Former Billabong CEO Neil Fiske walked into a very tough situation when he moved to New York City to became President and CEO of the Gap retail chain a year ago this month.
And his job has not gotten any easier 12 months later.
The chain posted disappointing results in Q1, with the wet and cold spring and weak traffic at malls contributing to a 10% comp decline. That’s against an easier comparison of a -4% comp in Q1 last year.
The Gap team has been focused on improving the composition of inventory and the product assortment. A bright spot in Q1 was improved profitability for the Gap brand thanks to expense reduction and gross margin expansion.
The fall will be a key season for Gap because on the product front, the goal is to reestablish Gap strength in denim with better quality, fits and silhouettes. Gap will also spend more on marketing later in the year. It has cut some marketing investments to wait until product improves.
Gap has a lot of competition in denim at the malls these days, however, and those competitors are performing much better.
For example, teen retailer American Eagle Outfitters continues to outperform competitors largely due to denim strength. The wet and cold early spring didn’t seem to bother American Eagle much – the chain posted a 4% comp increase in Q1.
And on the more elevated end, Madewell has established itself as a fashion force in denim. That chain also had a great Q1, with comps rising 10%. That’s on top of a 31% increase in the same quarter last year.
Gap is hoping that having cleaner inventory positions, better product assortments, leaner inventory buys and more cost discipline can help turn around profits, according to Gap, Inc. CEO Art Peck.
While the company wants Gap to post better comp results, the most important goal is improving profitability for the highly promotional brand.
“I want a positive foundational core to the business where we’re establishing pricing authority and customers are paying us what our product is worth,” Peck said on the company’s Q1 earnings conference call.
However, Peck is not expecting Gap to become a solely full-price business. That is not realistic in this day and age, he said.
“Do I think we’re going back to what existed somewhere back in the dawn of time, a full-price business? I don’t think that’s the reality of these categories that we play in right now given the competitive environment that we’re in.
“But I’m confident that the team in New York (led by Neil) through the merchandising strategies that they have, through the tools we’ve put in place, through the operating discipline, the marketing, and store presentation, that we can increase our yields,” Peck said.
That’s a lot of pressure for Neil, who walked into a retail chain that has trained customers to buy at least 40% off – if not 50% – for years.
