Efforts are underway to overhaul Gaps key denim ranges

Efforts are underway to overhaul Gap's key denim ranges

US specialty retail giant Gap has made no secret of the fact it faces an uphill battle to turn around its business, but in-house quality mis-steps coupled with the race against the clock to translate trends from the catwalks to the high street are making its work doubly difficult.

Since taking over as Gap Inc chief executive officer last February, Art Peck has had "a year of rebuilding, a year of focusing on getting our product back on track, re-establishing the path for a couple of our key brands."

But despite initially pointing to spring 2016 as a "no excuses moment" for new products, he's now suggesting "we're on a journey that is going to continue to take time."

And it's no wonder given some of the slip-ups shared on the company's most recent analyst call.

At Banana Republic, for instance, "we just had huge quality misses…whether it was fit or the quality of the fabrication, it made the product very difficult to wear."

This included the astonishing revelation that Banana Republic's women's range included some blazers "where it was extremely difficult for the average woman to actually get her arm into the armhole."

At its largest Old Navy chain, four years of sales growth "hit a bump in the road" thanks to "a couple of style misses such as fashionable but unflattering tops with a shorter, boxier silhouette; and too many sweater styles that were too similar, leading to "an 'or' versus an 'and'" purchase.

And at the Gap brand, "underdeveloped women's knits" meant not enough products were offered, and that "we left market share on the table."

Not surprisingly, the shortcomings appear to be reflected in a 7% fall in fourth quarter revenue to $4.39bn, with a similar drop in same-store sales. By division, Gap fell 6%, Banana Republic dropped 10%, and Old Navy comps were flat.

Profit during the three months slumped 33% to $214m, down from $319m a year earlier.

"Guess less, fix faster"

Of course there are always going to be some misses, and as Peck points out: "The whole point of the work we're doing is to minimise [these]. As I keep saying, 'guess less, guess better and fix faster'."

He also notes that pressure on the business – and the industry as a whole – is ramping up to disseminate trends from the high end of the market down into the mass markets. A case in point is the recent move by Burberry to abandon the traditional seasonal approach to its catwalk collections and instead make all of the clothes featured in its runway shows available to buy immediately.  

"To me, what that illustrates is the increasing clock speed inside of this business," Peck explains. "And it's against that backdrop that we've been making very significant changes in our product process."

These changes focus on "getting better and better each season at managing buying risk as we build our assortments, an increasingly responsive and short supply chain," building the best possible assortments for each brand, and putting in place a solid commercial planning process to ensure assortments are on trend, on brand, with the right quality.

Supply chain responsiveness

While admitting this is not all yet coming to fruition, Peck points to "significant and rapid progress" when it comes to improving responsiveness in the supply chain.

Measures underway, which have already been detailed extensively on just-style, include platforming product "where we're buying fabrics over multi-season buys, positioning that fabric with key strategic vendors, giving us responsive capabilities, in some cases, to leave open-to-buy in season so that we can be back into product in season: in essence, buying what's working rather than guessing what's going to work."

In short, the strategy reverses the traditional process where the design comes first, and instead sees the retailer shifting to fabric first and then design, buying large quantities and creating different treatments, washes and finishes in response to trends.

This will enable the company to leverage its scale and drive average unit cost (AUC) savings by consolidating large quantities of a particular fabric across brands, and negotiating directly with mills. It also enables it to respond quickly within a season once a key trend is identified.

Product 3.0 underpins Gap brand turnaround plans

At least, that's the theory. Responsiveness, however, "is a whole bunch of stuff bundled together" and remains "a journey right now," Peck says.

He uses the retailer's spring twill programmes as an example of how it should improve the ability to react more quickly to products in-store that are selling fast "through a combination of owning the fabric, having the fabric pre-positioned approximate to vendors who have the capacity reserved to…cut, sew, wash and dye, put it on a boat and have it back in our stores very quickly."

This "cuts out many weeks," he explains," and is "most powerful" as a capability in the core cotton fabrications that are an important part of the retailer's business across all of its brands in denim and twill.

Importantly, he adds, it is also possible to platform yarns for knits; whereas it's more difficult to platform wool and silk fabrics. The least relevant categories, he believes, are accessories and outerwear.

Digital direction

Looking ahead, the San Francisco-based retailer, which operates more than 3,300 stores, is also squaring up to the delicate balance between store count and digital channels.

The company closed 150 Gap stores in its last financial year, and has made moves to pool inventory across its online and store businesses "so that we have access to all of our inventory across all of our demand."

"We've made further progress this year where we've leveraged our retail distribution centres to provide direct fulfilment capacity for our online business, and we're continuing to take steps to make sure that we're stranding the least amount of inventory and getting every penny of gross margin out of all of our units across the entire business, regardless of what store it's in or what channel it was brought to fulfil," Peck explains.

Another change taking place inside the company is "really thinking digital first and mobile first."

"Historically in this business, the moment of truth was when a customer crossed the leased line into a store. Today, as a company, we are increasingly seeing the moment of truth is when a customer, through their phone, comes into our digital store and we either win or lose their affection, their engagement and ultimately their sales.

"And that creates for us both an opportunity, but also an imperative to move as fast as the customer is moving in mobile. This year, the bulk of our traffic will be mobile traffic to our digital space."

But of course none of this will resonate with customers if the products are not on trend, on brand, or at the right quality.

At Banana Republic, moves are underway to be less fashion-forward and more focused on classic clothes; while at Gap there is a return to a "casual, optimistic, American aesthetic" with an overhaul of its key silhouettes and fabrications in denim and knits.

However, while Peck says he is "really pleased with the quality of the work and the quantity of the work and the pace of the work that we've been doing across the entire company against our product priorities," analysts have pointed out that it will continue to take time to regain lost or disillusioned customers.