Inside Gap’s High-Stakes Comeback | Fortune Daily

0:02Stores have to be good. You cannot be 100 % online and it turns out young people like going to stores if the stores are fun.

0:14Phil Wahba: Hello from New York. I'm Ellie Austin and this is Fortune Daily. A kind of white t-shirt, a viral dance video featuring cat's eye and a pair of jeans designed by Hayley Bieber, Save Gap. The iconic retailer has had five CEOs in five years, and it's lost a lot of its cultural power in the process. But now current CEO, Richard Dixon, who's also the executive who helped rebuild Barbie, is betting that Gap can win back its cultural relevance and then Wall Street. And actually the Gap brand is showing signs of life with comparable sales up 10 % for its 11th straight positive quarter. But at the same time, Old Navy, which is the brand that drives more than half of parent company Gap Inc's revenue, just posted its first decline since 2023.

1:09Phil Wahba: So what's going on at one of America's most recognizable apparel brands? Well, Fortune senior writer Phil Warber went inside Gap's very chic, remodeled Flatiron flagship here in New York to find out whether a cultural comeback can indeed become a business turnaround. Let's take a look at his reporting. Gap fell into a cycle. Too many stores, excess inventory, and over-discounting that taught customers to wait for the sale. The Gap brand lost nearly half of its sales and closed more than 60 % of its stores globally. We weaned ourselves off of the over-promoted, over-signed offerings. It doesn't mean that we're not a value-oriented brand at all.

1:55In fact, we love our distinction as a value-oriented brand. Great prices, great style, and great quality. After cycling through four CEOs in four years, Gap hired Richard Dixon. He helped revive Mattel's Barbie to a record$1.7 billion cultural phenomenon. Part of the challenge when we started this reinvigoration, you'd come into our stores and we were more about price than product. It was about stuff, not story. And so we took these and said, OK, let's edit the stuff into a story and let's start to tell our product story in a way that is primary.

2:28Phil Wahba: So, Phil, we just saw that clip of your interview with Gap CEO Richard Dixon. And as we saw, you walked the floor of the big flagship store here in New York. What's different in a Gap store today compared to five years ago? There's a lot more storytelling and it's a lot more fun. That store in particular is the model of what they want to have at all their stores. So there's references to the past, pictures of the first Gap store from 1969. There's also references to their new successes, gigantic posters of Hailey Bieber in Gap jeans. She's their new celebrity collaborator. So there's just, they're really touching the past and the future at the same time in their stores.

3:10Phil Wahba: Is it working? It absolutely is. The Gap as a brand is on fire. The Gap has been struggling for more than a decade. and now suddenly quarter in, quarter out, is growing by double digit percentages. And there's a lot of buzz. They've been doing ads with Cat's Eye, the collaboration with Hailey Bieber and so many others. And so Dixon's focus on cultural relevance, as he calls it, has really helped the brand come back. So one of the things that Dixon says is, or his theory is that a brand can't sell its way out of irrelevance. And I think this links back to why he's focusing so much on storytelling, but unpack that a bit for me from your time spent with him.

3:47Phil Wahba: What did you learn? So the Gap, the brand, not the company, but the brand ended up relying a lot on discounting. This happened at Levi's. It happened at Abercrombie. It happened at American Eagle. It was astonishing how cheaply you could buy a pair of jeans or a T-shirt in there. And so what happened is that because all these brands went on autopilot and they didn't really have a point of view or have anything to say. So the only way you could spur people to buy it is to cut prices. And then that created this addiction to discounting. And it has been a long slog for The Gap, and they seem to have broken that cycle.

4:26Phil Wahba: Dixon came from Mattel, where he really helped revive Barbie. And I think he was a key figure in getting that film to the big screen. How much of what worked on Barbie the doll can work for Gap, Inc., I guess we're talking about? And remind us the four brands that fall under Gap, Inc. So Gap, Inc. has The Gap. Yeah. It has Old Navy, which is its biggest brand by far, 56 % of revenue. It has Banana Republic, which is doing better. It has struggled for years, but it's starting to turn a quarter. And then Athleta, which is, you know, Lululemon competitor. But that brand is in a lot of difficulty right now.

