Gap – Retail Market Positioning & Digital Replatforming –
13 July 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Swave Szymczyk (SS)
Former VP, Omnichannel Marketing at The Gap Inc
Agenda:
1. Gap (NYSE: GPS) brand omnichannel overview
2. Physical retail reduction initiatives
3. European business strategic review
4. Digital sales outlook amid replatforming
Contents
Q: Could you give an overview of the apparel industry, focusing on lifestyle brands? How would you define a
lifestyle brand?
3
Q: Could you name Gap’s biggest competitors? What do you think is driving apparel and lifestyle sales?
What are your thoughts on the category’s saturation or the term lifestyle? ESG players often talk about their
ESG credentials. How can Gap remain true to what it says about its lifestyle products?
Q: What 2-3 industry trends did you notice before and during the pandemic? Were there any regional
differences?
Q: Could you outline the market dynamics driving fragmentation in apparel vs footwear?
Q: How did Gap perform during the pandemic vs the category or industry as a whole? Do you think the
company underperformed vs peers? Did the pandemic present an opportunity to win market share in some
categories?
Q: Could you give an overview of Gap’s replatforming? How has it transformed the company’s capabilities?
Why did it take so long to realise the need to revamp the digital strategy and infrastructure?
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4
4
4
5
Q: Can you elaborate on the relationship between brands under the parent Gap company? Brands such as
Old Navy and Athleta are doing exceptionally well and growing significantly, while Gap and Banana Republic
are potentially closing 30% of stores within the next 1-2 years. Could you explain that dynamic? Why are two
5
brands leading but two other brands are declining?
Q: What do you think would be the best next step for Gap to reinvent its brand or channel? How do you
assess its existing channel strategy, which is to reduce the physical footprint and continue to build
momentum from the recent replatforming?
6
Q: Gap is reducing its physical footprint with the Gap and Banana Republic brands but seems to be
expanding Old Navy and Athleta. Do you identify a risk with this strategy, where the company might become
overexposed and have to peel back again? Does it need to be so aggressive in expanding physically, given that
6
sales are growing? What is your opinion of the pace of expansion?
Q: How would you say Gap’s ROI in marketing has changed amid increased digital traffic? You mentioned
the company’s ability to overspin on marketing digitally.
7
Q: How do you assess Gap and the rest of its business portfolio globally, including the ability to keep up or
find growth elsewhere? As we’ve noted with other fashion companies struggling domestically, Gap’s growth
has exploded in Asia. What pivots might have occurred to identify that growth, considering the company
hasn’t achieved it domestically?
7
Q: Could you describe Gap’s ability to maintain or recover pricing? You mentioned that consumers become
used to products being 40% off in Gap stores. How can an apparel player manage or maintain brand affinity
to command a price premium?
8
Q: Old Navy is a promotional brand vs Gap, so why can’t the company just scale back volume, create demand
and save the Gap brand vs trying to continuously produce? Are there incentives around the company’s
supply chain capabilities? Is that intertwined and it chooses to mass-produce because it can? Does it
intertwine at multiple production lines for multiple brands, which creates that incentive to push out
whatever product it can?
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Q: Which markets do you think Gap should maintain a presence in to stay competitive?
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Q: To what extent do you think Gap and its portfolio of companies has considered reinventing its shopping
experience? Nike reduced the number of players and wholesalers it works with, but it is constantly
reinventing how consumers engage with the brand in stores. How is Gap reinventing customer engagement?
It can open as many stores as it likes, but there could be an issue if they all look the same as they did in the
1990s.
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Q: How do you think Gap considers players such as Amazon in the context of its omnichannel strategy and
distribution, particularly considering the desire to control the brand while gaining exposure?
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Q: What do you think younger consumers want from lifestyle brands overall? How can Gap reconnect with
the younger consumer instead of, as you said, focusing too much on financial performance?
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Q: Do you think Gap should have moved forward with decoupling? Should it consider an opportunity to split
the brand in future? How do you assess the corporation’s structure? Would the brands be better off as
separate entities?
