Gap's Revival | Better in Navy? | 3

0:07I'm David Brown and this is Business Wars.

0:30When you think of The Gap, what comes to mind? You picture the iconic navy blue drawstring shopping bags? Or maybe Sharon Stone wearing a Gap sweater on the red carpet? Or perhaps you're calling up the scent of their dream perfume? For many elder millennials, memories of The Gap call up fond nostalgic feelings. But for the teens coming of age in the mid-2000s, The Gap was just another store at the mall, often passed over for the fast-fashioned trailblazers like Forever 21 or H &M. And for Gen Z, the company's hoping that this new generation thinks of it as the brand behind the viral ads with the hottest celebrities.

1:09The most recent? That Better in Denim dance ad from this past August that got nearly 400 million views in its first few days. Everyone online was trying to learn the choreography, which was set to Milkshake by Khalees. We go 5, 6, 7, 8, 1, and 2, and 3, and roll, and down, middle, and top, top, up. Gap even posted its own dance tutorial with instructions from the original choreographer, and that too blew up. Hey guys, it's Robbie Blue, and I'm going to teach you my choreo to milkshake. Here we go. The company's CEO, Richard Dixon, is behind the push to regain cultural relevance. Dixon joined the company in 2023, and so far, his approach seems to be working.

1:52Dixon is the mastermind behind the revival of the Barbie brand, And the question on everyone's minds is whether he can lead Gap to a similar comeback. Joining us to talk about that, Jordan Holman, a retail reporter at the New York Times. She's helping us analyze whether Gap can keep this energy going and return it to the powerhouse it once was. Later, we're diving deeper into Gap Incorporated's biggest moneymaker, Old Navy. Retail executive Aubrey Avery Jr. was part of the team that built the brand back in the 1990s. During his tenure, Old Navy became the first retailer to hit$1 billion in sales in its first four years.

2:31He also expanded the Gap's footprint, bringing shops into underserved communities and new markets. Aubrey worked with former Gap CEO Mickey Drexler and Old Navy's original founders to turn the store into a household name. And today, he's walking down memory lane with us and sharing the strategies that shaped Gap Inc.'s golden age. Stay with us.

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4:47Jordan Holman, welcome back to Business Wars. Thanks for having me. Have you fallen into the gap? Were you one of those gap people when you go to the, you know, to the mall? Were you hitting up the gap? You know, I did go to the gap, but you would probably see me more often in Old Navy. Oh, really? Okay. Yeah. Remember their like$1 flip-flops and their, you know, American t-shirts. Like that's really where I was shopping at. But of course, I would have to walk by the Gap to go there. Okay, I got to ask because I've never been a fan of the Gap. It's not that there's anything that I don't like about the Gap.

5:22It's just that it never really has had anything that I really particularly, there was never any real reason to go to the Gap. Old Navy, you're talking about some casual basics, right? Things that you got to have in your wardrobe. What's your sense of why someone would go to the Gap? Well, I think the Gap for the longest time did kind of lean into the basics. Like, here's your blue jeans. Here's your, like, you know, it could be a white T-shirt or a cream T-shirt. That's what I think of for the Gap. But then also khakis. But I think you're hitting on a tough place that Gap has been in. A lot of places can sell you those clothes.

6:02And that is a struggle. So it's like, why go to the Gap when you could go? Even Old Navy sells that as well. That's one of the things that's always seemed kind of confusing to me because you're right. They have been, at least in their past, a go-to for blue jeans and T-shirts, but it's not the kind of place that I think about, you know, when I need that sort of thing. I am thinking about Old Navy, and I'm wondering what happened there. What do you think? Right. So historically, if we really go back, like, yes, you could always buy your blue jeans from somewhere else. You could always get that cream shirt from somewhere else.

6:36But what Gap did was they hit on culture. They hit on music and photography. And so you weren't necessarily going to the Gap because they had the most amazing quality jeans. But it was cool. And it was ever-present. And it was at every mall. And it felt like a stop that you had to hit along your shopping journey. And what fell off was that cultural impact. They fell out of the conversation. So I think that's the biggest thing for the Gap. Yes, you can get these clothes or these type of clothes from everywhere. But the conversation and that, you know, the commercials and the music, that's really like that magic of Gap back in the day.