5:01Phil Wahba: OK, tell me a bit about why Banana Republic is doing well and Athleta is not doing well. Well, Athleta, Lululemon is also struggling. So there's a shift away from athleisure clothing. But they've been off trend for a very long time and people stopped paying attention. Banana Republic is starting to make a comeback. They were a little higher end than The Gap. But they tried all sorts of positionings in the market and lost. People started to not understand what is Banana Republic for. It feels a lot more luxe now when you walk into a Banana Republic store than it did a few years ago. But going back to the Barbie question, was that was kind of the success of Barbie and the revamping of that brand attractive to Gap when they brought Dixon in?

5:44Well, it was the reason they brought him in. I mean, he used to work in the apparel industry, so before Barbie, Mattel. But at Mattel, he reinvigorated the Barbie franchise by bringing in different body sizes, different ethnic groups, and made her very relevant. And then, of course, there was a movie that was a hit. And so he comes to Gap, and he understands that clothing is just clothing if it doesn't have a story to tell. And he told me that with time, Gap Inc. had forgotten how to really maximize storytelling and a sweatshirt is just a sweatshirt unless it has a story behind it.

6:22Phil Wahba: And so these creators that they are now engaging with, Cat's Eye for instance, how do they help tell the story of the product? Because it's one thing to see the Cat's Eye viral dance video, which I think we've all seen on social media. It's really like a captivating thing to watch. It doesn't automatically drive you into the store to buy the denim skirt that one of the dancers is wearing? Well it catches people's eye and that's where the other part of his work has been important too. You reignite interest in the brand so people might give you another chance and then they go to the store it's like oh the store is dynamic, it's fun, the product is better and in fact they re-elevated the quality of Gap products because that's one of the things that when you're spiraling downward you start to cut corners.

7:06Phil Wahba: Has that had a knock on effect on price? Yes. So they're able to charge more full price on more items, but it's still a work in progress. I mean, again, not everybody cares that Cat's Eye says that that's a nice sweatshirt. A sweatshirt has to have a stand on its own value. So Cat's Eye piques interest. It reminds people that Gap exists. And then maybe that drives to start pictures. It puts them in the conversation and it also gets you on TikTok. And I mean, it has worked brilliantly. But also the strategy harkens back to what made the gap so big in the 80s and 90s. You know, there was that famous gap spot where people were dancing in khakis, which reminds you of what Cat's Eye did.

7:46So there's always a little bit of a hint to the past. And, you know, you had Sarah Jessica Parker, you had Madonna, you had Missy Elliott back in the day. So this is really sort of just taking the gap back to what made it big to start with, especially in the 90s, its biggest decade.

8:01Phil Wahba: They did have talking about big name collaborations. They did have a collaboration with Kanye West and Yeezy that very much went south. Tell us a bit about that and how much is that haunting the company at this point? Well, they've gotten through it, but that was during a period of throwing spaghetti at the wall. And Kanye West, for all his artistic genius, not a reliable person when you're a mass brand. He was supposed to develop all sorts of products. And the only thing that they ever showcased was that gigantic, hideous puffer jacket. Um, so that, that, that was, uh, that was just trying to latch onto celebrity without really thinking through what it could do for the brand.

8:41And they lost a lot of money as a result of that. They lost a lot of money and they lost a lot of time, crucially.

8:45Phil Wahba: Um, Dixon said, I thought it was a really interesting leadership story that when he came into the company, there was a positivity bias and the execs were not facing problems and challenges head on. Um, what did that look like specifically? Well, it's just, there was a focus on when things went well to tout them, but not examine why things that failed, failed. And actually what's interesting is that that was also something that Macy's CEO flagged to me last year, Tony Spring, that when he got there, nobody ever wanted to talk about the problems. Everything was like, oh, well, we did this collection and it did well.

9:19And he said, yeah, and our stores are dumps. We have to do something about it. And so in both cases, you've seen that candor and honesty without falling into negativity and cynicism have really helped brands come back.

9:32Phil Wahba: You speak to an analyst in the video feature who's very skeptical about that sort of 10 % comp that we see Gap trumpeting, that their sales are going up every quarter. And he says that everyone's kind of revenue is going up as a result of tariffs. Is that correct? He is. There's a certain amount of inflation that's lifting everybody. But even putting that aside, Levi's has had a turnaround. Abercrombie & Fitch has had a turnaround. American Eagle. So if the Gap weren't growing, it would be very worrisome. So there is a little bit of, yes, it's staging a comeback, but it's not unique in doing so.