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Gap – Retail Market Positioning & Digital Replatforming
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Gap – Retail Market Positioning & Digital
Replatforming. I’m Nyree Hinton, and I will be facilitating today’s Interview with Mr Swave Szymczyk, former
VP of Omnichannel Marketing at The Gap Inc.
Swave, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any other information which is confidential, during this Interview.
SS: I agree.
NH: Thank you, Swave. Can you start with a brief introduction to your background?
SS: My last position was as VP of Omnichannel Marketing at The Gap where I oversaw a USD 70m-plus
budget and about 160 team members across North America, Europe and Asia-Pacific, and that covered all of
in-store marketing, digital marketing, anything having to do with channels essentially, as well as digital
growth and digital advertising. Before that, I was at world headquarters at Adidas where I was in a very similar
role. I was the Global Director of Digital and Retail Marketing, where I basically put together the global
campaigns and local campaigns that would go out to the different markets that would then roll up into the
global campaigns. Then, obviously, worked with our local marketing teams in North America, Greater China,
which is APAC, essentially, and Europe to make sure that all of their marketing needs were met in terms of
product launches as well as above-the-line campaigns. Before that, I did a bit of consulting with Adidas on the
digital side and then I worked on brand at Foot Locker Europe. Before that, I was actually at Esprit, where I
ran brand for EDC, which is the denim division, and then helped them start a brand called every.day.counts,
which was the competitor to Cos and the Scandinavian brands. Before that, I was at Icebreaker in New
Zealand as well as Adidas America in the US.
[00:02:49]
Q: Could you give an overview of the apparel industry, focusing on lifestyle brands? How would you define a
lifestyle brand?
SS: I would say a lifestyle brand goes beyond just apparel or beyond just the one category, so you would
definitely cover either the whole family or you would do a specific gender and add some home or accessories.
It really is essentially having a brand be a part of your life on a fairly daily basis, and it’s really more about
having that connection with a consumer, just providing them with the either apparel or items that they would
use in their everyday life.
[00:03:56]
Q: Could you name Gap’s biggest competitors? What do you think is driving apparel and lifestyle sales? What
are your thoughts on the category’s saturation or the term lifestyle? ESG players often talk about their ESG
credentials. How can Gap remain true to what it says about its lifestyle products?
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SS: I think the biggest competitors for Gap brand itself, the number one by far and away is JCrew and their
subsidiary, Madewell. One of the biggest product categories that Gap works in is denim and so JCrew’s answer
to that is Madewell, so they’ve actually spun off a brand in order to have that one-to-one competition.
In terms of Banana Republic and Gap, I would say brands like Ralph Lauren group and Victoria’s Secret,
Express, Ann Taylor Loft, those are competing with both of them. Then when you get to Old Navy, certainly
more of the value brands, so you’d go into possibly a Target. In Latin America, C&A is a massive player, so
there’s that Old Navy/C&A fight in Latin America, both of them having hundreds and hundreds of stores. Then
Athleta, being the biggest growth vehicle for the portfolio, they’re going directly up against the likes of
Lululemon and, to an extent, Nike and Adidas.
[00:06:04]
Q: What 2-3 industry trends did you notice before and during the pandemic? Were there any regional
differences?
SS: There was definitely a shift to online. Gap itself was actually doing a big replatforming. They were quite
early players in the online space, but because their systems were purpose-built, they’ve actually had to go and
update that system, so that was definitely a massive project that was being undertaken across all the brands.
The shift to digital was already happening. The other big thing that happened was the athleisure movement, so
from a styling point of view, people just became a lot more relaxed, it became okay to wear sweatpants more
and leggings more so than probably ever before, and even businesses went a lot more casual. I would say those
are the two big ones. Obviously, very accelerated by COVID, but definitely I’d say move to online shopping and
then the casualisation of apparel.
[00:07:32]
Q: Could you outline the market dynamics driving fragmentation in apparel vs footwear?
