Will Gap Inc. Need a Fifth “Hail Mary?”

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I wrote in November 2021, Is Sonia Syngal Gap’s Fourth “Hail Mary?”, largely based on the three “Hail Marys” that preceded her, of whom failed to turn the declining brand around. I attributed a big part of their failure with the fact that none of the three had apparel retail experience. Go figure, when all four of Gap Inc’s brands are apparel. Perhaps the Board or certain members of it, did not want another “rock star merchant prince” to overshadow them, and who would come to personify the brand.

Sonia Syngal is just starting her tenure and I am rooting for her. She is amazing and her career has been impressive. And as everyone knows we need more female CEO’s, especially in an industry that gets 70 percent of its revenues from women. Let’s hope she moves Gap from a “Hail Mary” track record to a consistent winning game play strategy.

  • Mickey Drexler left the helm of Gap in 2002 after he had guided it through almost two decades of meteoric growth from $480 million in revenues upon his arrival in 1983 to almost $14 billion in 2000 (including his launch of Old Navy and Banana Republic) — an amazing 2,400 percent increase.
  • The first “Hail Mary” CEO was Paul Pressler (2002-2007), an alumni of Disney’s store chain with strengths in operations and supply chain, but he knew little of the nuances of fashion. Gap’s business accelerated into decline, and the brand’s relevance, positioning, image, consumer base and business continued to unravel. So, by 2005 the brand suffered from inexperience at best, and what would turn out to be a total lack of merchandising skills at worst. Between June 2004 and December 2006 (eight months before Pressler would be replaced), comp-store sales declined in every month but three. Pressler stepped down in 2007. Does it surprise anyone that Gap’s publicly stated qualifications for its next CEO at the time read: …with deep retailing and merchandising experience, ideally in apparel, and who understands the creative process?” The search firm or Gap Inc.’s Board obviously ignored this vital qualification.
  • Thus, the failing patient was handed over to CEO Glenn Murphy, Gap’s second “Hail Mary,” who unsuccessfully slogged through 2007 to 2015. Surprisingly, Glenn Murphy was previously CEO of Shoppers Drug Mart in Canada. I don’t believe they sold apparel.
  • And in 2015 “Hail Mary” pass number three was CEO and undertaker Art Peck whose career had been primarily as a consultant with the Boston Consulting Group. No apparel inventory there. And he seemed to be putting the final nail in Gap’s coffin as he presided over its impending death. During Peck’s tenure Gap continued to flatline with actual sales declines in both the Gap brand and Banana Republic. The only hint of a heartbeat was Old Navy. Revenues under Peck’s tenure in 2015 were about $16.4 billion and barely grew to $16.5 billion in 2019. And roughly $1 billion of that increase was generated by Old Navy under its CEO from 2016 to 2019, Sonya Syngal, which likely earned her the appointment to the CEO position of Gap Inc. in March 2020.

What Has Happened Under Syngal’s Watch?

Unfortunately, Syngal took the helm just as Covid-19 was beginning to ravage the world. Nevertheless, she was able to contain the decline in revenues, down from $16.5 billion in 2019 to about $16.4 billion in 2020.

So, what happened starting in 2020 that largely affected a huge decline in revenues in 2021 to roughly $13.8 billion, and a disastrous opening in Q1, 2022, during which Gap Inc.’s net sales fell 13 percent to $3.5 billion in the three months to April 30? The company lost $162 million in the period, compared with a profit of $166 million a year ago. Old Navy accounts for the majority of Gap’s sales and more than three-quarters of profits. Net sales at Old Navy fell 19 percent to $1.8 billion in the recent period. Comparable-store sales, which exclude newly opened or closed stores, slid 22 percent.

Strategic Missteps

On top of Covid lockdowns, supply chain disruptions, the closing of 190 U.S. stores between 2019 and 2021 and the changing of the guard,” promoting Syngal from Old Navy to the Gap Inc. CEO role and moving Nancy Green to head up Old Navy, several things happened both strategically and operationally.

Gap Brand in Search of Cool

In June 2020, Syngal signed a 10-year apparel deal with Kanye West. Apparently, she believed, and still does, that his brand on apparel will become as hot as his Yeezy line of sneakers that essentially saved Adidas (note: the Yeezy sneakers are not included in the apparel line). Not only is 10 years a long time, nothing about how this brand is performing has been transparent. Certainly, there is nothing big happening yet, or we would have heard and read about it.

Here’s what Mickey Drexler had to say about this move, as reported in Yahoo Finance. “I probably shouldn’t say this, but I told him he (Kanye West) shouldn’t do the deal because it doesn’t make any sense in my opinion. I have a lot of friends at Gap still, but it doesn’t work for someone like Kanye. He is not a corporate person and Gap is a big corporation. So, I know the jacket sold out. They did $7 million on the jacket overnight. He is a smart guy, but he shouldn’t have done it. And I don’t think they should have done it, either.”

To give some credence to Mickey’s opinion, as if he needs any credibility, as it turns out Yeezy is not exactly working out. As reported in Retail Dive, “In August, 2021, Gap Inc. CEO Sonia Syngal and Chief Financial Officer Katrina O’Connell took turns assuring analysts that there are good reasons for the slow-moving drops from, and their minimal communication about, their Yeezy x Gap partnership.”