7:19When do you think of the Gap's heyday? Well, you know, I cover, you know, malls for a long time. So I think about the 90s and the Gap and the mall all as one, that the Gap rose up as malls became ever present in America. It was a place that you could get your first job. There was a lot of references in sitcoms and even rap songs referenced the Gap. So I really think about that period. And probably when you even look at the numbers, like financially for GAAP, the early 2000s was really its peak. Oh, that's interesting. How much of a powerhouse were they? Is there any way that you can sort of describe that?

7:57Yeah. Annual revenue back then was around$15 billion. And for comparison, now like Old Navy is around$8 billion in revenue. Wow. So that's a huge difference. Yeah, that's amazing. You know, I think of the Gap as having a certain style component that maybe some other stores didn't have. You got to love the shopping bags with the drawstring handles, right? I mean, they just had that little edge that maybe you wouldn't find in other stores. And maybe you can say more about this sort of cultural role that The Gap served, because there was this connection to, you know, music and celebrity culture, too, that not everyone can tap into.

8:44Yes. I think about the Individuals of Style campaign, which was very, you know, photography heavy, very, it was the cultural conversation I was talking about where you had Spike Lee and Joan Didion. And I think even Whoopi Goldberg, you know, was in their jeans. And sure, they're selling us the jeans, but it's like, look at all these cool people who are making art in our culture also being associated with the Gap. That's interesting. So in a way, the Gap had a little bit of that cultural cool. When did its star begin to fall? And I wonder why. So during this period, it was run by a man named Mickey Drexler, who was considered like the merchant prince.

9:26He just knew what to put in front of you and people would buy it and, you know, was really thinking about the commercials, the marketing. He was just kind of a genius. He left the company abruptly in the early 2000s. A lot of people, you know, use that as a marker. Then the gap started to change. But it wasn't just what was happening inside the company. That's the same time that the rise of fast fashion happened. I think Uniglow came to America around that time. You get H &M. You get all of these other competitors that were competing on the same type of wardrobe. They were offering people the same type of wardrobe that the gap was.

10:01at the same time that the gap was not hitting those commercials and weren't ever present in people's lives. So I think they just fell out of the conversation. You know, you were talking about how, you know, you had some of these fast fashion brands, H &M, Zara. Isn't it interesting that they sort of ran themselves like a tech company in a way instead of a clothing brand? They were very quick to jump on trends and mass produce the latest thing. Gap didn't seem to care. Yeah, they were operating like the rest of the traditional retail industry. And companies like Zara and H &M just kind of came in like a pool in the China stores like, hey, we're switching it up.

10:45And maybe for too long, companies like Gap saw those companies on a different track compared to stealing their same consumers. It was almost as if the gap bought into the idea that they are brick and mortar and sort of didn't keep up. So they tried to revive the brand's relevance. Shall we go ahead and jump into its partnership with Ye? What? Yes. You might almost think that that was an inspired idea once upon a time. Oh, absolutely. I remember the day they announced this so clearly. It was a Friday in June in 2020. So it was still lockdown time. It was still the time when a lot of Gap stores were closed because of the COVID pandemic, as were most retailers.

11:33And so when it was announced, it was like, wow, this is a fresh idea. This is exciting. Maybe they've landed on that cultural moment that analysts and people have been waiting for. And I remember the day they announced that the stock went up like 40 percent, the most in decades. A lot of people anticipated that this would be a cool thing. Kanye had his deal with Adidas and that was working well. And so it's like, great, you're going to make clothes and bring in a whole different type of demographic, younger people. That quickly fell apart, as we all remember. Yes, alas. I think a lot of us know what happened with it sort of crashing and burning.

12:16And, you know, you look back at that and you sort of think, what were they thinking with this partnership with Kanye West? You got to you got to remember, I mean, he was hot when the gap plugged into that. Do you think that had Kanye West not made all sorts of incendiary statements and in a way almost undermined the partnership in a sense that that had a real chance of getting the gap back on track? Could it have worked? I think it could have because after Mickey Drexler left, I feel like every CEO was chasing relevancy, like making sure that the gap could be relevant. And Kanye was that. It came out of left field.

13:01It was like, whoa, you guys are making big swings. Like that's a whole different, you know, category that you guys are going into. And I think that, going back to the question, was an inspired choice. It's like, hey, what we've been doing for the past decade has not been working. How about we try to switch it up in a big way? So as the gap was trying to navigate a comeback, it brought in a new CEO, Richard Dixon. Tell us about Dixon. I think he joined in August of 2023 ex-Mattel, right? A toy executive? Yes. Okay. Yes. But we have to go back to summer 2023, also known as the summer Barbie. Remember all the commercials?