SS: It’s happening actually everywhere. You have the rise of the D2C brand, which ostensibly looks like it’s a
company that only does one thing really well. You have a ton of t-shirt companies and short companies and
pant companies. It’s interesting actually, a lot of them are manufacturers that supply a lot of the big name
brands that have just started to dabble in digital marketing. They make themselves look like smaller
companies that only do one thing, where actually it is just a subsidiary of a larger company that does produce a
lot of apparel, they’ve just taken a trend of advertising, I would say particularly on Instagram, and focusing on
one product, speaking to your testimonials and talking about the benefits of that one single product. That’s
really become very prevalent. Especially if you’re following any designers, apparel brands, footwear brands,
you definitely will start to see quite a lot of those small companies pop up.
[00:09:16]
Q: How did Gap perform during the pandemic vs the category or industry as a whole? Do you think the
company underperformed vs peers? Did the pandemic present an opportunity to win market share in some
categories?
SS: Where Gap won was definitely children’s wear. There’s a very strong design team, there’s a very strong
business team behind it so they really understand that space. In fact, even in marketing, we were starting to
explore basically consumer journeys around when women would buy maternity, to basically keep them as a
customer for life. That is one place where they definitely have done a great job. I think one of the issues was
that the management at the time in terms of adults didn’t have a very clear vision of what to stand behind
outside of denim, and so it was described once in a meeting as, “We’ll just do a lot of things, throw them up
against a wall and see what sticks,” which was not ideal. That has since changed, but that was definitely
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something that was happening for a while, and I think that’s why they underperformed outside of the denim
category against some of the competitors, there just wasn’t a clear vision and they didn’t stand behind
anything in a big enough way, so even if something was a runaway success, it was really hard to get back into
it.
I think the other issue was that they overdiscounted, so the commonality that consumers knew them for was at
least 40% off. That I think was a bit of an issue because it was hard for… One of the big things that when I was
there we were going after was to increase the profit margin, and that was a slow and steady road because
whenever there wasn’t a sale of at least 40%, customers just wouldn’t buy, so the discounting did definitely
hurt the company early days. That actually has shifted with COVID. I think, in the beginning, Gap, like many
other companies, wasn’t prepared for the volume of sales that would come from COVID online, and so they
definitely had some misses in that April, May, June of last year, where shipments were taking eight or nine
weeks, things would sell out and the inventory management was a bit tough. To their credit, they were going
through a replatforming as well and they really got it together within, I would say, 60-90 days, where by June,
July, things were back on a regular shipping schedule and they were really able to shift a lot of product online.
One of the initiatives before was to actually have a combined inventory and start to ship things not just from
DCs, but ship from store, and so COVID accelerated that as well, where they were able to use some of their
store locations that may not have been open or with limited hours or limited staff, were being able to be used
as distribution centres for their clients.
[00:13:33]
Q: Could you give an overview of Gap’s replatforming? How has it transformed the company’s capabilities?
Why did it take so long to realise the need to revamp the digital strategy and infrastructure?
SS: The reason it took so long, and this is very public, but Old Navy was going to be spun off into its own
entity and then the other Gap brands would be a new company staying under Gap Inc. The decoupling of those
systems took a lot of digital resource and back-end resource and probably about two years, and then as they
came closer to decoupling those two, there was a decision made that actually the companies shouldn’t be
decoupled and so essentially they scrapped all that work, but by scrapping all that work, there was a two-year
backlog of some of the digital initiatives that were on the back burner. That’s one of the things. Now that that’s
over, they actually were able to accelerate and get back on track. I think the other thing was that they
prioritised different brands for different initiatives. It’s like the loudest or whatever, the squeaky wheel gets
the grease. Brands that were represented in San Francisco, and were on site, generally would get more
resources devoted to them. Gap brand was based in New York, so as much as we would travel back and forth to
San Francisco, we weren’t there day to day, so things like buy online, pick up in-store went to Banana Republic
and Old Navy and Athleta before it came to Gap. There were a couple of instances where not all of the digital
capabilities were rolled out to all of the divisions at the same time. That has now since changed. I know that
with Sonia’s leadership as CEO, with Mark Breitbard’s leadership of The Gap who used to run Banana, and he
already has a lot of the relationships with the central team, they were actually able to have a much more
important seat at the table, and there has been a move from dealing with each of the divisions individually and
more to actually we’d form as a group.
