroded.

By the time of Syngal’s appointment, Gap Inc. had become more of a brand management business — akin to the likes of Authentic Brands Group — than anything else. Today, new revenue opportunities include licensing deals and business-to-business services, which range from logistics and supply chain support to making uniforms. It’s even selling advertising space on its websites and newsletters — which generate millions of views a month — to other brands.

In theory, this strategy makes sense. The world in which Drexler built Gap and Banana Republic — and made Old Navy a billion-dollar brand in just four years — no longer exists, thanks to the internet and fast fashion, which has changed the way people shop for clothes. Consumers remain nostalgic for legacy brands, but getting them to pay full price for anything that they’re conditioned to find on sale is a near-impossible task.

The problem is that squeezing every last drop of revenue out of Gap gets in the way of any serious attempt to revive it. It helps to explain why projects like Yeezy Gap are fraught.

“Gap cannot use the collaboration as an excuse for not reforming its own brand image and its assortment – which is a move that is desperately overdue,” Neil Saunders, an analyst at Global Data, wrote in a recent report. “Unfortunately, we still see very little evidence of movement on this front.”

Old Navy’s massive miss has made things more difficult. Old Navy’s challenges have been squarely pegged on its extended-sizing strategy. While offering sizes up to 24 in stores across all styles, the company failed to buy enough inventory in the middle sizes, which kept selling out. It also had to reduce the number of styles it offered each season in order to make the investment across sizes.

But there are also questions about how much bigger Old Navy, which generated over $9 billion in 2021 — more than half of the company’s overall revenue — can actually get.

“It feels like the company sees Old Navy as their limitless growth opportunity and Gap as this constant bandaid,” Siegel said. “It might very well be that Old Navy has hit its ceiling.”

The Yeezy Factor

The company’s very public challenges integrating the Yeezy product into its overall offering is indicative of the difficulty in refreshing the legacy brands, despite plenty of internal interest in doing so.

While Gap’s internal team has struggled to remain patient as the Yeezy team takes time developing product — and as the designer publicly threatened to leave Gap — the Yeezy team has found the limits of designing under a mass brand to be frustrating in some cases. For instance, the company does not want the products to have holes, because they won’t stand wash tests, according to one Yeezy-Gap designer. Similarly, a 100 percent cotton fleece won’t pass a flame-retardant test. The Yeezy-Gap team sometimes feels limited by these rules. (A company representative said that while the Yeezy partnership has forced Gap corporate to be more nimble in certain ways, the company must continue to follow safety standards.)

The underlying problem, however, seems to be that there is not a person at the top with a vision of what Gap Inc. should be. Syngal has yet to be replaced: board chairman Bob L. Martin is serving as interim CEO while they search for a successor.

There is also the Fisher family. Donald and Doris Fisher founded Gap in 1969 and two of their children, Robert and William, are on the board of directors. While they have held executive positions over the years, they have mostly remained observers. (It was Drexler, not the Fishers, who was credited publicly for making Gap a global phenomenon, even if they were supporting behind the scenes.) And yet, the Fishers remain the company’s largest shareholders and still wield significant sway over the board, even with the exit of John Fisher, the youngest brother, earlier this year.

According to a representative for Gap, Inc., the overall board feels that the Fishers’ perspective is crucial to its success, especially during more difficult periods. (There have been at least two members of the Fisher family on the board since Gap went public in 1976, save for a short period after the death of patriarch Donald Fisher in September 2009.)

That’s all to say that the family is still hugely influential when it comes to hiring and managing executive talent. (Several of Gap Inc.’s top leaders have been with the company since Drexler’s time — including current Gap brand CEO Breitbard.) Several current and former executives also feel that the family — in particular Robert, who is most involved in the business — is unsure of what the next step should be. (In 2019 alone, the family had paper losses of $1 billion amid stock declines, according to a Forbes report.)

Over the years, there have been different proposals. An attempt to spin off Old Navy in 2019 was called off a year later, as the company struggled to generate enough investor interest. (A spin off works if there is clear potential on both sides, as was the case with L Brand’s separation of Victoria’s Secret and Bath and Body Works. Unlike Gap and Banana Republic, Victoria’s Secret continued to dominate its market, even in its decline.)

The board has also considered selling off the legacy brands, but now feels like the price would be too low given the current uncertainty in the economy, even though there is interest from private equity firms, according to a person familiar with some of their thinking. When asked about this, a Gap representative said that the board is open to different scenarios, and that the group regularly reviews opportunities.

Most recently, a story surfaced in Dealreporter that the group may consider selling Athleta, the fast-growing activewear brand that has benefited from the group’s vast retail network — which allowed it to scale up distribution quickly — combined with an uptick in the category during Covid.

Letting go of a fast-growing brand could offer a quick boost to the stock that fizzles out, or a longer-term investment in the future of the brands the Fishers made their billions on.

“They need to take more risks and care about brand equity more,” Siegel said.

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