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Home / Business / Gap CEO was done in fashion missteps and fading brands

Gap CEO was done in fashion missteps and fading brands



Gap Inc. has longed for a very long time – and Art Peck does not want to deliver it after all.

Gap fired its chief executive late Thursday after his turnaround effort failed to reignite sales growth. The apparel company, which includes the namesake Gap brand, Athleta, Banana Republic and Old Navy, has brought back a member of the founding family to a long-term plan.

The stock fell 7.6% on Friday. Peck's ouster and disappointing third-quarter performance, it had dropped about 30% for the year so far.

Peck's termination comes after years of struggles at the company. Although the retailer makes several public missteps in recent years ̵

1; it is not even unique in today's difficult retail environment: relying

"It's probably the most overdue management we've seen in a while," said Stacey Widlitz, president of SW Retail Advisors.

After a brief transition, Peck wants to leave the president and CEO role and vacate his post on the retailer's board. Robert Fisher, the company's nonexecutive chairman and son of Gap's co-founders Don and Doris, wants step in as president and CEO on an interim basis.

Sales slump

Peck wants to be eligible for severance pay based on his termination without cause, the company said in a filing. He'll get $ 2.33 million in severance and a payout of stock awards worth several million dollars, filings show.

Years of struggles

Gap, founded in 1969 in San Francisco, rose to prominence as a denim emporium selling jeans from Levi Strauss & Co., another Bay Area institution. It helped pioneer the vertical integration of retail and started producing its own branded goods. By the 1990s, it has been transformed into a rugged secondary brand in Banana Republic and Old Navy.

But struggles started brewing in the middle of the next decade, from declining mall traffic to operational issues. One of the most famous missteps came in 2010, when the company unveiled a new Gap logo. Some shoppers complained, so it turned the new logo just a week later.

To try to turn things around, CEO Glenn Murphy in 2007, who came from a drugstore chain. He closed a slew of U.S. stores, expanded overseas and invested in the supply chain. But the recession hit shortly after and thwarted momentum by turning a generation of shoppers onto discount stores. Low-priced fast-fashion chains like Zara and Forever 21 caught the attention of millennials, pushing Gap further out of favor. Peck replaced Murphy in early 2015 as part of a succession plan.

Peck, a former consultant, tried and made shaking up leadership and experimenting. Old Navy, its best-performing division and the engine for the company's recent sales. In February, instead of referring to NewCo.

Old Navy, which had anchored its parent company for years, was given to Sonia Syngal to shepherd. Peck was left saddled with Banana Republic, mired in a sales slump, and the aging namesake Gap brand. He tried to position the Athleta chain – a Lululemon competitor – as the bright spot within the portfolio.

The company needs to find a way to sell more goods at Dana Telsey, CEO of the Telsey Advisory Group, said on Bloomberg Television.

"If you do not have the right product, you are not ready to." sell goods at full price, "Telsey said.

Old Navy spinoff

Gap said Friday that it's moving forward with the planned spinoff of Old Navy after Peck's firing caused investors to take a critical look at the proposed deal.

"Gap said in an emailed statement. It said "additional perspective" would be provided in its Nov. 21 earnings call.

The company, and Peck in particular, had pitched the move as a way to unlock value for investors. But now that Old Navy, which was once the undisputed shining star of the giant's clothing, is declining along with the rest of the firm, analysts are wondering whether it's still worthwhile.

"You gotta think this is going to be a hard sell "to investors, said David Swartz, an analyst for Morningstar Investment Service. "Maybe Old Navy has peaked? Gap and Banana [Republic]that makes a lot more sense. "

Old Navy sees potential in China. Years ago, management envisioned pushing the brand overseas, but flopped those efforts.

Holiday season

"Gap is a company that clearly needed a change. Peck was not moving the needle, except moving it backwards, "said Craig Johnson, president of retail research firm firm Customer Growth Partners.

Still, although the market did not see its departure, it is still close to the crucial holiday shopping season. Peck was well established as the face of Gap. In September, he and Old Navy chief Syngal hosted an event for analysts about the planned spinoff and their vision for the future of companies.

Peck's departure might actually be a good turning point for the company.

Peck's departure may well have been a make-or-break time in retail 'SW Retail Advisors' Widlitz said.

"It leaves the door open for no matter how bad."

Townsend and Holman write for Bloomberg.


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