Closer to home, The Robin Report’s expert contributor on all things next gen (she is one herself) Jasmine Glasheen wrote there are five reasons why the partnership won’t succeed.  It’s a great article and I totally agree with it. It is a must read if you want a thorough understanding about what Mickey said about this is a bad partnership. Following are the five reasons the partnership will not succeed, according to Jasmine:

  1. Gap and Yeezy have very different customer demographics
  2. Kanye is a loose cannon
  3. Gap has become essentially an off-price store
  4. Yeezy has a subpar apparel offering
  5. Gap and Yeezy have conflicting sales strategies

Old Navy Inclusion Confusion

The strategic move to size inclusivity (apparel lines for women of all body types and sizes) is a big deal, well intentioned, and one that most major apparel brands view as a necessary opportunity to satisfy today’s young consumers. However, as Old Navy is finding out, it requires very complex and fundamental strategic and operational changes across all functions of the business. The initiative is called BODEQUALITY; it was well-researched and carefully planned.

Gap CEO, Syngal told analysts in August 2021, “This is the largest integrated launch in the brand’s (Old Navy), history and an important growth driver for the business for years to come.” Shortly after that statement, sales started to dive, resulting in the Q1 2022, $162 million loss. And Nancy Green, after less than two years as Old Navy’s President, left the company in April. In my opinion, this suggests that Green and Syngal had the right strategy, but implementation failed out of the starting gate.

Its launch could not have been more timely and a big deal as Syngal stated. Renee Bavineau, founder and owner of Raise the Bar and the creator of the “Middle Sisters” (registered fit concept) said, “Kudos to Gap Inc. and Old Navy for going all-in and full-on, before the inclusive movement began. And nobody has done all sizes, all styles, all stores, all at the same price. Plus placing display mannequins, size 4, 12 and 18 in each store. And no more hiding plus sizes in the back of the store. It was correctly billed as the largest integrated launch, inspired to revolutionize every area of the business. In the brand’s history, this a transformative moment for the brand and the fashion industry. I only hope they can get it implemented.”

Further, she said, “The barriers to successful implementation are many. First, the organization only knows what they know: legacy apparel and fit development practices and a mindset that fits their legacy customer. They sold out of sizes that fit their existing legacy customer.

“Relying on NCHS data, scanning hundreds of women, acquiring an extended sized customer database and filling the stores is not holistic or comprehensive. Their entire organization, top down, all functions (not just tech design) needed to be educated and empowered with a laser focus and engagement with this “new” consumer, all while building BODEQUALITY. Fit cannot be properly built via data and technology alone. At the core, the art, craft, and science of fit, hand in hand with data is essential.”

Bavineau added that pulling out sizes that didn’t sell at the launch and sending the plus-size customer online to shop without the tools to find her fit didn’t work either. She said, “Perhaps instead, equip the stores with the full-on size ranges with “try-on” garments to possibly gain a first down.”

Another expert on sizing and fit is Michael Kaplan, an investor and entrepreneur whose family founded the special size clothing brand in 1890, Lane Bryant. He also co-founded Fashion to Figure, a fast-fashion mainstay in the market. Kaplan had this to say about Old Navy’s BODEQUALITY effort, generally paraphrased from an article he wrote for The Robin Report. He said, “Nothing about Old Navy’s current operations is geared to size-inclusive expertise or making that product. Not their design process, fit modeling, tech pack creation, production lines, productions costs, fabrics, economic model, inventory management, and on and on. The premise that current operations can be shifted easily to gain share in another segment is flawed. Legacy brands attempt this on current platforms and alienate internal people and break processes they rely on for the core business. Not to mention that their selling space, inventory management, forecasting, marketing cadence, etc. is all set for product with which, and customers with who they have history. Now they are putting forth something new which they have no ability to forecast, due to their embracing legacy processes not applicable to the category. So, sales are typically weak at the outset, employee morale suffers, and wall street pounds the share price, among other negative effects Old Navy is now suffering through. If brands were smart enough to modify their processes when trying this, they are in learning mode, and it will take many seasons and costs to flatten their learning curve. Customers eventually may be happy, but their internal morale will be tested, and wall street will not be happy with the stumbles in learning along the way.”

Déjà Vu? Will Gap Inc. Need a Fifth “Hail Mary?”

So, the question has to be asked. Did Sonia Syngal qualify for the top job? Even though her short three-year tenure as CEO of Old Navy (2016-2019) was spectacular, her major career positions and educational experience do not sync with merchandise and branding skills for retailing. Since she joined Gap in 2004, she was EVP of Global Supply Chain and Product Operations and redefined a best-in-class product-to-market model for Gap’s portfolio of brands. She also served in key leadership and general management roles including Managing Director for the company’s European business, and Senior Vice President for Gap Inc.’s international division and international outlet division. Prior to Gap, Sonia had a successful career in Fortune 500 companies, including 10 years at Sun Microsystems and six years at Ford Motor Co. She holds an MA in Manufacturing Systems Engineering from Stanford University and a BS in Mechanical Engineering from Kettering University.

As I said, this is a track record of a very successful businessperson, arguably awesome. However, does it match the profile of an executive “…with deep retailing and merchandising experience, ideally in apparel, and who understands the creative process”?

Sonia Syngal is just starting her tenure and I am rooting for her. She is amazing and her career has been impressive. And as everyone knows we need more female CEO’s, especially in an industry that gets 70 percent of its revenues from women. Let’s hope she moves Gap from a “Hail Mary” track record to a consistent winning game play strategy.

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