Has Gap Finally Figured Out What Its Customers Want?

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In spring 2010, top model Isabeli Fontana did her best to sell Gap’s patchwork straight-leg jeans. In 2011, it was Anja Rubik in dark-wash flares. For the next two years, it was a whole host of models wearing skinny jeans in as many neon colors as the design team could dream up. In 2014, the brand eased back into a relaxed "Lived-In" look and brought celebrities like Theophilus London and RJ Mitte on board for the campaign. In 2015, there was Jenny Slate and Paul Dano and a #SpringIsWeird Instagram campaign. In 2016, top model Julia van Os is doing her best to sell Gap’s patchwork straight-leg jeans.

At its heart, Gap is a basics company. You know when you walk into the store that there’s going to be a wall of v-neck tees and a table of crewneck sweaters and a whole array of jeans on sale.

Image: Gap

Even though the ad campaign faces may rotate out, the message is always some version of the same easygoing, dependable, not-too-flashy style that tends to repeat itself year after year. When it sells, the message works. But, outside of a couple hopeful years, Gap has yet to sell that message well after its khaki-clad, swing dancing days in the mid-nineties, and it’s locking the brand in a perpetual turnaround phase.

"Gap has had trouble for years," says Lisa Walters, co-founder of Retail Eye, a research and consulting firm. "It’s hard to think of period outside of colored pants when they’ve been outperforming."

That colored pants phase was what has most closely resembled a success in Gap’s recent history. Art Peck, Gap Inc.’s current CEO, likes to refer back to it when Gap’s performance is looking particularly dicey.

"[Figuring out Gap’s aesthetic] is something I’ve done before," Peck reassured analysts on his first earnings call as the newly-named CEO in late 2014. "When I went to Gap in 2011, we also had an aesthetic issue there and it was highest priority in terms of righting the business. We worked on it during the course of that year and we made some improvements in the product during the year. And in 2012, we delivered an exceptional performance."

Gap reported $3.7 billion in net sales in the US in fiscal year 2012, followed by $3.8 billion in net sales in 2013. It was not close to what Gap used to pull in ($5.5 billion in sales in 2000, $5.1 billion in 2005) but it was an improvement on reported sales in 2009($3.5 billion) and 2010 ($3.4 billion).

"They used to sell everything as very simple, very essential, and it worked incredibly well," says Garrett Bennett, one of the founding partners of Merchandising Metrics and a former retail executive. "I remember when [former Gap Inc CEO] Mickey Drexler finally caved to the analysts and the investors on the fact that they felt that it was becoming too predictable and too basic. He injected a lot of fashion into the store and it was a disaster. He ended up derailing the company off that decision and off of that pressure and the Gap has never been the same since."

In late 2012, Gap announced that Rebekka Bay was joining as the brand’s new creative director. Gap had been without a creative director since Patrick Robinson had been fired in May 2011, and Bay had most recently been heading up Cos, H&M’s minimalistic, higher-priced sister brand. The hope was that Bay would bring that same design aesthetic to Gap, along with increased international experience.

Two-and-a-half years later, when it was clear that her design influence wasn’t materializing into sales for the brand, Bay was also fired. The company eliminated the role of creative director entirely.

"Where we have gone wrong oftentimes as a company is when we have put the burden of running these brands season after season on the shoulders of an inspired individual," Peck told analysts at the company’s annual investor meeting last year. "That’s not the model to success." (Banana Republic’s last creative director, Marissa Webb, was removed from her role four months later.)

When Gap reported fiscal year 2015 sales this past February, Bay’s lingering effect was still dragging the brand down. Gap reported $3.3 billion in net sales in the US — a slump that was lower than even the pre-colored-pants-craze version of the brand.

"[Consistency] has been our Achilles heel as an organization," Peck said at that same investor meeting. "And we are head down across all of our businesses focusing on improving the consistency of our performance, day-after-day, week-after-week, season-after-season."

To be fair, Gap is in a super competitive market. Where Banana Republic is (trying to be) more upscale, and Old Navy has got the discount business nailed down, Gap is left in the middle basics arena — not a great place to be in a time where Forever21 and H&M are offering the same clothing at consistently lower prices.

"Customers were scratching their head wondering, ‘Why should I pay $70 for a pair of jeans when I can get it for $20 elsewhere?’" says Paula Rosenblum, an analyst at RSR Research.

But instead of getting on fast fashion’s level, Gap itself is adamant that it should not be categorized in the same pool. "Gap is not fast fashion," says Liz Nunan, Gap Inc spokesperson, in an email. "The brand has its own point of view and aesthetic — it’s all about optimistic, cool, elevated, American style."

