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Gap's Uphill Path: the Steps That Could Fix America's Retailer

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Gap stores have risen and fallen in popularity. Image via Shutterstock.
Gap stores have risen and fallen in popularity. Image via Shutterstock.

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Two weeks ago, retail giant Gap unveiled their 2014 spring collection, the first under new creative director Rebekka Bay.

The striped tees, boyfriend jeans, and bomber jackets were, as Elle aptly put it, "unmistakably Gap." Bay, a Denmark native and ardent minimalist, was hired by Gap in October of 2012 as part of the company's effort towards a makeover after years of flatlining sales and increasing competition from fast fashion.

Bay is eager to bring Gap back to its former glory as the go-to stop for affordable and versatile basics. She told press back in December that she wants to "take it back, really;" to "to own super casual, iconic pieces and be the go-to brand for the wardrobe—almost like building blocks."

But is a new creative director enough to save Gap amidst all the competition? Analysts believe the company has a way to go in regaining its footing in the incredibly competitive market of special retail. (Gap did not respond to repeated requests for comment, nor would it allow Racked to speak with Bay.)

Fall into The Gap: The Golden Years

Gap was born in 1969 (it has since lost the "The"), and currently has six different operating divisions: Gap, Banana Republic, Old Navy, Piperlime, Intermix, and Athleta.

The company hit peak popularity in the late eighties and early nineties, according to retail analyst Candace Corlett. Gap enjoyed impressive sales during the nineties, jumping 30 percent from 1991 to 1992 to hit $2.5 billion and later growing 39 percent in 1999. Customers were drawn to the brand's back-to-basics philosophy, flocking to the retailer for plain white tees, easy-to-wear khakis, and versatile denim.

Looks from the new spring collection.

"Back then, Gap was pretty much the island of specialty clothing retail for young people," Corlett said. "You could always count on them for affordable basics, and they wanted to own denim. They clobbered [the] denim [market] in the late eighties, early nineties."

Gap was a staple of pop culture. Acclaimed photographer Annie Leibovitz shot the brand's 1988 campaign, NBC's Saturday Night Live had a recurring skit called "The Gap Girls" in 1993, and actress Sharon Stone graced the Academy Awards red carpet in 1995 and 1998 wearing shirts from Gap.

Enter fast fashion and the recession

Gap grew in the double digits until about 2002, but by 2006, something was wrong. Sales started to plummet, with Gap losing 1.5 percent in 2006, and at its worst, sales were down 7.9 percent in 2009. The birth of the online shopping combined with the start of the economic crisis hurt retailers across the board, and Gap was no exception. The chain's problem wasn't merely its product, it was also its inability to adjust to selling to the merchandize market of the 21st century.

While Gap continued to tread water, competition in the marketplace rose with fast fashion retailers offering trendy clothes for much less. One major threat was Japanese retail company Uniqlo, which first came to America in 2005. Uniqlo now has 17 stores in the US, with five more on the way. Best known for selling trendy basics, Uniqlo targets the same niche customers who look to Gap—except its prices are lower.

Image via Getty.

"Gap has kind of been overtaken and overshadowed because Uniqlo has been pushing itself and developing its offer," said Kate Ormrod, an analyst at Verdict Retail, which follows Gap. "Shoppers looking for that basic product of casual wear in 50 different colors know they can get it at Uniqlo for cheaper."

Gap also faced trouble from retailers like Zara, Forever 21, and H&M. "The consumer has made room in their closet for fast fashion. They still want their t-shirts and their jeans but then Gap's edgy competitors, like Zara, H&M and Mango also sell basics," Corlett said. "The problem was Gap got boring. After the popularity of the khaki, it was an ongoing parade. How many tan khakis and white button-down shirts does someone need? They were always the old, reliable Gap but high energy, trendy retailers were moving into the closet."

Gap isn't gaining or losing

Since 2004, Gap Inc.'s net sales, including all umbrella companies, have been comfortably gliding in at around the $15 billion mark. While the company does not lose money, its revenues aren't increasing much, either.

Compare Gap's numbers to a retailer such as J.Crew, which has obtained a loyal consumer following over the years. In 2013, for example, J.Crew's sales grew 20.09 percent while Gap's sales trailed at 7.57 percent, according to FactSet Research Systems.

Shoppers browse Gap racks in California. Image via Getty.

"Gap is not a growth company in that sense and it's not a growth business in North America," said John Kernan, a retail analyst at Cowen and Co. "There's upstart competition that's trying to come after them, like Forever 21 and H&M who want to gain market shares globally."

How Gap can turn it around

Back in 2007, Gap recognized the problems brewing and hired on Patrick Robinson as creative director. Robinson failed to bring Gap the sale numbers it was looking for and he was let go in May of 2011. One editor Racked spoke with believes that while the hire of a new creative director is a good way to make headlines and get the fashion press talking, Gap needs to make back-end adjustments to regain the loyalty of customers.

Ormord thinks that one of Gap's initial problems was not altering its price point when the economy first tanked and not justifying its price, either. To keep up with fast fashion, Ormrod believes Gap must change its marketing techniques to convince customers that its prices are worth it. By boasting special designs or fabrics, she said, customers might trust Gap's products more.

"In the last ten years and with the economic downtown, shoppers see value. They know they can go to Gap and spend on a dress, or they can go to cheaper retailers and get three dresses for that price," Ormrod told Racked. "Gap did not really move with the times."

Ormrod also says the brand must shift its energies towards fixing its in-store retail experience. She pointed to companies like Uniqlo and H&M, who are constantly incorporating new floor elements like big screens.

Breaking Bad's RJ Mitte in Gap's latest campaign.

"Gap needs to work on an in-store environment because it doesn't showcase products as well as it could. It needs to innovate its offer," Ormrod said. "Gap's windows need to shout excitement," Corlett added.

Gap has already addressed the need to revamp the in-store process. Last week, Gap Inc. chief executive officer Glenn Murphy said more stores would incorporate order-from-store capability through mobile devices and kiosks, and that Gap would roll out more reserve-in-store features in the coming year.

For Kernan, the future move to keep Gap relevant in the retail space is to focus on the international market. In 2011, Gap announced it would close down 189 store locations in the US by 2013, 21 percent of its representation. But Kernan said the move did not necessarily represent the company's downturn, but rather a shift in focus. Gap has been expanding internationally, with more than 30 stores expected to open in China in 2014.

Cowen and Co. estimates the Asian store expansion will comprise 75 percent of the Gap's net store growth for upcoming this year, and Kernan is optimistic regarding the brand, so long as it focuses on international sales.

"The next phase in this competitive world is to move internationally," Kernan said. "The management is investing internationally and they are setting up to compete with fast fashion. Financially, they are disciplined and they have the cash flow to face the competition."