Gap is continuing to work towards more consistency in its products

Gap is continuing to work towards more consistency in its products

A new approach to product development – dubbed ‘Product 3.0’ – underpinned by a responsive and seamless supply chain, is at the heart of plans to turnaround the Gap brand.

"Frankly, all the rest of it – global growth, digital, everything else that we are doing – doesn’t matter if we aren’t better and more consistent at the product that we put in our stores," Gap Inc CEO Art Peck, said at the retailer’s annual investor meeting in San Francisco on Tuesday (16 June).

While not a new lament, it has added resonance coming on the heels of Monday’s decision to shutter 175 Gap stores in the US and axe 250 head office jobs as the company tries to increase profitability and speed decision-making at its struggling namesake brand.

Peck said the closings are "important, hard to do, but necessary," and will give the Gap brand a simpler structure to work with.

The changes will see the retailer, which also owns the Old Navy and Banana Republic formats, shutter around 140 Gap US stores during the current financial year, along with a "limited" number of European stores. Following the changes, Gap will have around 800 namesake stores in North America, including 500 Gap specialty locations and 300 Gap outlet stores.

Importantly, the job cuts will help speed decision-making and responsiveness by potentially reducing layers as the retailer works towards delivering more on-trend collections, more consistently.

Gap has, in fact, been trying to change its strategy for the past two years, but as Peck acknowledges, "we have not been as consistent as we have needed to be in monetising that to our product engine."

And this is where Product 3.0 comes in.

"We invented 1.0. We have competitors out there who are executing more constantly [on] 2.0 and we are shooting and pushing hard for 3.0."

But while it’s easy to talk about, "a lot of these changes are hard. They are against the traditions of the industry in many respects. And they require radically different ways of working together."

Product 3.0 strategy
Essentially, Product 3.0 is based on the retailer combining a clear brand vision with a common operating model for sourcing and merchandising across the company, enabling it to leverage what Peck describes as "one of the few structural advantages that we have as a multi-brand global apparel competitor" - its size and scale.

The new brand vision governs every decision in design, merchandising, inventory and production so that the retailer can identify trends, make them relevant to its customers, test them in stores, and respond to demand – buying more of those that sell and quickly moving away from those that don’t.

The goal, of course, is fewer fashion misses and markdowns, driving higher merchandise margins in the longer term. And the strategy has already proven to be successful at Old Navy, where top-line sales have grown by nearly $1bn over the last three years.

Ultimately, Gap wants to "move forward very quickly in how we bring product to market and the speed that we bring it to market and the flexibility in our inventory…being able to be more predictive and demand driven…[being] more commercial around things that are starting to move up the curve, or [getting] out of product that is no longer relevant to the customer."

As part of its ongoing efforts, the trend prediction process has been narrowed down from simply "grabbing a lot of information from a lot of different places," to better and faster forecasting. Design adaptations will then be relevant to the core Gap consumer – identified as 25 to 35-year-old shoppers following "deep-dive research" in major markets from Tokyo to New York.

Rethinking the production process
Another key, as is "flipping how we’re looking at the production process of our products," according to Peck.

This "fabric platforming" strategy will see the retailer "shifting more to fabric first and then design of the fabric," buying large quantities of a particular fabric and creating different treatments, washes and finishes in response to trends – reversing the traditional process where the design comes first.

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.

Peck says the strategy plays to the brand’s goal of offering "a much better quality product but still at a really accessible price point," and will help drive fibre, yarn and fabric innovation in partnership with its supplier mills, "to the benefit of quality, cost and performance."

Banana Republic
Challenges are not limited to the Gap brand, however, with Banana Republic’s new global president Andi Owens admitting the women’s business is "not realising our full potential."

While the decision by new designer Marissa Webb to add a "new casual point of view" alongside the brand’s traditional tailored wear it "absolutely correct," it has also "confused our customer."

"We lack colour, we lack print, we rely much too heavily on black and white, our silhouettes are oversized and boxy, and our bottoms offering has been one note. And finally, our quality has declined," Owens told investors.

Going forward the Product 3.0 strategy is also expected to drive consistency and better products here. The brand will focus on pants, sweaters, modern tailoring and outerwear; it will not blindly follow trends; and will improve quality and fit. Improvements in quality are likely to come from more investment in fabric research and development and closer collaboration with mills.

Pull back on promotions
Another knock-on benefit of a more consistent on-trend, on-brand footing is a reduction in the depth and frequency of discounts and promotions.

"The second worst place to be in this business is over-bought. The first worst place to be in this business is over-bought with product that she is not responding to and that yields too many 40[%]-offs," he says.

"And so again back to product…we will start with product that we buy tightly that she loves. And I know it’s easy to say, elusively hard to do, but it’s what we’re committed to doing."

Click on the following link for further insight: When will Gap get back on track?