[00:16:46]
Q: Can you elaborate on the relationship between brands under the parent Gap company? Brands such as Old
Navy and Athleta are doing exceptionally well and growing significantly, while Gap and Banana Republic are
potentially closing 30% of stores within the next 1-2 years. Could you explain that dynamic? Why are two
brands leading but two other brands are declining?
SS: Obviously, Old Navy is a value proposition, so it has a very clear point of view. Athleta, again, it’s in a very
different space. It was built up as an athleisure company to compete with the likes of Lululemon, so there’s a
single-minded focus there. I would also say that Old Navy is a machine, there are systems in place. Basically,
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anyone that has been at Gap for a long time has done at least a stint at Old Navy. It’s where the systems are
boarded. It’s just a process-driven company, whereas some of the others, Gap, for example, was really looked
at as the flagship, and it lost its way a bit with a lot of the competitors that came up. They went to a discount
model, as did Banana Republic, and it started slowly, but the snowball effect just happened, where it would be,
I don’t know, maybe new collection and for one week only it’s 30% off, and so once they started to train
customers to buy on sale, the customers essentially expected that on a regular basis.
I think the other thing that happened at Gap was there were a couple of changes in management, and so there
were a lot of pivots in the business. At one point, there was the combination of the factory outlet and the inline
stores, then that was separated. There was a bigger focus on women’s vs denim and then on kids vs women.
There just wasn’t a very clear strategy, and so in order to keep up with sales, I think both Gap and Banana
went down the road of discounting to the point where actually price-wise they were pretty close to each other,
but then Gap also close to Old Navy. It just lost its way for a bit. All of the focus was put on Old Navy because
you can open an Old Navy store relatively inexpensively and you know it’s going to get you a return, and so the
company as a whole lost focus on those two brands and really put all of the talent and all of the resources
behind the growth of Old Navy. As athleisure, and rightfully so, was coming up as a big trend, Athleta became
a much bigger piece of the pie as well and certainly accelerated the growth.
[00:21:00]
Q: What do you think would be the best next step for Gap to reinvent its brand or channel? How do you assess
its existing channel strategy, which is to reduce the physical footprint and continue to build momentum from
the recent replatforming?
SS: I think what they’re doing right now is quite interesting. They’re trying to regain some of that cultural
relevance through the partnerships with Kanye and their partnership with Walmart to get into home. They’re
capitalising on The Gap name and the nostalgia of that, and recapturing that customer, but also introducing it
to a new customer. To be fair, it was very oversaturated, there were way too many stores, and this I think is
true for not only Gap and Banana, but also a lot of other retailers. The retail landscape is changing, and unless
you have a great value proposition or an amazing experience, the middle-of-the-road guys are just going to go
away, as we see with malls closing all the time. Naturally, as there are less malls and less of those experiences,
you’ll have fewer stores.
Gap also does have a really interesting strategy of putting some of their stores next to Trader Joe’s, and a
successful Trader Joe’s in those outdoor malls, and those have a slightly different product mix. It’s really made
around the woman who is there to go to a Pilates class, stop into Trader Joe’s, and it’s becoming this pop-in,
get what you want for yourself, but then it has a small men’s department with some basics and a larger kids
department, so very much made for that suburban mom. That was an initiative that was starting a couple of
years ago, and it’s a much smaller footprint, much less expensive to put together, so more of a standardised
format. That’s one thing. Then, the online push definitely is going to help them. I think one of the things that I
will say is that Gap as a brand tends to overinvest in digital marketing, which is quite important, and again,
rightfully so, where they are working to acquire new customers to the site. Knowing that some of the stores
will ultimately close, there was a push from a digital acquisition point of view, but also to use the app in-store
so that the app actually became another channel for them and that grew really, really quickly as well so that
when stores closed you didn’t have to push customers to another store, but you actually used the closing of
stores to push them either online or into the app.
[00:24:56]
Q: Gap is reducing its physical footprint with the Gap and Banana Republic brands but seems to be expanding
Old Navy and Athleta. Do you identify a risk with this strategy, where the company might become overexposed
and have to peel back again? Does it need to be so aggressive in expanding physically, given that sales are
Private and confidential 6
growing? What is your opinion of the pace of expansion?