Jeff Sward, the other founding partner of Merchandising Metrics and a former executive at DKNY, Ralph Lauren, and Abercrombie & Fitch, among others, notes that while fast fashion is popular right now, other mall retailers like American Eagle, Express, and Urban Outfitters aren’t getting hit as hard saleswise. Therefore, Gap’s problems are more internal than anything else.

"There are retailers that are performing," says Sward. "But from my perspective, they are the retailers that execute really well-balanced assortments that are just very much in line with their consumer’s expectations. It’s retailers like Aeropostale or Gap or Banana Republic that are zigging and zagging through the market trying to find a new persona and they are really getting hit."

In 2014, Gaptried hard to sell its essential basics image via a blow-out ad campaign titled "Dress Normal," that hit at the height of normcore’s popularity. It was full of celebrities doing normal things in normal clothes, but when the merchandise hit stores it didn’t sell well. One analyst told Buzzfeed News at the time that the clothes were simply too normal to pique any interest.

Since then, the company has preferred to do smaller marketing pushes with the intent to wait until a collection sells well before investing a ton of advertising behind it.

Gap’s positioning can also backfire when shoppers are deciding what categories to trade up or down on, Walters notes. If you’re working within a certain budget and have to trade down on some items in order to trade up on others (buying a cheaper sweater, for instance, in order to buy a more expensive bag) then Gap doesn’t come across well at either end of the spectrum. It doesn’t carry the cheapest pair of jeans around, so you wouldn’t go looking for a deal at Gap, but its jeans aren’t considered investment pieces, so you wouldn’t go looking to spend a bunch of money there either.

Especially in the past couple of years, the difference between Gap and stores like Old Navy has become increasingly blurred. Gap dropped the ball on the quality of its products, and subsequently drove its customers away to cheaper stores that were, in their eyes, selling the same goods. It’s going to be an uphill battle to change that perception. Now, you can find a pair of white, straight leg jeans at Gap made almost entirely of cotton and priced at $69.95. A nearly identical pair at Old Navy (with a little more polyester mixed in) is selling for $25.

Jeff Kirwan, Gap’s brand president, acknowledged that bringing back quality was a top priority for the brand in that annual investor meeting last year. "The position that we want to take is we want to offer a premium product that will still be accessible," Kirwan said. "That’s a lofty goal for us because we’re going to need to really find a way for our customer to have quality that they can see and feel in the product and tie that back to an accessible price point."

Overexpansion has been another pervasive problem that the brand has been trying to correct. Fifteen years ago, Gap was operating just under 1,500 stores in North America. In 2015, the company started the year with 960 stores. The future vision of Gap that Kirwan was laying out to analysts last year came just a day after Gap announced that it was closing 175 stores and laying off 250 employees.

In the following months after that announcement, Peck promised that what’s rolling out in stores now, the spring 2016 merchandise, would show a marked improvement from last year. And there’s definitely differences: in a mall location in rural Holyoke, Massachusetts, new dresses come with hangtags that are marked "MADE WITH LINEN" so the improved quality doesn’t go overlooked. This reporter tried on a pair of flare jeans and nearly bought them on the spot because of how well they fit.

But when Racked asked a salesperson if the flare jeans were selling well (thinking it must be a given that they were), she said that they weren’t. What was selling well? Skinny jeans. Even though denim itself is back in fashion, she hadn’t sold a single pair of the denim overalls or the denim jumpsuits, and that rack was already slung with a red sale sign. Similar to the problems at Banana Republic, Gap struggles to sell trendy clothes to a customer base that isn’t willing to go there.

"At its core, Gap has always been known for American style," Gap spokesperson Liz Nunan says. "It’s an inspiring and optimistic brand that wants to be known for elevated essentials, such as denim and tee shirts. As the year progresses, customers can expect to see improved quality and fit, thoughtful attention to design and details and shades of on-trend color coupled with classic neutrals."

Image: Eugene Gologursky/Getty

It’s yet to be determined whether or not this current version is a successful version of Gap, but it at least isn’t driving the brand further off the rails. In February, Gap’s global sales at stores that had been open for more than a year were flat compared to a 7% decline last year. With the exception of last September, it’s the first month the brand hasn’t posted a sales loss in almost two years.

In March, Gap's global sales had dipped again. The brand reported a 3% decline in sales, which was attributed to lower-than-expected store traffic, but the company reiterated that shoppers were still responding well to new merchandise.

"The product isn’t overwhelming, but it doesn’t look bad," Bennett says. "That’s all they have to do. They just need a customer to pick up one or two things when they go into that store and I think they’re doing that. They’re getting people to get to ‘Yes.’ The question is, will it be consistent?"