Is Gap getting its ‘Kenergy’ back?
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Is Gap Inc finally back in fashion? First, actress Da’Vine Joy Randolph wore a custom all-denim Gap gown to the Met Gala in Manhattan. Then Anne Hathaway showed up at a Bulgari party in a deconstructed white Gap shirtdress. The last time Gap was this buzzy was in 1996 when Sharon Stone sported one of the company’s black mock turtlenecks for the Oscars.
Away from the red carpet, there are signs that Gap — under new chief executive Richard Dickson — is also winning its way back into ordinary shoppers’ drawers.
The company, which owns Old Navy, Banana Republic and Athleta alongside its namesake brand, reported a 3 per cent rise in like-for-like sales for the fiscal first quarter that ended on May 4. This marked the first increase in six quarters. Its decision to bump up its full-year sales and operating income guidance suggests the momentum will continue.
Gap shares have nearly tripled in value to over $25 since Dickson took over last August. However, they remain down more than 50 per cent from their 2000 highs and trade at just 15 times forward earnings. That compares with 36 times for Japan’s Fast Retailing, which owns Uniqlo, and around 20 times for Lululemon and Abercrombie & Fitch.
This comeback has barely begun. The better than expected first-quarter results benefited from easier comparatives. Having defined American casual cool in the 1990s, Gap has been in steady decline over the past two decades. Profits and sales have slid amid competition from cheaper fast fashion chains like Shein and Forever 21 on one side, and Uniqlo and Zara on the other. It has shuttered hundreds of stores and had an ill-fated collaboration with rapper Kanye West. Underscoring the scale of the challenge in turning Gap around, Dickson is the company’s third CEO in four years. His predecessor, Sonia Syngal, left after just two years in the job.
Dickson is widely credited with turning around the Barbie brand during his stint at Mattel. At Gap, he has embraced celebrity collaborations and has hired fashion designer Zac Posen as creative director.
Undoing merchandising mis-steps across the four very different brands will take time. So will shrinking its physical footprint. But a renewed focus on financial discipline will help. Inventory is down 15 per cent year on year in the first quarter while lower commodity costs gave Gap’s gross margin a bump up to 41.2 per cent. Dickson has bought some time to press ahead with Gap’s fashion makeover.
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