Why Did Gap Brand’s CEO Exit The Company?

by Trefis Team
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GPS
Gap Inc.
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Gap Inc. (NYSE:GPS) announced the departure of Jeff Kirwan, president and CEO of its eponymous brand, on February 20. While the company credited Kirwan with improving the responsiveness and brand aesthetics, and making significant progress on its operating model, there were other aspects that were still to be desired. These included not achieving the required level of operational excellence and accelerated profit growth the brand is capable of. Kirwan was appointed to the role in the fourth quarter of 2014, but in the 11 quarters since then, the brand was able to report positive comparable sales growth in just one – the most recent quarter (Q3 2017). This was despite the fact that a number of unprofitable Gap stores were shut down in the interim.

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Increased Focus On Old Navy And Athleta

Gap has in the past stated its intention to focus on its growth brands, such as Old Navy and Athleta, while closing down about 10% of its Gap and Banana Republic stores from “lower-productivity” locations. This move follows from the decline in demand for the company’s more established brands, in favor of its younger chains. Gap, in general, has suffered from a decline in store traffic, a factor that has been plaguing many teen apparel companies, which are mostly located in struggling enclosed malls. The company will instead focus on areas where the customers are actually shopping — off-price locations and online.

The shuttering of roughly 200 underperforming Gap and Banana Republic stores reflects the company’s desire to be present in its more profitable channels of online and value segments. Through its initiatives of streamlining its operations, cross-brand synergies, and by better leveraging of its size and scale, the company expects to achieve expense savings of $500 million over the next three years. A portion of this will be reinvested in the growth areas detailed earlier, giving Gap an opportunity to improve its margins.

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