SS: I think that they’re responding to the market. If you look at the athleisure section of the market, Nike
announced that they’re opening 200 of their individual branded stores and they’ll be smaller footprints, which
is what Athleta is, it’s a much smaller footprint. It’s a lot easier to make a profit in a store of that size than it is
in an average Gap store which has, on average, men’s, women’s, kids, denim and every kind of kids, so you
need a lot of space for it. I think also they can be a lot more targeted with them. Old Navy, it offers value.
Whether it’s your thing or not, end of the day, it does give value for the whole family, and although it’s an
aggressive roll-out, I think there’ll always be a segment of the population that will want to shop and will want
to get really great value for money, they’ll just need it, especially as kids grow. For a lot of folks it is they can’t
go to even a JCrew, let’s say, they do need that less expensive place that maybe is seen as a bit more fun. I
would also say that the Old Navy team really looks at every single opening in terms of the demographics, in
terms of the number of customers it’s going to serve. I think a lot of the lessons that have been learned are
being applied to Old Navy, and there’s a much deeper focus on where they open, even if it’s quickly. I think
some of that is also coming from landlords giving amazing deals for a very long time, and so that helps stores
that perhaps five years ago wouldn’t be able to be profitable now be profitable because that rent piece of it is so
much less.
[00:28:08]
Q: How would you say Gap’s ROI in marketing has changed amid increased digital traffic? You mentioned the
company’s ability to overspin on marketing digitally.
SS: Certainly when I was there, and this trend has continued, we really looked at the ROI of every single
dollar, especially in digital, you can actually track the traffic and sales fairly directly. We really looked at
lookalike profiles and targeting those for advertising. We looked at affiliate programmes and overbid on some
of the search terms to really get customers into the fold. There was a lot of conversation back and forth around
what the strategy around it should be. At one point, it was very much a month to month, “Let’s make sure we
get our ROI.” When I was there, we really looked at the year as a whole, and looking at attrition rates as well,
we shifted a bit from a 30- to a 90-day ROI to give a bit more space to consumer acquisition so that Q1, Q2 and
Q3 were really built to get more people into the fold and then Q4 you could retarget them a lot better. That was
a pretty big shift. That’s really where that came from. There was a divestiture in television. We did do a TVC
and some radio around Christmas two years ago, but as the media landscape has changed, the investment in
digital, I would say they’re actually probably ahead of some of the competitors, and just looking into the
different media channels that there are available and being able to track ROI in a much more consistent way
rather than just putting their brand out there in TV or out of home or magazines and hoping for the best.
[00:30:53]
Q: How do you assess Gap and the rest of its business portfolio globally, including the ability to keep up or
find growth elsewhere? As we’ve noted with other fashion companies struggling domestically, Gap’s growth
has exploded in Asia. What pivots might have occurred to identify that growth, considering the company
hasn’t achieved it domestically?
SS: Definitely Old Navy does a lot of business in Latin America. They have the competitor in C&A. That’s part
of their strategy there. You’ll see that Gap is actually closing their European doors just to refocus on the
American and Asian market. The European landscape has completely changed as well. That discount-driven
retailer, there’s just too much competition and it’s hard to survive. You could argue that the sense of
Americana is not as important as it once was. That’s maybe a bit more anecdotal and opinion, but certainly, if
you look at the political climate, that does have a lot to do with it.
I would say that in terms of international, there’s a big focus on Asia, and interestingly for Gap brand, it was
Japan first then China, and those are two markets where they are doing extremely well. Where at the company
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or the brand itself is having maybe less and less physical outlets in the western world, in China specifically,
there are actually more and more retail outlets because there’s just so much of an untapped market there.
