The Gap, Inc., incorporated in July 1969, is a global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brands. The Company operates stores in the United States, Canada, the United Kingdom, France, Ireland, and Japan. It also has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries worldwide. Under these agreements, third parties operate or will operate stores that sell apparel, purchased from the Company, under its brand names. As of January 30, 2010, it operated a total of 3,095 store locations. Its United States customers can shop online at gap.com, oldnavy.com, bananarepublic.com, piperlime.com, and athleta.com.
Gap stores offer a selection of classically casual apparel at moderate price points. Products range from wardrobe basics, such as denim, khakis, and T-shirts to fashion apparel, accessories, and personal care products for men and women. These stores offer casual apparel and accessories in the tradition of Gap style and for children ages newborn through pre-teen. It also offers maternity apparel. It also operates Gap Outlet stores, which carry similar categories of products at lower price points. Old Navy offers broad selections of apparel, shoes, and accessories for adults, children, and infants, as well as other items, including a maternity line, consumables, and personal care products. Banana Republic offers fashionable collections of casual and tailored apparel, shoes, accessories, and personal care products for men and women at higher price points than Gap. It also operates Banana Republic Factory Stores, which carry similar categories of products at lower price points.
Piperlime offers customers an assortment of the brands in footwear, handbags, apparel, and jewelry for women and footwear for men and kids, as well as tips, trends, and advice from style authorities. Athleta offers customers women’s sports and active apparel and footwear that is stylish and functional for a variety of activities, including golf, running, skiing and snowboarding, tennis, and yoga. Customers can purchase Athleta product, as well as an assortment of products from brands in women’s active wear, online or through the catalog.
To accomplish this task, Donald Fisher hired Millard "Mickey" Drexler as president in 1983. Drexler, then 40, had just solved a similar problem with AnnTaylor, creating a more chic image for the chain and quadrupling sales in the bargain. Drexler was born in the Bronx to a family with roots in the garment business and by age 23 was a buyer for Bloomingdale's. After a stint at Macy's, he became president of AnnTaylor in 1980, where his work caught the eye of Donald Fisher, who was contemplating the future of The Gap. Drexler accepted the job as president at the end of 1983 (sales $480 million) and was given a block of stock that would make him one of the country's wealthiest retail executives.
Drexler immediately began The Gap's wholesale transformation, in spite of the company's currently excellent financial status. The new president found little that he liked; proliferating competition in jeans and The Gap's youthful marketing image had forced the company into a price-driven volume business. Its orange-painted stores were cluttered with rounders displaying merchandise of many labels that Drexler later described to the New York Times as "trendy but not tasteful ... well, just plain ugly." Worst of all, most consumers perceived The Gap as strictly for teenagers at a time when people who grew up in the 1960s were developing more upmarket tastes. It would be difficult to overcome The Gap's 15-year tradition as the place where kids went to pick up a pair of Levi's.
Drexler began by eliminating all private label brands but one: Gap. Levi Strauss products were kept but relegated to the background; henceforth, The Gap would be known not only as a store, but as a line of clothes as well. Drexler created a large in-house design staff to develop clothes that would be casual, simple, made of natural fibers, and more clearly differentiated by gender than were jeans. The look was informal but classic--still denim-based but including a variety of shirts, skirts, blouses, and sweaters in assorted colors and weaves. It was clothing for people who wanted to look and feel young without appearing slovenly or rebellious, a description that fit a vast number of U.S. consumers in the 1980s.
Gap stores were substantially revamped. Neutral grays and white replaced the garish orange, and the ubiquitous rounders gave way to shelves of neatly folded clothing under soft lighting. The company's advertising, as devised by Drexler's longtime colleague, Magdalena (Maggie) Gross, shifted from radio and television to upscale magazines and newspapers and featured older models engaged in familiar, outdoor activities that were not necessarily connected with the youth culture.
A few years later, Gross launched the "Individuals of Style" campaign, a series of black and white portraits of both famous and unknown subjects by a team of celebrated photographers. The ads stressed style, not The Gap, whose clothes did not always appear in all of the photos, and they were enormously successful in helping to change the public's perception of the company. The Gap came to mean good taste of an informal variety, and the brand name Gap soon acquired the cachet needed if the company were to compete with other retailers of casual wear such as Benetton and The Limited. In addition, the word "stores" was dropped from the company's name.
