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Is Digital Gap’s Game Changer Or Cliffhanger?

Gap Inc. is in store for major changes ahead as it readies for a holiday shopping season which is already being influenced by its new digitally-focused CEO who hasn’t officially taken over.

During the company’s third-quarter earnings call, two management changes were announced for the company’s token brands, Gap and Banana Republic. Not only will Gap soon be led by new CEO Art Peck — who’s already gained media attention for his casual work atmosphere style — it was announced that Jeff Kirwan, the current head of Gap’s China business, will take over for Stephen Sunnucks to become the global president for Gap. Following the new year, Andi Owen will take over from Jack Calhoun as global president for Banana republic.

In October it was announced that Glenn Murphy would be stepping down and Peck would be working with him during the transition until Peck takes over Feb. 1. Although he’s not in the leader’s seat yet, prior to Thursday’s (Nov. 20) third-quarter earnings call, the soon-to-be CEO had a lot to say about shaking things up in the company.

In a somewhat unconventional interview with Buzzfeed, which seems perfectly appropriate after learning about Peck’s vision for the company, he shared his thoughts about making the company more mobile friendly, and also gave insight into why he doesn’t believe in having an office, or even a desk, at the company’s San Francisco headquarters. Peck also addressed how his new company will respond to what he called the biggest change in retail since the “rush to the suburbs and rise of big-box stores in the 1950s and 60s,” as paraphrased by Buzzfeed. Peck attributed this to the smartphone and e-Commerce.

“The most exciting time to be in a business in terms of opportunity is when there’s disruption,” he told BuzzFeed. “It’s the globalization of the industry in which we are one of the few truly global players, it is the collision of digital and physical that’s going on which is going to really redefine the whole customer experience… and then it’s the continued evolution of how we bring product to market.”

Peck, an iPhone user according to the article, pulled out his phone in the interview and said what’s going to make the difference in getting brand recognition in the e-Commerce space is tapping into consumer behavior on mobile devices. He wants to focus on getting people online as the trend shifts away from people stepping into stores.

“This is really going to be the expression of the brand that most people engage with most significantly,” he said. “How do you bring everything this device can bring into a store?”

“Visits to good malls are not down, but the number of store visits inside a mall are down, which says to me that people are planning their store visits as a function of their engagement with the brand, oftentimes expressed on a smartphone,” he told Buzzfeed. “I would argue nobody’s figured out what exactly the aspirational, holistic, emotional expression of a brand like a Gap or a Banana Republic or an Old Navy looks like when it shows up on this device right now.”

“The numbers are going in a way where, very quickly, the majority of traffic will be digital as opposed to people walking into our stores,” he later said. “It’s really going to come down to having the capacity as a company to try different things, to throw some stuff at the wall… It’s really hard to predict how it’s all going to shake out when you’re giving customers things that they never really had before.”

Tapping into the knowledge and expertise of the digital guy may be just what Gap Inc. needs to boost its sales, as they remained nearly unchanged from a year ago at $3.97 billion from last year’s third quarter of $3.98 billion. Net income was $351 million, up 11 percent year over year. Comparable sales for the third quarter were down 2 percent compared to last year’s increase. Comparable sales for Gap Global were down 5 percent from last year, Banana Republic Global sales were flat and Old Navy Global comparable sales were up one percent from last year. Total online sales increased to $621 million for the third quarter of fiscal year 2014 compared with $589 million in the third quarter last year.

If Peck has any influence on online sales, Gap will see larger growth next year, particularly on the mobile side.

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