13:41You could not not see pink. I remember. And so Richard Dixon at Mattel, he was their COO, I believe. And he was very instrumental in making sure we all saw pink and Barbie. Mission accomplished. My gosh. Exactly. And he was known for revitalizing other brands within the Mattel family. So Gap wanted him because he's a brand guy. He knows how to bring brands back to their relevancy. And so he had been on their board before. And then when he stepped into the CEO role, he could quickly get moving, identify the problems and start addressing them with real solutions. How do you think he's doing? I mean, it's hard to take a brand like The Gap and do with it what he was able to do with Barbie at Mattel.

14:28Yeah. And a lot of people had questions about it. Could it be a one for one? Is Barbie so different than clothes? In his background, he had worked at Reteller, so it wasn't a completely new industry. But what we're seeing from The Gap now is commercials, the music, their content comes up on my TikTok. You know, they're back in this conversation. They hired Zach Posen as artistic director, I believe is his title. And so they're on the red carpet at the Met Gala. They're just back in a conversation, which I think it sounds simple, but it's a big thing to even have a newer generation talk about Gap in the today compared to back in the day.

15:10So maybe what he's doing is he's sort of reinventing the gap, bringing it back to its roots as a pop culture brand. Do you remember that ad with the singer Tyler that sort of focused on the linen collection? Right. That seemed to be huge for the gap. I even went back to look at that ad on TikTok. And one of the comments was like, IDK what you're selling me, but I'm sold. See, that's what you want. That's what you want. She never says and buy, you know, these jeans. She's dancing. It's fun. It's cool. The choreography keeps your eye. Like people just want to see what they're selling. And it opens at least it opens a door.

15:53You don't know if you got that customer, but it opens a door for them to even think about you when, you know, they think about Zara, H &M and all the other places. Have you seen the Gap ad that came out more recently about denim? With Khalees, yeah, Khalees Milkshake. Yeah, yeah, yeah, yeah. Was it Cat's Eye? Yes. Once again, thinking about, okay, what feels very relevant for today while also hearkening back to like the glory days. So there's this cool dotted line that they did within that commercial of like, hey, we're playing music from that time that you're probably thinking of the gap. But here we're putting Cat's Eye in front of you.

16:31And maybe half of the people watching this don't know who Cat's Eye is. Yeah. But the other half do and might not know about Gab's glory. So then you kind of cover like two demographics. And the ones who do have a wallet that's got some money in it. I mean, that's the thing, right? They're getting in front of people, playing on the whole nostalgia thing, and again, making something that mom and dad might be more familiar with cool again. Man, that's solid gold. Mm-hmm. But it's so important to get the young people down because we say Gen Z and we're probably thinking about teenagers, but the oldest Gen Z is like late 20s.

17:07So the time is now to be like putting in front of them their artists and their rappers because they do, they have some money. Not all the money, but they have some money. Now, Jordan, here's a warning, because what Jordan Holman says, when Jordan Holman speaks, people listen. So here we go. Do you think, do you, Jordan Holman, think that the gap has regained its mojo? no pressure oh david um you know i'm gonna go yes here because as someone who's covered the gap since before the pandemic their performance was always choppy you know they might have one good quarter everyone's like oh maybe this is the comeback and then it would be sales decline the next quarter.

17:57But what Richard Dixon has done since his time is had consecutive quarters of growth. And me having covered this company, I know that has been a challenge. And so for that reason, and with the good commercials, I'm going to say, I think they have their mojo back. Oh, I like it. I like it. Yeah. You're going to plant that flag, Jordan. All right. So do you think that viral ads are enough to keep this brand cool now that it's cool again? Or does Richard have to have some other tricks up his sleeves, do you think? Ads aren't enough. It definitely will have to come down to the clothes, the merchandising, the quality like we were just discussing.

18:37Ads get you in the door to have a conversation with people, but it certainly doesn't close a deal. Any retail chief knows this. He knows this. So I would say that ads are great, but what's the clothes looking like? You think they look good? I have to still see. I think what's cool that I'm seeing from them now is how they're showing how to style. I think that's another advantage that they have. It's like, okay, these things can go together. You might have not thought of them together. And that goes back to like having that artistic direction and the red carpet. It just already elevates it in your mind.