Drexler's revolution at The Gap cost a good deal of money, and financial results for 1984 were poor, with profits down 43 percent to $12.2 million. By the middle of the following year, however, it was clear he had pulled off something of a miracle. Gross revenue, profits, and same-store sales were all up; more importantly, the company had fresh energy and a merchandising focus that could carry it for years to come. In the meantime, The Gap had acquired a number of other retail chains, for better and worse. Foremost among these was Banana Republic, founded in 1979 by another California husband and wife team, Melvyn and Patricia Ziegler.
The two-store chain of safari and travel clothing outfits, bought by The Gap in 1983, had a well-established catalogue business. After its acquisition and the introduction of private-label clothing lines, Banana Republic's sales doubled each year through the mid-1980s but slowed quickly thereafter. Despite the mixed results of the Banana Republic acquisition, the company continued to seek out other chain stores. Pottery Barn was a housewares chain of about 30 stores in New York and California; after several problematic years, it was liquidated in 1986. That same year, Drexler sought to fill another clothing need of the baby boomer generation with the debut of GapKids, featuring comfortable, durable clothes for the children of parents who shopped at Gap stores. The concept was a huge success, and along with Banana Republic (which peaked in the late 1980s with revenue of more than $250 million a year) figured largely in The Gap's long-range planning.
The Gap Continues Its Climb: 1987-96
By 1987, The Gap decided to try its wares outside the United States, and its first international store was opened in London. Additional stores soon sprang up throughout the United Kingdom, Canada, and France. Unfortunately, stateside, Banana Republic's safari gear bubble burst, and it became a money-losing liability. The Gap also tested the higher end of the clothing market with Hemisphere, a nine-store chain of upscale U.S. sportswear with European styling. Created in 1987, the same year the company broke $1 billion in sales, Hemisphere offered elegant fashions but soon ran afoul of a severe recession. Disposed of only two years later, neither the Hemisphere mistake or the demise of Pottery Barn was serious enough to cause more than a few tremors at the parent company, whose spectacular rebirth in the Drexler era left ample room for such experimentation.
In 1990, as Banana Republic searched for secure footing, GapKids prospered and launched a new venture, babyGap. Like its sibling, babyGap was a phenomenal success and became a popular attraction in GapKids stores. For the start of a new decade, The Gap was looking very good indeed: a stock split occurred in September, and at year-end the company's 1,092 stores pulled in $1.9 billion in sales with net earnings of $144.5 million. In the early 1990s, Banana Republic was busy refocusing its image while GapKids and babyGap flourished. Overall, though, revenue, net income, and return-on-equity were all outstanding ($2.5 billion, $229.8 million, and 40.2 percent respectively due to another stock split in June) in 1991 and virtually every year since Drexler's program had taken effect in 1985. The Gap's transition from a discount jeans warehouse to a sleek fashion arbiter was not altogether painless, yet the result had been more successful than Donald and Doris Fisher ever imagined. In 1991, the Fisher family still held more than 40 percent of the company, which now operated more than 1,216 stores in the United States, Canada, and the United Kingdom, with plans to expand total sales area by 15 percent annually. Not only had The Gap followed its Baby Boomer clientele as they grew older and wealthier, it provided for their children, too. GapKids was the fastest-growing segment of the company as a whole, with most of the more than 223 GapKids stores housing a babyGap department for infants and toddlers.
Though 1992 marked a dip in profits and sales growth due to slower turnover and increased competition, the company addressed these problems by turning away from unisex clothing to more gender-specific items. Along with refurbishing stores and placing more emphasis on women, The Gap came back with record numbers in 1993 and a new franchise, originally called Gap Warehouse, because for some it had become increasingly cool not to spend money on clothes (i.e., the "grunge" and "slacker" looks). Lacking the trademark flare associated with the company, Drexler hired an outside to firm to come up with a new name to no avail. Then when strolling in Paris with colleagues, Drexler saw the perfect moniker for the down-market stores painted on a building: Old Navy. Hence Old Navy Clothing Company, with stores nearly twice as big as other Gap stores, filled with sturdy, value-priced (20 to 30 percent lower) clothing for the entire family. Despite the circumstances of its birth, Old Navy became another Gap sensation.