10:13And that's also why the stock has not had liftoff, as people might have expected. It's been flat. The stock has remained relatively

10:18Phil Wahba: flat. We've talked about the stores. Does Gap do well as e-commerce these days? I know Dixon says he sees Gen Z people coming into the stores and enjoying the experience of shopping. What does its e-commerce presence look like? They have a very big online business, but they really need, and in fact, this has become the consensus in retail land, is stores have to be good. You cannot be 100 % online. And it turns out young people like going to stores if the stores are fun. And so the Gap store in the Flatiron District here has records, and it has fantastic vintage photos by Anna Leibovitz of spokespeople of years past next to Hayley Bieber.

10:58So you have to make your stores interesting.

11:00Phil Wahba: You also have to make them attractive for the Instagram generation. Absolutely. So I mentioned in the intro to this conversation that while Gap is doing well, Old Navy, which is a really, you know, 50%, 56%. It constitutes 56 % of revenue for Gap Inc. is not doing well. So how do you read the story of Gap Inc. more generally? Is this really going to be a town around? Well, as Old Navy goes, so goes Gap Inc. And, you know, Old Navy has also tried celebrity collaborations. You know, they used to be, you know, they used to have that golden touch too. And in fact, right now they have a collaboration with Cardi B.

11:40But that's not enough. And so Old Navy has sort of lost its positioning. It's not helping that. Walmart has been doing a lot of really trend-forward stuff at those price points. And so Old Navy has to figure out what its value proposition is. And it's been several quarters of weakness, and they just changed the CEO.

11:59Phil Wahba: They bought in someone from Target and Walmart. Target, yeah. Michael Francis, who was at Target a very long time ago. And so that shows you that the Richard Dixon playbook works, but celebrity collabs on their own aren't enough. You really have to have clothing that is on trend and you have to have absolutely peerless supply chains, some of the less sexy stuff of apparel, and you have to have good prices and you have to really differentiate yourself from others because Walmart and Target are their competitors and fast fashion as well. And so this is Old Navy is actually the biggest clothing brand in the country after Nike.

12:41Phil Wahba: Phil, thank you so much. Where can people watch your full Gap feature? They can go to YouTube, to the Fortune section, but specifically the Behind the Business tab. Phil, we wanted you to stick around and speak to you about another subject, which you recently wrote a CEO daily essay about and was very pertinent to the moment we're in. CEOs writing these enormously long essays on all different platforms. I'm thinking about Dario Amodai's essay this weekend about the long-term safety of AI. It scrolled on and on and on, despite being very important. What's going on? Why are CEOs right at these things?

13:18Well, part of it is they want to position themselves as big thinkers, but also there's a bit of a land grab happening in trying to get public opinion about AI. But there's also a lot of ego involved. I think that they tend to think that they're experts at everything and that everybody is hanging on their every word. And what could be said in 2 ,000 words is said in 13 ,000 words. it's a bit like having a sub stack or being a contributor at Forbes, no offense. And so it's, it's, they're trying to shape public opinion, but also position themselves as people who are thinking these big things.

13:54Phil Wahba: Do you think they have teams helping them? Do they have editors? Are they the ones actually writing these posts? They're a little difficult to read and they clearly need an editor. So I'm guessing that they might be writing it themselves and then just having one person say, oh, just have a look. And that person probably says, this is phenomenal. Warren Buffett is known for writing thought pieces, but generally he is on the more succinct side. Is that correct? Well, when he was, that was his annual letter to the shareholders. So it was one time a year. But remember, you have millions of people who are trying to figure out how to invest like he did.

14:29And there was a point to it and it was clear and he earned that audience. This is a little bit like, Like, OK, well, I'm just going to, you know, a stream of conscience, put this out on the website and people will read it.

14:41Phil Wahba: At what point do you earn the right to be read if you're one of these big tech guys? Well, they do have the right to be read, but they should be edited and make it clearer. We don't need to know every single thought that they have and how it all connects. I mean, everybody needs an editor. It's hard for journalists to admit it, but we need editors. We really do. It always ends up better. Phil, thank you. Thank you. That's it for Fortune Daily. I'm Ellie Austin. Please remember to like and subscribe. It really does make a difference to the show and other people finding us. I'll see you tomorrow.

15:12Phil Wahba: And in the meantime, I'm off to explore the Gap flagship. Okay. Thank you guys.