Thursday, May 19, 2011

Fall Into The Gap -- Critical Makeover Begins As Retailer Bleeds Red Ink

CEO Leads The Scramble Ahead of Make-or-Break Holiday Season, Specifically in Women's Tops.

Wall Street Journal
By Elizabeth Holmes


Gap Inc. chief Glenn Murphy has just five months to stop years of bleeding at its namesake brand.

It's a tall order for a brand that has resisted a decade's worth of attempts to turn it around. For Mr. Murphy, having replaced the brand's president and top designer in the last few months, his goal of getting Gap back on track will all come down to a make-or-break holiday season, in the works now.

"I have a much higher sense of urgency," Mr. Murphy, in his first interview since taking the job in 2007, said of the year it typically takes to see results after ousting a designer. "This brand is just too damn important to not see that kind of effort being put forward."

With the Christmas clock ticking, the top priority is fixing a single flaw: women's shirts, a key driver of repeat sales that Gap has fumbled for years.

Mr. Murphy, 49 years old, has won praise for improving operations and profitability at the company, which also operates Old Navy and Banana Republic. But he has yet to improve sales at the Gap brand's roughly 1,000 U.S. stores, which have shed more than $1.6 billion in annual sales since 2004, a 32% drop.

Gap reports earnings Thursday. Earlier this month, it flagged weaker sales and "significantly" lower merchandise margins for the quarter, which ended in April.

The brand is stuck in American retail's hollowed-out midsection, which consumers have been abandoning for years as they split their dollars between cheap basics and must-have luxury items. In its diminished state, Gap North America accounts for just a quarter of the company's total revenue. Mr. Murphy, however, needs it in good shape to support his main effort, which is expanding Gap overseas.

The turnaround has become a quagmire of sorts for a CEO who has long preached the importance of speed to his executives, pushing to cut bureaucracy and get clothes to stores faster.

Last year, Mr. Murphy found that a product designed and produced at the company's Los Angeles denim lab was being shipped to a distribution center a few hours away before being shipped back to a test store in Los Angeles.

"Are you serious?" Mr. Murphy said during a visit with employees there. A few phone calls later, he had eliminated the excess step. He told the design team to "make it and walk it over to the store."

Despite that emphasis, Mr. Murphy stood by the Gap brand's top designer, Patrick Robinson, for several years even as evidence piled up that he was having trouble replicating his success with jeans, which the brand re-launched in fall 2009, in the rest of the line.

By the time Mr. Murphy finally let Mr. Robinson go this month, stores were locked into the designer's merchandise through the end of the year because of long apparel lead times. That is forcing Gap to scramble to improve the assortment before the holidays, which account for 30% of its sales.

Mr. Murphy, who readily acknowledges Gap's merchandise for women has become "dull," is an unlikely candidate to turn the fashion problems around.

Unlike former CEO Millard "Mickey" Drexler, the "Merchant Prince" whose eye for product led Gap to its iconic status, Mr. Murphy had no apparel experience. The Canadian joined Gap after spending six years at the helm of Shoppers Drug Mart Corp., a Canadian chain of more than 1,000 drug stores. Prior to that, he ran a Canadian bookstore chain.

Instead of an industry expert for CEO, Gap got a detail-oriented operator who wears through 15 pairs of shoes a year marching through high-speed store visits several times a month. Executives advise newcomers to pack food for the tours, as Mr. Murphy prefers walking-and-eating to stopping for lunch.

He joined a company that for more than a decade had contented itself with churning out T-shirts and khakis on lead times of several months, while so-called fast-fashion labels knocked off runway styles in weeks, at a fraction of the price.

Mr. Murphy has worked to cut down those long lead times, which he said increased the risk of missing a trend and prolonged the consequences of a merchandising mistake. He has cut the time it takes to get finished product back from factories by a third. The company also set up a new production fast lane, cutting turnaround time to less than four months for some key items.

Those improvements are now being put to the test. Mr. Murphy has spent most of the past few weeks in New York with the Gap team, working to fill holes in the fall assortment set to hit stores in August. The holiday deliveries, the first of which hit stores in early November, are a greater focus.

Not all of the product needs to be overhauled, says Mr. Murphy, citing promising trends in its kids and baby division, as well as improvement at its Gap Body and men's segments. Denim, a key part of Gap's assortment, has also performed well for both men and women.

Women's tops are a different story. Perched in the foyer of a large Gap store in San Francisco, Mr. Murphy complains about the "dusty, makeup colors," including pale pinks and beiges, that were selected for Gap's tops. While trending in fashion magazines, they don't fit with what Mr. Murphy calls the "optimism" of the brand. They aren't always flattering, either.

Another troubling sign on racks now: rows of T-shirts with cap sleeves, a cut that highlights the back of the arm, an area of insecurity for women.

"Not good," Mr. Murphy said as he surveyed the racks of T-shirts and tanks. "That's got to change. That's got to change now."