Banana Republic, meanwhile, was gaining ground with urbane elegance as a hip alternative to The Gap's casualness. To shore up its product line, the upscale clothier initiated a shop-within-a-shop concept, featuring different collections, jewelry, and leather accessories. By 1994, there were 1,507 Gap-owned stores (188 were Banana Republic) contributing to the company's $3.72 billion in sales. Within a year, there were 1,680 stores--210 Banana Republic, 902 Gap, 437 GapKids, and 131 Old Navy. International stores had surged from 1994's 124 (72 in Canada, 49 in the United Kingdom, and 3 in France) to 91 in Canada, 55 in the United Kingdom, 12 in France, 4 in Japan, and 2 in Germany in 1995. Likewise, The Gap's statistics were robust: a two-for-one stock split paid out dividends in March; sales leapt 18 percent to nearly $4.4 billion; and net earnings rose 11 percent to $354 million over the previous year's $320 million.
Banana Republic, once a blemish on the perfect Gap picture, had blossomed with more new products, including footwear, personal care items, a sharper focus on women, and five new stores in Canada. At the same time, Old Navy increased its market share by doubling in size, exceeding the company's hopes for its newest division, while Gap and GapKids lost some of their momentum, although babyGap maintained its prominence. New directions for GapKids and babyGap included plush toys, other non-clothing items, and freestanding babyGap stores; The Gap debuted GapScents and continued to broaden its age range and clothing lines to include work attire. Yet perhaps the biggest news of 1995 was Donald Fisher's decision to relinquish his duties as CEO of The Gap, Inc. His successor was Mickey Drexler, who added the responsibilities of CEO to those of president. Fisher remained chairman, however, and still kept a hand in running the company he founded nearly 30 years before.
By 1996, The Gap's dominance of the fashion scene was fixed; consumers of all ages could find something in one of its stores. The industry even honored the company in the April issue of Elle when such high-brow designers as Giorgio Armani, Nino Cerruti, Carolina Herrera, Todd Oldham, and Cynthia Rowley paid "tribute to the little company that became master of the universe." Though it began with a singular purpose, The Gap, with its burgeoning cluster of stores and subsidiaries, changed fashion for not only baby boomers but for generations to come. The Gap's success was in no small part due to Donald Fisher's and Mickey Drexler's business acuity, especially through vertical integration. By keeping the design, manufacture, inspection, packaging, shipment, display, advertising, and ultimate sale of every item with its name in-house, The Gap maintained exceptional quality and consistency in an increasingly erratic marketplace. If The Gap's clientele was not quite as broad as some department stores or mass marketers, its sophistication and ever-growing consumer base more than made up for it. The Gap--its name formerly a quirky play on generational unrest--came to mean the ultimate in fashion and taste for both younger and older generations.
Late 1990s and Beyond
By the late 1990s, Drexler felt The Gap had strayed too far into the trendy genre and was losing customers as a result. As such, he retooled The Gap's image in 1997, emphasizing a return to simplicity and the company's most basic offerings--pocket tee's, jeans, and khakis. Long-time advertising director Maggie Gross left the firm after Drexler pulled the plug on a print campaign that did not gel with The Gap's new basic image. That year, the firm went back to television advertising with commercials that highlighted Gap Easy Fit jeans featuring well-known celebrities that included Lena Horne, LL Cool J, and Luscious Jackson. In 1998, the firm launched another round of highly successful television commercials--this time the star being its line of khaki pants. The company also began its foray into e-tailing and introduced gap.com along with gapkids.com and babygap.com. Banana Republic and Old Navy began catering to online shoppers shortly thereafter.
Thanks to Drexler's efforts, The Gap grew at a rapid clip during the latter half of the 1990s, securing record sales and earnings. In 1997, sales at Old Navy surpassed $1 billion while overall company sales grew to $6.5 billion. Sales climbed to $9 billion the following year, bolstered by the opening of 356 new stores. The company could now claim that one new store opened each day. In 1999, 570 new stores were added to the company's arsenal as net earnings exceeded $1.1 billion. According to the National Post, the company had grown by 24,000 percent from 1984 to 1999. Drexler's reign at The Gap had become one of the retail industry's amazing success stories.
