With on-trend fashion and inspired new leadership, Gap’s turnaround begins

Gap Inc. and its four iconic fashion brands – Old Navy, Banana Republic, Athleta and its namesake Gap – have finally regained their momentum.

In CEO Richard Dickson’s first quarter results, after just eight months on the job, global net sales rose 3.4% to $3.4 billion. And all four brands turned positive on a comparable basis, for the first time in ten years.

Convinced that he and his team are on the right track, Dickson raised his full-year forecast of “slightly higher” net revenue and “significantly higher” operating profit growth to around 40%.

“We are becoming a successful home of iconic, culture-shaping American brands,” he said in a statement. “While it will take time, persistence and discipline, we are excited about the opportunities that await us as we unleash the power of Gap Inc.”

Strong performance in the United States

The company’s turnaround has shown even greater results in the United States, where about 60% of its stores are located and nearly 90% of sales are generated. U.S. net sales increased 5.2% to $3 billion and all four brands delivered positive net growth in the United States. International sales, including in Canada, were down slightly by more than 8%, with CFO Katrina O’Connell noting during the earnings conference call that “global economic conditions remain uncertain and are a priority.”

“We believe management’s focus on cultural relevance through limited editions and marketing is translating to financial results,” TD Cowen reported in citing unexpected positive growth at Banana Republic – now looking to ‘a new CEO – and Athleta, which gained market share. thanks to fabric innovation and dynamic sales of basic stockings.

Cowen analysts added: “We are encouraged to see Old Navy and Gap gaining market share in the women’s sector at Old Navy and encouraging results across all categories at Gap, particularly women’s, driven by the success of the Linen Moves campaign.

Building the cultural connection brand by brand

Upon arrival, Dickson’s first task was to revive the cultural relevance of each brand and clearly differentiate their unique position in the company’s hierarchy, which had become blurred under previous management. He observed that each brand is at a different stage in this process, but he has prepared a playbook to guide execution on all fronts.

“Our products are amplified through more compelling storytelling for each brand, with clarity and better differentiation,” he said on the earnings call. “Cultural relevance and marketing is starting to show up in important metrics, like buzz, consideration, and brand relevance. »

To help drive cultural relevance on a brand-by-brand basis, Gap Inc. has partnered with Omnicom Media Group, its new multi-brand agency of record. “No agency understands customer centricity better than them. And I’m thrilled to have their partnership as we evolve Gap Inc. into a new era,” Dickson said in the agency’s announcement earlier this year.

Reporting the first steps of the partnership during the earnings call, Dickson said: “This partnership is, in part, another ingredient that goes into our reinvigoration playbook, which helps our brands communicate a much more relevant narrative, innovative and modern using a very different media mix than we have had in the past and creating truly compelling storytelling. It’s not about spending more. It’s really about spending more efficiently.

Old Navy dresses the family in style and on budget

Old Navy CEO Horatio Barbeito is a relatively new member of the Gap Inc. team, having joined Old Navy in August 2022 after 26 years at Walmart. The brand is doubling down on value with elevated storytelling around fashion and value.

“Old Navy reaffirms its position as a style authority in the value space, with a combination of storytelling and pricing with eye-popping prices in-store and online,” Dickson said. “Old Navy’s brand acceptance scores for quality, impression and reputation are strong, which gives us confidence. »

Appointed creative director of Old Navy earlier this year, renowned fashion designer Zac Posen was tasked with elevating Old Navy’s fashion credibility for consumers’ inflation-challenged budgets. He nailed it in the brand’s new Summering campaign featuring actors Tracee Ellis Ross and “fabulous” Yara Shahidi. It gets a fantastic response, Dickson shared.

Its women’s business is gaining traction and active performance wear saw market share gains for the third consecutive quarter, where it now ranks fifth in this area.

Gap evolves with the Linen and DÔEN collaboration

The Linen Moves campaign launched for Spring 2024 has really shaken up the fashion lines for the Gap brand. Featuring Grammy Award-winning artist Tyla and a team of dancers grooving to Jungle’s hit song “Back On 74,” the song went viral on TikTok with over a billion views. Gap followed with a summer linen collection featuring model Taylor Hill.

“We are relaunching the brand, striving to deliver confident, on-trend products, priced right and expressed through big ideas and culturally relevant messages. Linen Moves is a great example of that,” Dickson said, announcing that Gap Linen sales were up double digits from last year.

A 51-piece limited-edition collection also generated buzz with DÔEN, a California fashion brand founded by sisters Margaret and Katherine Kleveland and known for its feminine style. The collaboration celebrating sisterhood featured a range of women’s clothing, as well as matching children’s styles, priced from $20 to $158.

Dickson suggested there would be more such collaborations to come. “Collaborations remain an important part of our brand strategy. »

Banana Republic focuses on fashion fundamentals

Banana Republic’s revival in the high-end fashion sector is lagging behind that of Old Navy and Gap after being sidetracked by moving into home furnishings. This led to the departure of then-CEO Sandra Stangl, and the search for a replacement continues.

Nonetheless, Banana Republic benefited from an unexpected increase in sales, with a significant improvement over the fourth quarter, when compensating sales were down 4%, ending the full year down 7% compared to the previous quarter. ‘last year.

The Banana Republic Classics and Finest Fabrics collections performed well last quarter thanks to greater in-store product depth and increased marketing.

“We see significant opportunity for Banana Republic and are working to set the stage for better future performance under new leadership,” he said, without giving any word on what will happen to BR Home.

The athlete discovers the power of her

Late last year, Athleta, its sportswear brand, was struggling the most. Sales of IT products fell 12% year-over-year and 10% in the fourth quarter. Everything changed in the first trimester.

Athleta delivered 5% growth in global sales, although CFO O’Connell warned that net sales were expected to be down single digits in the second quarter, due to heavy discounting compared to last year .

However, they see green shoots for the brand in Athelta’s new “Power of She” positioning with world-class athlete ambassadors Simone Biles and Katie Ledecky.

“This year has been a major breakthrough for women’s sports as female athletes around the world begin to receive the attention and credit they have long deserved,” Dickson said during the earnings conference call. “This is an important cultural moment that we are proud to authentically participate in as the largest sports brand exclusively focused on the empowerment of women and girls.”

As a gateway for customers to interact with the brand, Core Funds performed well this quarter and the introduction of its PowerMove fabric also generated new business.

Exploiting the cultural zeitgeist

Dickson quickly understood the need for each of his brands to express the cultural zeitgeist in a unique way, in a way that was authentic to each brand.

This quarter’s results show progress in the playbook and even more is expected as designer Zac Posen’s creative impact begins to be felt throughout the company.

Posen’s creativity will play a key role in Gap’s progress, as evidenced by actor Da’Vine Joy Randolph’s Met Gala debut in a breathtaking custom dress made from designer denim. Posen was her plus-one, wearing an ivory poplin Banana Republic suit.

Of Posen’s influence, Dickson said: “He strives to influence many creative aspects within our business, obviously, most notably in design and merchandising, but his role is part of our strategy broader aim of cultivating a culture of creativity. And frankly, that’s been missing for some time here at Gap Inc.

“And just yesterday, Zac was intimately involved with the launch of our new Banana Republic flagship in Soho, which, by the way, is a stunning representation of where our brand is headed in the future. Overall, we continue to gain momentum by unlocking the creative opportunities we see at every level. »

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