They’ve done a really good job. There’s a formula to success in China, which is essentially having the KOLs, or
key opinion leaders, on brand and basically having them push your brand through social media and also
having a mix of western and eastern talent in advertising, and so they’ve done a really, really great job of
tapping into both of those along with having the right strategic partnerships with retailer groups in the
different provinces. They’re actually able to come in and not just open one or two stores, but open 30 or 40,
which you need to do in order to penetrate even a city. If you think of Shanghai, a company like Adidas has
240 retail outlets in Shanghai alone. I think it’s a slightly different strategy they (inaudible 34.34) this year,
and I think that they definitely have a very talented team in Asia that understands how to be successful in both
Japan and China. Knowing that China’s the growth vehicle, they’ve actually moved offices from Tokyo to
Shanghai to really make sure that they’re on the ground with that market.
[00:35:04]
Q: Could you describe Gap’s ability to maintain or recover pricing? You mentioned that consumers become
used to products being 40% off in Gap stores. How can an apparel player manage or maintain brand affinity to
command a price premium?
SS: Unfortunately, I’ve seen this happen a couple of times. We can take our lesson from department stores,
where there was the one-day sale, then there was the coupon in a newspaper and then that coupon gave you
the early access one-day sale that then became a three-day sale, and then everyone just ended up shopping on
Tuesdays where you know that stores restock then you got the best deals because that’s when the double or
triple sale was. Consumers are very savvy and they can shop around. It comes down to really having a product
that people want, but not oversaturating it so that demand creation is there. That’s where, and this was
actually happening when I was there, Gap would buy a ton of a style, and you knew that that style was going to
be there and on sale within three weeks, so people would just wait. People really got to know the markdown
cadence. What they did is they actually pared back quite a lot on how many units of each individual item they
bought, and so that actually did start to create some scarcity and create a bit more demand for some specific
products. That was definitely a big part of their strategy.
Just in terms of the right brand partnerships, right now, every brand is all about a collab, and so I think the
partnership with Kanye, if you look at the Yeezy brand, he’s always said that he wanted it to be a really
democratic brand, and the start with Adidas is maybe a bit more high end, but his vision for that brand has
always been something that’s accessible to everyone, that it’s design that challenges maybe what’s traditional,
but is accessible from a price point point of view. I think it’s the right partnership. Certainly when you look at
the demographics across the Yeezy platform, and who’s buying the products there, it’s very similar to the
demographics at Gap. I think having some of those partnerships will create some of that demand back, but
also not overproducing the product, which, again, I think it’s a lesson learned, will be helpful in the long run.
[00:38:46]
Q: Old Navy is a promotional brand vs Gap, so why can’t the company just scale back volume, create demand
and save the Gap brand vs trying to continuously produce? Are there incentives around the company’s supply
chain capabilities? Is that intertwined and it chooses to mass-produce because it can? Does it intertwine at
multiple production lines for multiple brands, which creates that incentive to push out whatever product it
can?
SS: I think there are a couple of things there to unpack. If you’re producing one garment a million times vs
two garments 500,000 times, it’s obviously cheaper to do one, so I think there is that incentive there. I think
what it comes down to honestly is that, within their portfolio, each of the companies, it’s a publicly-traded
company, so QoQ there is that responsibility to deliver, and what Gap had decided to double down on was to
deliver a higher margin. The ways to get to that higher margin weren’t necessarily by fixing the brand,
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although there have been attempts, but the reality is that it’s a very financially run, financially motivated
company. Even in a commercial planning meeting, the commercial planning trifecta is finance, product then
marketing. There is that short-term ROI that’s being looked at in order to get the stock price to where it needs
to be.
I think as far as the mix within the portfolio, Old Navy has a really clear identity, it has a really clear point of
view, really clear price point and it’s very successful at it. It is a much lower price point than Gap on the
surface, but when you really dig into it, actually, once you get through all the discounts, or this used to be the
case, it’s becoming less and less so now, the prices were not that dissimilar between Old Navy and Gap. I think
that’s where, once you teach a consumer that they can get the product just a little bit later, they’re going to get
it out the door, and if you have to get things out the door to make room for new products, obviously it’s going
to end up being able to be sold at a lower price. Plus the margins are very, very healthy, and so using that, even
at 40% off, they’re still making a pretty decent amount of money.