The new century, however, brought with it rocky times for the 30-year-old retailer. During 2000, the company opened 731 new units and sales grew to $13.6 billion. On the other hand, net income fell to $877 million while comparable store sales fell by 5 percent. In April 2000, sales began declining. Disaster struck in 2001 when the company posted a $7.7 million loss. "Simply put," wrote Anne Kingston of the National Post, "The Gap has lost its groove. Its merchandising is unfocused and it has lost ground to competitors. The formula that made it great no longer has the same currency. More damningly, Gap Inc. has alienated shoppers."
Indeed, the company was losing market share in the over-30 category and was having difficulty appealing to a younger audience. The Gap had also come under fire for its labor practices in third-world countries. Various labor groups claimed The Gap advocated sweatshop labor overseas. In response, the company created a global monitoring program to supervise factory conditions where its clothes were manufactured.
Not surprisingly, Drexler announced his retirement during 2002. He later took a job to head up rival J. Crew Group Inc. After Drexler's departure, Fisher began his search for a new leader, one whose management style could catapult The Gap back into the upper echelon of retail fashion. Paul Pressler, an executive from Walt Disney Co., was tapped to revive the company just as Drexler had been called up to do in the 1980s. Pressler began to implement a series of sweeping corporate changes focused on customer research, strategic planning, new advertising, and store closures. Net income for fiscal 2002 bounced back to $477 million; however, Pressler knew he had his work cut out for him. The retail environment in 2003 remained fiercely competitive, prices were down, and the economy remained questionable. Despite these distinct challenges, both Pressler and Fisher were convinced that The Gap and its brands would carry on as a mainstay in the retail fashion world in the years to come.
Principal Operating Units: Gap; GapKids; babyGap; Banana Republic; Old Navy Clothing Company.
Principal Competitors: Abercrombie & Fitch Stores Inc.; American Eagle Outfitters Inc.; Spiegel Inc.
OVERALL
Beta: 1.17
Market Cap (Mil.): $13,477.39
Shares Outstanding (Mil.): 582.68
Annual Dividend: 0.45
Yield (%): 1.95
FINANCIALS
GPS Industry Sector
P/E (TTM): 12.26 18.99 14.01
EPS (TTM): 19.54 -- --
ROI: 22.25 12.51 1.32
ROE: 26.84 14.22 2.20
Statistics:
Public Company
Incorporated: 1969 as The Gap Stores, Inc.
Employees: 169,000
Sales: $14.4 billion (2003)
Stock Exchanges: New York
Ticker Symbol: GPS
NAIC: 448140 Family Clothing Stores
Key Dates:
1969: Don and Doris Fisher open their first store in San Francisco, California.
1976: The company offers 1.2 million shares to the public.
1983: Millard Drexler is named president; the firm acquires Banana Republic.
1986: The first GapKids store is opened.
1987: The first international store is opened in London.
1990: BabyGap is launched.
1994: The Old Navy brand is established.
1997: The Gap Web site debuts.
2002: Drexler retires; Paul Pressler is named CEO.
Name Age Since Current Position
Murphy, Glenn 49 2007 Chairman of the Board, Chief Executive Officer
Simmons, Sabrina 47 2008 Chief Financial Officer, Executive Vice President
Peck, Arthur 55 2011 President, Gap North America
Wyatt, John 55 2008 President - Old Navy
Keiser, John 45 2010 Executive Vice President, Chief Information Officer
Banks, Michelle 47 2011 Executive Vice President, Chief Compliance Officer, General Counsel, Corporate Secretary
Sage-Gavin, Eva 52 2010 Executive Vice President - Global Human Resources and Corporate Affairs
Raggio, Stanley 54 2010 Executive Vice President - Global Supply Chain
Martin, Bob 62 2003 Lead Independent Director
Fisher, Robert 56 2007 Independent Director
Bellamy, Adrian 69 1995 Independent Director
Shattuck, Mayo 56 2002 Independent Director
Montoya, Jorge 64 2004 Independent Director
De Sole, Domenico 67 2004 Independent Director
Youngblood, Kneeland 55 2006 Independent Director
Fisher, William 54 2009 Independent Director
Tsang, Katherine 53 2010 Independent Director
Address:
2 Folsom Street
San Francisco, California 94105
U.S.A.
