This spring, things finally turned around for Gap. At the end of May, Gap Inc revealed that all four of its brands saw growth in quarterly comparable sales. This was the first time in seven years. Wall Street rejoiced, sending shares up by 20% that day. The company, which owns The Gap, Old Navy, Banana Republic, and Athleta, also posted better-than-expected profits. Investors began to believe that Richard Dickson, their CEO of one year, was starting to solve the long-standing issues plaguing the iconic American clothing maker.
Dickson took on the role of CEO last August, and everyone was optimistic. They expected that the man who brought Barbie back to life at Mattel could do the same for Gap Inc. Before becoming CEO, Dickson was on Gap Inc’s board for a year. He knew the company was in “distress” and needed major repairs.
“These are some of the greatest clothing brands in America. How did this happen? How can I help?” he remembered thinking in an interview with Fortune earlier this month.
But one good quarter doesn’t guarantee a full recovery. Investors will find out next week if this spring’s progress was just a fluke when Gap Inc reports its second-quarter results. Past efforts to turn things around over the last 20 years have mostly failed, and executives’ promises fell flat. However, analysts note that there’s tangible progress since Dickson took over.
Another Gap turnaround?
Dickson’s confidence comes from successes like Gap’s recent Linen Moves line. This high-quality linen collection has been a hit. Old Navy, making up nearly half of Gap Inc’s sales, now has more “clarity and conviction.” The brand cut down on items and revived the affordable fashion that made it an $8 billion brand.
Yet, it’s understandable why analysts remain cautious about predicting a full comeback. Over the years, there was always some excuse for disappointing numbers. Banana Republic once made blazers with armholes too small for the average woman. In 2022, Old Navy bungled its plus-size product launch, leading to heavy discounts. This affected former CEO Sonia Syngal’s exit. Under her leadership, Gap Inc also made a poor business decision with Kanye West.
Despite the ongoing narrative that Gap Inc is faltering, last year’s revenue was $14.9 billion. This level is about the same as in 2009. Six years ago, they peaked at $16.58 billion. So, while they’re not growing, they aren’t sinking either. Old Navy and Athleta had been strong performers, offsetting declines in Gap and Banana Republic. But Gap’s sales now stand at nearly half of what they were 15 years ago.
Still, Dickson believes all Gap Inc’s brands have a reservoir of shopper goodwill to tap into. As Stacey Widlitz, CEO of SW Retail Advisors, put it, “The great thing about the apparel business is that as quickly as you’ve become the underdog, you can quickly snap back, just look at Abercrombie.” Abercrombie & Fitch, once struggling, managed a turnaround by clearly defining its brands. It’s now booming: in 2023, net sales rose 16%, and growth continues this year.
Culturally relevant again?
Back in the late ’80s, ’90s, and ’00s, The Gap was a cultural force. They got people like Joan Didion, LL Cool J, and Sarah Jessica Parker in their ads. In 2011, Banana Republic had a huge win with a ‘60s clothing line designed with *Mad Men*. For years, Old Navy’s ads starred Carrie Donovan, who called their stuff “fabulous.” And in 2019, Athleta signed Olympic sprinter Allyson Felix after she slammed Nike for unfair pay practices for pregnant athletes.
But these days, Gap Inc doesn’t have the same cultural pull. Dickson’s big move in May was naming Omnicom Media Group as their sole ad agency. The group “recognizes that fashion is entertainment,” said Dickson. Having a single agency will cut down on conflicting messages and help Gap Inc react swiftly to cultural moments. Dickson believes that too much of Gap Inc’s messaging was about promotions rather than building a brand identity, making everything feel transactional.
Dickson also gets hands-on with the language on Gap Inc websites. He often jokes that he’s the “Chief Editing Officer.” He found that some of the storytelling was off-brand or unappealing. His editing extended to the product lineup too. Under his watch, Gap Inc’s product assortment shrank by 20%, weeding out off-message items cluttering stores and websites.
One theme Dickson keeps hammering is the importance of Gap Inc’s brands being part of the cultural conversation again. “Fashion is entertainment. It’s also art, innovation, and culture,” Dickson says on his LinkedIn profile.
As Dickson tries to swiftly redefine each brand’s identity, it’s essential to take retail experts’ advice: New marketing should be backed by fresh in-store looks and merchandise. Otherwise, shoppers might be let down. “Don’t put the cart before the horse,” warns Stacey Widlitz. “You don’t want the customer to come back and think, ‘That was just a flash.’”
Dickson aims to build a “healthier foundation” for Gap Inc—one based on quick decisions, consistent priorities across brands, and accountability for leaders. “Retail is a business about detail,” he says. This means using new metrics, like gauging the buzz on TikTok, to measure a brand’s success.
Finally, Dickson’s also working to change the internal culture at Gap Inc. He wants to motivate a workforce that’s seen five CEOs in the last decade and lived through a pandemic. He now communicates more frequently and holds events to make employees feel part of something bigger. Wells Fargo recently praised Dickson for “unlocking a culture of creativity.”
The new vibe at Gap Inc emphasizes honesty. Rather than pretending “everything is fine,” Dickson insists on acknowledging and discussing problems. “If we don’t ask the question, and don’t acknowledge a problem as a family, we’re never going to solve anything,” he says. Now, meetings with employees focus on what’s working and what’s not.
Dickson knows it’s risky to declare victory too soon. Yet, he sees signs of improvement. “There’s now clarity on prices, clarity on storytelling, and if you go to our stores, there’s more of an edit. We’ve got a lot of work to do, like a lot,” he says. “So it’s a marathon, not a sprint. But the lights are on.”