19:15Jordan Holman is a retail reporter for the New York Times. Jordan, great to talk with you again. Thanks so much for speaking with this on Business Wars. I love coming here. Thanks for having me. Coming up. If it had not been for Old Navy, the question becomes, where would the Gap be today? We'll talk with a true veteran of the Gap story with a behind the scenes look at the launch of a brand that's become a household name and Gap's biggest moneymaker. Stay with us.

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21:47Welcome back to Business Wars. In the mid-aughts, the shining star of Gap Inc. was not its namesake. Instead, it was the new kid on the block, Old Navy. Gap Inc. built this brand from the ground up in 1994 to provide a more affordable alternative to the Gap itself, and people couldn't get enough. Old Navy hit$1 billion in sales in its first four years, becoming the first retailer to do so. And even as Gap's popularity waned, Old Navy's performance stayed steady. They considered making it its own entity in 2019, but reversed that decision by 2020. Today, we're joined by the man who helped build Old Navy into the powerhouse it is today.

22:29Aubrey Avery Jr. has nearly 50 years of experience in the retail world. He had already made quite the name for himself by the time Gap Inc. recruited him to help jumpstart their newest property in 1994, a store called Old Navy that had only two locations at the time. Once Old Navy was a household name, Gap Inc. CEO Mickey Drexler assigned Aubrey to identify where new Gap Inc. stores should be placed, based on customer feedback and community need. This coming at a time when most retailers just stuck to the malls. Aubrey had quite the tenure at Gap Inc., and he joins us now to talk about what it was like during that golden era.

23:09Aubrey, welcome to Business Wars. Thank you so much. I'm really, really excited to be here. Yeah, let's talk about your experience in retail. Do you remember your first retail job? Absolutely. My first retail job was in a place called Kalamazoo, Michigan. I worked for a small men's and boys specialty store. And interestingly enough, Kalamazoo was dubbed the mall city. It was the first pedestrian mall ever built in the United States. And I had an opportunity to work with a great gentleman by the name of Judd Knapper from the Netherlands. He chose me to be a part of his team. And at 16, 17 years old, I was hired at my first job really to unload trucks and clean bathrooms.

23:52And I remember one Saturday, it got exceptionally busy. And they said, Aubrey, we need you on the floor. I went out to the sales floor and my boss said, hey, clean up and go out to the floor. We're going to teach you how to sell. So I had a grandmother and I sold her a sport coat, a suit and a tie for her grandson. And they said, this is the biggest sale we've had today starting off. And they said, if you can do this, you can do anything in retail. But of course, your reputation really began to precede you because you became very successful at turning some low performing stores into top sellers.

24:28Was there ever a time when you entered a place, you had a job to do to turn this place around and you thought, I can't pull this one off? Oh, my God. I would be dishonest if I didn't say yes on that because of all of the places that I worked throughout my career, I always had underperforming stores, stores that had major operational challenges, merchandising challenges, and people challenges in terms of not having the adequate teams and staff in place. And actually, at first I said, am I being punished because of this? But the reality is I wasn't being punished. And I feel like if I can go in and assess, talk to the teams, understand what has worked and what hasn't worked, I can find a way collectively with partnerships to learn how to turn stores around.

25:25So, yes, it's a lot of work, but you learn and you take every skill set from point A to point B. Well, eventually, after all these successes, you're recruited to help launch Old Navy. And this was at a time when they only had two stores. I got to ask, what was that interview process like? Oh, my gosh. Two to three stores in the Bay Area, Coma, Pittsburgh, California. It was probably something that is so memorable. I had to interview, and this is a true story, with 15 people before I was able to be officially a regional manager for Old Navy. and I had never had that experience. And I said, is this company so great that I need to interview with 15 people?

26:20But I interviewed with the two co-leaders at that time, which was Jenny Ming, who later on became the president of Old Navy, Kevin Lonergan, which was her counterpart. He was the stores operations guy. and probably every HR person and operational people that there were. But I interviewed with Kevin last because he was in charge of stores and operations. And I remember my last interview with him was in a fitting room in one of our new stores. And he was another tough guy. And he goes, Arby, you have a great diverse background, but this thing that you're getting involved in now, This is going to be fast.