Gap stores offer a selection of classically casual apparel at moderate price points. Products range from wardrobe basics, such as denim, khakis, and T-shirts to fashion apparel, accessories, and personal care products for men and women. These stores offer casual apparel and accessories in the tradition of Gap style and for children ages newborn through pre-teen. It also offers maternity apparel. It also operates Gap Outlet stores, which carry similar categories of products at lower price points. Old Navy offers broad selections of apparel, shoes, and accessories for adults, children, and infants, as well as other items, including a maternity line, consumables, and personal care products. Banana Republic offers fashionable collections of casual and tailored apparel, shoes, accessories, and personal care products for men and women at higher price points than Gap. It also operates Banana Republic Factory Stores, which carry similar categories of products at lower price points.
Piperlime offers customers an assortment of the brands in footwear, handbags, apparel, and jewelry for women and footwear for men and kids, as well as tips, trends, and advice from style authorities. Athleta offers customers women’s sports and active apparel and footwear that is stylish and functional for a variety of activities, including golf, running, skiing and snowboarding, tennis, and yoga. Customers can purchase Athleta product, as well as an assortment of products from brands in women’s active wear, online or through the catalog.
To accomplish this task, Donald Fisher hired Millard "Mickey" Drexler as president in 1983. Drexler, then 40, had just solved a similar problem with AnnTaylor, creating a more chic image for the chain and quadrupling sales in the bargain. Drexler was born in the Bronx to a family with roots in the garment business and by age 23 was a buyer for Bloomingdale's. After a stint at Macy's, he became president of AnnTaylor in 1980, where his work caught the eye of Donald Fisher, who was contemplating the future of The Gap. Drexler accepted the job as president at the end of 1983 (sales $480 million) and was given a block of stock that would make him one of the country's wealthiest retail executives.
Drexler immediately began The Gap's wholesale transformation, in spite of the company's currently excellent financial status. The new president found little that he liked; proliferating competition in jeans and The Gap's youthful marketing image had forced the company into a price-driven volume business. Its orange-painted stores were cluttered with rounders displaying merchandise of many labels that Drexler later described to the New York Times as "trendy but not tasteful ... well, just plain ugly." Worst of all, most consumers perceived The Gap as strictly for teenagers at a time when people who grew up in the 1960s were developing more upmarket tastes. It would be difficult to overcome The Gap's 15-year tradition as the place where kids went to pick up a pair of Levi's.
Drexler began by eliminating all private label brands but one: Gap. Levi Strauss products were kept but relegated to the background; henceforth, The Gap would be known not only as a store, but as a line of clothes as well. Drexler created a large in-house design staff to develop clothes that would be casual, simple, made of natural fibers, and more clearly differentiated by gender than were jeans. The look was informal but classic--still denim-based but including a variety of shirts, skirts, blouses, and sweaters in assorted colors and weaves. It was clothing for people who wanted to look and feel young without appearing slovenly or rebellious, a description that fit a vast number of U.S. consumers in the 1980s.
Gap stores were substantially revamped. Neutral grays and white replaced the garish orange, and the ubiquitous rounders gave way to shelves of neatly folded clothing under soft lighting. The company's advertising, as devised by Drexler's longtime colleague, Magdalena (Maggie) Gross, shifted from radio and television to upscale magazines and newspapers and featured older models engaged in familiar, outdoor activities that were not necessarily connected with the youth culture.
A few years later, Gross launched the "Individuals of Style" campaign, a series of black and white portraits of both famous and unknown subjects by a team of celebrated photographers. The ads stressed style, not The Gap, whose clothes did not always appear in all of the photos, and they were enormously successful in helping to change the public's perception of the company. The Gap came to mean good taste of an informal variety, and the brand name Gap soon acquired the cachet needed if the company were to compete with other retailers of casual wear such as Benetton and The Limited. In addition, the word "stores" was dropped from the company's name.
