Gap lacks consistent product says its CEO

Gap lacks consistent product says its CEO

Even though specialty clothing retailer Gap Inc has just ended a five-year run of declining same-store sales, the retailer has confessed it is planning conservatively for the year ahead as it tries to dig its North American business out of a rut.

The company "needs to start showing growth in its North American business," chief executive officer Glenn Murphy again told analysts on a conference call yesterday (24 February) as the retailer released its fourth quarter and full-year results.

"Through the year, by brand and in certain categories, there's no question, we had home runs," he added. "It's phenomenal, creative, innovative product that customers absolutely came into the stores or online and wanted to buy.

"But consistently, by season, we're still not there."

While the San Francisco based firm delivered a 4% rise in earnings in the three months to 29 January to $365m, its same-store sales paint a different picture. While there were gains of 1% at both Banana Republic and Old Navy, its Gap North America division was marred by a 2% drop.

It was a similar story for the full fiscal year, with profits up 9.3% to $1.2bn and sales climbing 3.3% to $14.7bn. Same-store sales also rose for the first time since 2003, edging up by 1%. But disappointingly, Gap's North American division was the only unit to report negative same-store sales for the full year, down 1%.

In an attempt to shake up its business, the retailer earlier this month introduced a raft of changes to its North American management team, replacing president Marka Hansen with Art Peck, former head of the outlet division, as the unit's boss.

"Each one of our brand presidents in North America knows what they have to get done. They know their priorities beyond just the consistent part of execution, which is critical in 2011," Murphy explained.

"Our goal has to be, and it's non-negotiable, to get consistent product in all three of our North American brands, but at particularly Gap North America.

"When we're good, we're good. But being good two-thirds of the time, in this environment, with this new consumer is not going to deliver what we want."

Another recent change has seen the retailer set up a Global Creative Center in New York, headed by Pam Wallack, the current president of Gap Adult North America, with input from divisional presidents based in London, Tokyo, Shanghai, and San Francisco.

Benefits should mean that the firm delivers a bigger global influence across its business in North America, Asia and Europe.

Since joining Gap Inc nearly four years ago, Murphy has embarked on a number of initiatives in a bid to halt sliding domestic sales at the core Gap brand, including the launch of the revamped 1969 denim range, a new and improved line of trousers, and putting Patrick Robinson in charge of total global Gap design.

But he's still frustrated at a lack of progress in the retailer's plans to include more fashion in its line-up.

"I'd say the weakest part of the assortment inside the Gap brand has been the women's product. Not necessarily bottoms, but definitely in tops.

Moves to speed product development from concept to the back door of the store are also now in place, meaning "every one of our brands will be using that to get closer to their customers. The closer you get to the customer on product, the better it is for us when it comes to product acceptance."

But inflationary pressures, particularly from soaring cotton prices, present an unwelcome headwind that is likely to dent operating margins in the year ahead.

"As a company, we've put a lot of work into our pricing architecture in the last 12 to 18 months, and that's critical to making good decisions when it comes to pricing and promotion.

"But we have to acknowledge the fact there was going to be an inflationary pressure being felt by ourselves and everybody else through 2011."