I think it was the look at profitability or look at profit margin rather than brand that is kind of how they got
there, and a couple of the different management decisions along the way. I think if you look at current
management of Gap brand, these guys basically came from early Gap days and have been through Banana and
Levi’s and Carter’s. They really understand the landscape, they really understand the business, they
understand that they have to double down and stand for things. I actually have a pretty positive view of where
they’re going, and I think the team that they’ve put in place is a team that has worked together before, so there
are fewer outsiders and so it’s a team that knows how to work together and how to get things done.
[00:43:52]
Q: Which markets do you think Gap should maintain a presence in to stay competitive?
SS: This is one where, and again, one opinion, but it’s very financially-driven, or at the very least it was when I
was there. It’s very financially driven to the point where a few of us were actually having to step in and look at
our market, like, for example, northern New Jersey, “Yes, there are seven stores within a 12-mile radius and
none of them are performing.” At one point, the thought was to just close all of them, to which we actually had
to go back and reevaluate some of the key places that they really needed to be. I don’t know how familiar you
are with northern New Jersey, but Riverside Square Mall which is a C-level mall at best, you can pull out of
that one, but you’re not going to pull out of Garden State Plaza or you shouldn’t. One of the initiatives was to
actually take a team and really work with that store team to make sure that they had the right support. They
became a focus store, and we really looked at a couple of focus stores throughout the country to make sure that
those stores, although they may not have been profitable at the time, were able to get into profit sooner rather
than later because they are important malls.
End of the day, Garden State Plaza is not going anywhere, Dadeland in Florida is not going anywhere, Lenox
Square, there are a couple of malls throughout the country that are always going to be in that top 25. If you’re
only making the decisions financially, which at least when I was there, they were stepping away from, and they
were looking at the market as a whole and really focusing on those key doors. Realistically, The Gap doesn’t
need to have 600 doors in America, it probably needs to have probably 300, to be fair. I think right-sizing to
the market is what they’re doing, and I know that they’re definitely, or at least when I was there they were
looking at it a lot more strategically and not just taking a scalpel based on numbers. I do think that there
definitely needs to be reduction. Like I said, the landscape has changed so drastically that it is a good right-
sizing, but I do feel that they are, or at the very least were… Actually Mark, who is now running Gap, was part
of the decision to basically approach those stores in a different way, so I think they’re on the right path there.
[00:47:29]
Q: To what extent do you think Gap and its portfolio of companies has considered reinventing its shopping
experience? Nike reduced the number of players and wholesalers it works with, but it is constantly reinventing
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how consumers engage with the brand in stores. How is Gap reinventing customer engagement? It can open as
many stores as it likes, but there could be an issue if they all look the same as they did in the 1990s.
SS: I’ll be honest with you, I don’t think that Gap is there yet. I think what they’re doing right now is they are
getting the basics right. The basics got away from them, and that was a really, really big push. I would say, I
hate to go back to Adidas as an example again, but when Originals lost its way, whatever, 10 years ago, 12 years
ago, they went back to the Stan Smith and the Superstar and that’s what they really doubled down on and
focused on. When it gets to be too big too much, you really have to come back and focus on the basics. They’ve
tried the plays in technology and the plays in different experiences. I think that the biggest thing that we
noticed when we were doing these different store concepts is that, at the core of it, it was having the right
product, having the right staff, having enough of the right product to cater to that customer, and that in itself
was able to, if you’re in the right location, get you to profitability very quickly. I mentioned those stores next to
the Trader Joe’s. That actually was an exercise in getting all of the basics right in a store and those actually
worked really well.
I would definitely say that they’re probably not going to be the most technologically advanced or not going to
do the technology that Nike is investing in, they’re just not there yet, but I think that they will have a really
great shopping experience, they’ll have the product that the customer in that particular store or that particular
area needs, and I think that they will really look at who the customer there is and adjust their inventory and
staffing to be able to meet their needs. I don’t think they’re going to reinvent retail again. I think they’re really
going to need to scale back, get it right, and then once that’s happened, then they will, I’m sure, bring in some
folks that are futurists and that are looking at what the future of retail looks like. I will say, looking at it right
now, very few people know what the future is. Is it Rebecca Minkoff and Farfetch? Maybe. Is it Nike? Maybe. If
it is, then it’s smaller stores where you control the brand and you control your distribution. I think that’s what
they’re trying to do right now as well. I think they’re actually on target to be successful just at a smaller scale
than they were before.