Drexler's revolution at The Gap cost a good deal of money, and financial results for 1984 were poor, with profits down 43 percent to $12.2 million. By the middle of the following year, however, it was clear he had pulled off something of a miracle. Gross revenue, profits, and same-store sales were all up; more importantly, the company had fresh energy and a merchandising focus that could carry it for years to come. In the meantime, The Gap had acquired a number of other retail chains, for better and worse. Foremost among these was Banana Republic, founded in 1979 by another California husband and wife team, Melvyn and Patricia Ziegler.
The two-store chain of safari and travel clothing outfits, bought by The Gap in 1983, had a well-established catalogue business. After its acquisition and the introduction of private-label clothing lines, Banana Republic's sales doubled each year through the mid-1980s but slowed quickly thereafter. Despite the mixed results of the Banana Republic acquisition, the company continued to seek out other chain stores. Pottery Barn was a housewares chain of about 30 stores in New York and California; after several problematic years, it was liquidated in 1986. That same year, Drexler sought to fill another clothing need of the baby boomer generation with the debut of GapKids, featuring comfortable, durable clothes for the children of parents who shopped at Gap stores. The concept was a huge success, and along with Banana Republic (which peaked in the late 1980s with revenue of more than $250 million a year) figured largely in The Gap's long-range planning.
The Gap Continues Its Climb: 1987-96
By 1987, The Gap decided to try its wares outside the United States, and its first international store was opened in London. Additional stores soon sprang up throughout the United Kingdom, Canada, and France. Unfortunately, stateside, Banana Republic's safari gear bubble burst, and it became a money-losing liability. The Gap also tested the higher end of the clothing market with Hemisphere, a nine-store chain of upscale U.S. sportswear with European styling. Created in 1987, the same year the company broke $1 billion in sales, Hemisphere offered elegant fashions but soon ran afoul of a severe recession. Disposed of only two years later, neither the Hemisphere mistake or the demise of Pottery Barn was serious enough to cause more than a few tremors at the parent company, whose spectacular rebirth in the Drexler era left ample room for such experimentation.
In 1990, as Banana Republic searched for secure footing, GapKids prospered and launched a new venture, babyGap. Like its sibling, babyGap was a phenomenal success and became a popular attraction in GapKids stores. For the start of a new decade, The Gap was looking very good indeed: a stock split occurred in September, and at year-end the company's 1,092 stores pulled in $1.9 billion in sales with net earnings of $144.5 million. In the early 1990s, Banana Republic was busy refocusing its image while GapKids and babyGap flourished. Overall, though, revenue, net income, and return-on-equity were all outstanding ($2.5 billion, $229.8 million, and 40.2 percent respectively due to another stock split in June) in 1991 and virtually every year since Drexler's program had taken effect in 1985. The Gap's transition from a discount jeans warehouse to a sleek fashion arbiter was not altogether painless, yet the result had been more successful than Donald and Doris Fisher ever imagined. In 1991, the Fisher family still held more than 40 percent of the company, which now operated more than 1,216 stores in the United States, Canada, and the United Kingdom, with plans to expand total sales area by 15 percent annually. Not only had The Gap followed its Baby Boomer clientele as they grew older and wealthier, it provided for their children, too. GapKids was the fastest-growing segment of the company as a whole, with most of the more than 223 GapKids stores housing a babyGap department for infants and toddlers.
Though 1992 marked a dip in profits and sales growth due to slower turnover and increased competition, the company addressed these problems by turning away from unisex clothing to more gender-specific items. Along with refurbishing stores and placing more emphasis on women, The Gap came back with record numbers in 1993 and a new franchise, originally called Gap Warehouse, because for some it had become increasingly cool not to spend money on clothes (i.e., the "grunge" and "slacker" looks). Lacking the trademark flare associated with the company, Drexler hired an outside to firm to come up with a new name to no avail. Then when strolling in Paris with colleagues, Drexler saw the perfect moniker for the down-market stores painted on a building: Old Navy. Hence Old Navy Clothing Company, with stores nearly twice as big as other Gap stores, filled with sturdy, value-priced (20 to 30 percent lower) clothing for the entire family. Despite the circumstances of its birth, Old Navy became another Gap sensation.
