Gap Inc. Chief Executive Art Peck Exits

 

Published November 7, 2019

NEW YORK, United States — Art Peck is stepping down as chief executive of the parent company of GapBanana Republic, and Old Navy, after a four-year tenure where he failed to reverse sliding sales or wean the company off its reliance on discounts.

Robert J. Fisher, Gap Inc.'s current non-executive chairman of the board and a member of the brand’s founding family, will replace Peck as interim CEO and president. Peck will also leave his position on the board, the company said Wednesday.

Peck joined Gap Inc. in 2005 from Boston Consulting Group, where he had worked for more than 20 years. In 2015, after working his way up the ranks of the Gap brand — leading a short-term rally around the label in 2012 spurred by the popularity of its coloured denim — Peck succeeded Glenn Murphy as chief executive of the entire group.

Peck’s exit from the American basics giant comes after years of slumping sales due to outdated store designs, uncompelling advertising, mediocre product and, most significantly, an over-reliance on discounts.

The news of Peck’s departure came with an update on the company's third-quarter performance, due later this month, in which Gap Inc's comparable sales were down 4 percent. All of the largest brands within the group also saw declines, with Gap's comparable sales down 7 percent, Banana Republic's down 3 percent and Old Navy's down 4 percent.

The Gap brand’s annual sales were $5.16 billion in 2018, down from $7.2 billion in 2004.

It’s a long fall. Gap became a linchpin of the American mall in the 1980s and 1990s, when then-Chief Executive Mickey Drexler transformed it from a lagging multi-brand retailer that mostly sold Levi’s to a brand in its own right, known for jeans, logo sweatshirts, chinos and other “basics” that now make up the American consumer’s everyday wardrobe.

Gap’s rise coincided with the introduction of casual Fridays to American offices. Along the way, it further cemented its status as a cultural icon, parodied on American sketch comedy show “Saturday Night Live” and serving as a key location in the zeitgeisty 1994 film “Reality Bites.” Its sharp commercials — like the “Everybody in Khakis” dance piece with a soundtrack by swing band the Brian Setzer Orchestra — were deemed iconic.

However, Gap’s sway over the American consumer loosened around the turn of the century, when fast-fashion chains H&M and Zara began their aggressive expansion. The apparel market became more fragmented and competitive online, and shoppers turned to smaller direct-to-consumer players like Everlane and the infinite options available on Amazon for their everyday uniforms.

 

Gap no longer owned a category or even the vision of American style it helped create. It also operated far too many stores for its shrinking size and relevance. The company continues to whittle down its fleet, at the start of 2019 announcing plans to close another 200 locations over the next two years. However, Peck did not invest in new store formats or concepts to re-engage customers.

Then there’s the increasingly promotional sales cycle — Gap’s products are nearly always on discount — which has made it hard to generate shareholder value.

It’s not that Peck, who was driven mostly by creating operational efficiencies informed by data, didn’t try to make Gap cool again. In 2012, when he was still running the Gap brand, Peck hired Cos’ founding designer, Rebekka Bay, to reinvigorate the label. However, she left three years later — first heading to Everlane, then Uniqlo, where she is currently installed. Gap never replaced her.

During his tenure, Peck was able to build Gap Inc.’s e-commerce into a significant business, and created efficiencies in the group’s supply chain. But he never got the product right, and relied too heavily on promotions.

“Quarter after quarter Art Peck apologises for the fact that they didn’t… get the product assortment right,” Jane Hali, chief executive of research firm Jane Hali & Associates, told BoF in February. “But when is this actually going to change?”

In February, Gap announced plans to spin off Old Navy, which surpassed the flagship brand in terms of revenue in 2006. With its lower-priced merchandise and smarter store strategy, Old Navy has been less affected by the shifting retail landscape, though it is not immune.

In September, Peck presented investors another plan for a post-Old Navy company, with focus in regaining profitability at Gap and Banana Republic, and relying on Athleta, its activewear label, for topline growth. Athleta is a bright spot for the company, with a 23 percent compounded annual growth rate between 2012 and 2018.

As for what’s next at Gap Inc: During Peck’s tenure, the company had also considered selling off other brands, including Banana Republic and Gap itself. Perhaps the group will once again entertain this. But finding the right leader to move the organisation forward will not be easy. J.Crew, one of Gap’s (also struggling) competitors, has been on the hunt for a permanent CEO for a year.

© 2020 JHA Jane Hali & Associates, Investment Research

561-288-0675   |   1001 Yamato Road, Suite 302 • Boca Raton • Florida 33487