[00:51:55]
Q: How do you think Gap considers players such as Amazon in the context of its omnichannel strategy and
distribution, particularly considering the desire to control the brand while gaining exposure?
SS: Amazon is not a Gap partner. I know that, in companies, there’s a fear of Amazon because basically they
will take the data of what your customers actually want, put a different label on it, lower the price and give
them the same thing that you’re known for and put you out of business. There’s a reason why the relationships
between some of the bigger brands and Amazon are more hesitant at best. I think that the way they’re looking
at it is that they would rather overspend on consumer acquisition or even consumer reacquisition to get their
customers back into the fold and shop on their channel rather than using that third-party, Amazon in
particular, marketplace to sell their products.
[00:53:28]
Q: What do you think younger consumers want from lifestyle brands overall? How can Gap reconnect with the
younger consumer instead of, as you said, focusing too much on financial performance?
SS: It’s interesting, especially right now, all consumers, but younger consumers in general, are buying less,
and they’re willing to spend their money more on experience rather than items. I think the winners overall, the
people that will come out winners, will be the ones that do have some sort of an experience. Even if you’re
selling a product, that product’s going to have to be tied to some sort of an experience that is shareable online.
Social currency is obviously super important to the younger demographic and it’s really more about “I did this”
than “I have this”. Finding that fine line between, “How do I sell you a physical product? What else can I offer
you in order to actually be part of the brand?”
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I think once Gap gets the basics right, I think that’s probably going to be their next focus is to really look at
how to, I don’t think it’s reinventing because I think that the sense of nostalgia and what the brand was at one
point does still hold quite a lot of value, but it’s really how to capitalise on that and go back to standing for
their even political beliefs, that’s really important to customers now too. If you look back to the ’80s, doing the
condom distribution programme in the 1980s, that’s the kind of stuff that The Gap used to be known for, and
it’s become a lot more bland. Fair enough, it also became a publicly traded company, so there are shareholders
to answer to, but I do think that as the brand becomes smaller and more focused, then you’re able to maybe
push that envelope a little bit and get back to the core of what the brand was at some point.
[00:56:21]
Q: Do you think Gap should have moved forward with decoupling? Should it consider an opportunity to split
the brand in future? How do you assess the corporation’s structure? Would the brands be better off as separate
entities?
SS: As long as the resources are allocated across all the businesses appropriately, then I don’t think they need
to be decoupled. I think there is a risk in decoupling. If you have the brands together, a portfolio, you can
always use one or two to drive the business even when the other ones slow down. I think when you decouple,
then there’s a lot more risk involved. If, let’s say, you decouple Old Navy and then all of a sudden value doesn’t
become as important, or there’s another player, like Uniqlo decides to lower their prices and do a major
challenge to Old Navy, or C&A comes into the North American market, or whatever market force there may be,
then there’s a lot more risk. I think it’s actually smarter from a financial point of view to keep the brands in
one parent company.
I do think however that there does need to be a bit more discipline around how the money is spent and giving
equal, it’s never going to be equal time, but prioritising where you want each brand to be. Even if you look at
Hill City, which was a passion project for some of the management, which is great stuff, but it just wasn’t
taking off, and they divested from it completely. I do think that they are getting back to the crux of how to run
a good business, at least that’s what it seems like right now for me from the outside is it’s getting better. There
are fewer products available, but the products are better, and if you don’t buy something straight away, the
chances of it being there six weeks later are a lot less than they used to be. There are definitely steps being
taken in the right direction.
[00:59:24]
NH: Swave, I think that is a great place to end the Interview. Let me close by saying thank you very much for
your insights. Clients, thank you for joining Third Bridge Forum's Interview today. If anyone would like to
speak with Swave in a private call or meeting, please let your relationship manager know. Swave, thanks again.
SS: Okay, great. Thank you very much.
Transcription ends at 00:59:38 of the recorded material
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