Banana Republic, meanwhile, was gaining ground with urbane elegance as a hip alternative to The Gap's casualness. To shore up its product line, the upscale clothier initiated a shop-within-a-shop concept, featuring different collections, jewelry, and leather accessories. By 1994, there were 1,507 Gap-owned stores (188 were Banana Republic) contributing to the company's $3.72 billion in sales. Within a year, there were 1,680 stores--210 Banana Republic, 902 Gap, 437 GapKids, and 131 Old Navy. International stores had surged from 1994's 124 (72 in Canada, 49 in the United Kingdom, and 3 in France) to 91 in Canada, 55 in the United Kingdom, 12 in France, 4 in Japan, and 2 in Germany in 1995. Likewise, The Gap's statistics were robust: a two-for-one stock split paid out dividends in March; sales leapt 18 percent to nearly $4.4 billion; and net earnings rose 11 percent to $354 million over the previous year's $320 million.
Banana Republic, once a blemish on the perfect Gap picture, had blossomed with more new products, including footwear, personal care items, a sharper focus on women, and five new stores in Canada. At the same time, Old Navy increased its market share by doubling in size, exceeding the company's hopes for its newest division, while Gap and GapKids lost some of their momentum, although babyGap maintained its prominence. New directions for GapKids and babyGap included plush toys, other non-clothing items, and freestanding babyGap stores; The Gap debuted GapScents and continued to broaden its age range and clothing lines to include work attire. Yet perhaps the biggest news of 1995 was Donald Fisher's decision to relinquish his duties as CEO of The Gap, Inc. His successor was Mickey Drexler, who added the responsibilities of CEO to those of president. Fisher remained chairman, however, and still kept a hand in running the company he founded nearly 30 years before.
By 1996, The Gap's dominance of the fashion scene was fixed; consumers of all ages could find something in one of its stores. The industry even honored the company in the April issue of Elle when such high-brow designers as Giorgio Armani, Nino Cerruti, Carolina Herrera, Todd Oldham, and Cynthia Rowley paid "tribute to the little company that became master of the universe." Though it began with a singular purpose, The Gap, with its burgeoning cluster of stores and subsidiaries, changed fashion for not only baby boomers but for generations to come. The Gap's success was in no small part due to Donald Fisher's and Mickey Drexler's business acuity, especially through vertical integration. By keeping the design, manufacture, inspection, packaging, shipment, display, advertising, and ultimate sale of every item with its name in-house, The Gap maintained exceptional quality and consistency in an increasingly erratic marketplace. If The Gap's clientele was not quite as broad as some department stores or mass marketers, its sophistication and ever-growing consumer base more than made up for it. The Gap--its name formerly a quirky play on generational unrest--came to mean the ultimate in fashion and taste for both younger and older generations.
Late 1990s and Beyond
By the late 1990s, Drexler felt The Gap had strayed too far into the trendy genre and was losing customers as a result. As such, he retooled The Gap's image in 1997, emphasizing a return to simplicity and the company's most basic offerings--pocket tee's, jeans, and khakis. Long-time advertising director Maggie Gross left the firm after Drexler pulled the plug on a print campaign that did not gel with The Gap's new basic image. That year, the firm went back to television advertising with commercials that highlighted Gap Easy Fit jeans featuring well-known celebrities that included Lena Horne, LL Cool J, and Luscious Jackson. In 1998, the firm launched another round of highly successful television commercials--this time the star being its line of khaki pants. The company also began its foray into e-tailing and introduced gap.com along with gapkids.com and babygap.com. Banana Republic and Old Navy began catering to online shoppers shortly thereafter.
Thanks to Drexler's efforts, The Gap grew at a rapid clip during the latter half of the 1990s, securing record sales and earnings. In 1997, sales at Old Navy surpassed $1 billion while overall company sales grew to $6.5 billion. Sales climbed to $9 billion the following year, bolstered by the opening of 356 new stores. The company could now claim that one new store opened each day. In 1999, 570 new stores were added to the company's arsenal as net earnings exceeded $1.1 billion. According to the National Post, the company had grown by 24,000 percent from 1984 to 1999. Drexler's reign at The Gap had become one of the retail industry's amazing success stories.
The new century, however, brought with it rocky times for the 30-year-old retailer. During 2000, the company opened 731 new units and sales grew to $13.6 billion. On the other hand, net income fell to $877 million while comparable store sales fell by 5 percent. In April 2000, sales began declining. Disaster struck in 2001 when the company posted a $7.7 million loss. "Simply put," wrote Anne Kingston of the National Post, "The Gap has lost its groove. Its merchandising is unfocused and it has lost ground to competitors. The formula that made it great no longer has the same currency. More damningly, Gap Inc. has alienated shoppers."
Indeed, the company was losing market share in the over-30 category and was having difficulty appealing to a younger audience. The Gap had also come under fire for its labor practices in third-world countries. Various labor groups claimed The Gap advocated sweatshop labor overseas. In response, the company created a global monitoring program to supervise factory conditions where its clothes were manufactured.
Not surprisingly, Drexler announced his retirement during 2002. He later took a job to head up rival J. Crew Group Inc. After Drexler's departure, Fisher began his search for a new leader, one whose management style could catapult The Gap back into the upper echelon of retail fashion. Paul Pressler, an executive from Walt Disney Co., was tapped to revive the company just as Drexler had been called up to do in the 1980s. Pressler began to implement a series of sweeping corporate changes focused on customer research, strategic planning, new advertising, and store closures. Net income for fiscal 2002 bounced back to $477 million; however, Pressler knew he had his work cut out for him. The retail environment in 2003 remained fiercely competitive, prices were down, and the economy remained questionable. Despite these distinct challenges, both Pressler and Fisher were convinced that The Gap and its brands would carry on as a mainstay in the retail fashion world in the years to come.
Principal Operating Units: Gap; GapKids; babyGap; Banana Republic; Old Navy Clothing Company.
Principal Competitors: Abercrombie & Fitch Stores Inc.; American Eagle Outfitters Inc.; Spiegel Inc.
OVERALL
Beta: 1.17
Market Cap (Mil.): $13,477.39
Shares Outstanding (Mil.): 582.68
Annual Dividend: 0.45
Yield (%): 1.95
FINANCIALS
GPS Industry Sector
P/E (TTM): 12.26 18.99 14.01
EPS (TTM): 19.54 -- --
ROI: 22.25 12.51 1.32
ROE: 26.84 14.22 2.20
Statistics:
Public Company
Incorporated: 1969 as The Gap Stores, Inc.
Employees: 169,000
Sales: $14.4 billion (2003)
Stock Exchanges: New York
Ticker Symbol: GPS
NAIC: 448140 Family Clothing Stores
Key Dates:
1969: Don and Doris Fisher open their first store in San Francisco, California.
1976: The company offers 1.2 million shares to the public.
1983: Millard Drexler is named president; the firm acquires Banana Republic.
1986: The first GapKids store is opened.
1987: The first international store is opened in London.
1990: BabyGap is launched.
1994: The Old Navy brand is established.
1997: The Gap Web site debuts.
2002: Drexler retires; Paul Pressler is named CEO.
Name Age Since Current Position
Murphy, Glenn 49 2007 Chairman of the Board, Chief Executive Officer
Simmons, Sabrina 47 2008 Chief Financial Officer, Executive Vice President
Peck, Arthur 55 2011 President, Gap North America
Wyatt, John 55 2008 President - Old Navy
Keiser, John 45 2010 Executive Vice President, Chief Information Officer
Banks, Michelle 47 2011 Executive Vice President, Chief Compliance Officer, General Counsel, Corporate Secretary
Sage-Gavin, Eva 52 2010 Executive Vice President - Global Human Resources and Corporate Affairs
Raggio, Stanley 54 2010 Executive Vice President - Global Supply Chain
Martin, Bob 62 2003 Lead Independent Director
Fisher, Robert 56 2007 Independent Director
Bellamy, Adrian 69 1995 Independent Director
Shattuck, Mayo 56 2002 Independent Director
Montoya, Jorge 64 2004 Independent Director
De Sole, Domenico 67 2004 Independent Director
Youngblood, Kneeland 55 2006 Independent Director
Fisher, William 54 2009 Independent Director
Tsang, Katherine 53 2010 Independent Director
Address:
2 Folsom Street
San Francisco, California 94105
U.S.A.