Gap search committee combs retail world for rescue CEO


SAN JOSE, Calif. – Gap, the troubled retailer in search of a new chief executive officer, is running on autopilot.

Spring clothing is on the shelves. Its back-to-school assortment is already set. Planning is well under way to choose hot items for Christmas.

So even as the company and analysts say the San Francisco-based clothing empire needs an extreme fashion makeover fast, even if a new top executive were to take over tomorrow, customers wouldn’t see merchandise changes for at least a year.

On Jan. 22, following a dismal holiday shopping season that followed months of tepid results, Gap dumped Paul Pressler as chief executive. To find a new leader, Gap’s board of directors has created a search committee that includes representatives from the luxury and discount retail worlds.

What does the company and a new CEO need to turn Gap around? Gap officials say there’s no timetable for their search, naming Robert Fisher, son of founder Donald Fisher, as interim CEO.

They’re also conducting a strategic review of Gap and Old Navy stores, which comprise about 80 percent of the company’s sales. Results of that examination will be released by March 1.

But industry experts say they’re already behind.

“They have 18 months to fix the problem” before investors revolt, said Marshal Cohen, chief industry analyst with NPD Group. “It’s critical they get somebody to hit the ground with both feet running, not somebody who takes time to ramp up. They don’t have that long.”

Turning Gap around, Cohen said, will take a chief executive “who really understands the marketplace beyond the traditional way of doing things, and can get in front of the trends rather than chasing them, which is what’s happening.”

The search for a CEO will likely take three to six months, according to Citigroup Investment Research analyst Kimberly Greenberger.

“We do not believe that a new CEO will be in a position to meaningfully impact the business until at least the fall or holiday of 2008,” she said.

Among the names that have emerged as possible candidates are executives linked with successful retail turnarounds. They include Vanessa Castagna, who left JCPenney Stores after getting passed over for the top job in 2004 to run Mervyns for Cerberus Capital Management. Castagna announced last week that she would leave her post as executive chairwoman of the Mervyns board of directors effective Feb. 1.

Other possibilities, industry experts and reports say, are Kay Krill, president of AnnTaylor Stores; Roger Farah, president and chief operating officer of Polo Ralph Lauren; and Paul Charron, former chief executive of Liz Claiborne.

But analysts say the new CEO needs more than speed; the company also needs to make tough moves, including:

• Close some Gap stores. Some of the stores are too close to one another, cannibalizing sales, said independent retail analyst Jeff Green of Mill Valley, Calif. He said 100 to 300 of the 1,300 U.S. Gap stores could go.

“What they figured is that with increased brand recognition, it would increase overall sales for every store, and that didn’t quite turn out that way,” Green said. He also advocates selling Old Navy because the discount clothing chain’s large stores – on average 12,000 square feet – could attract retailers already operating big-box shops.

• Shutter its non-core operations. Forth & Towne, a specialty store for women over 35 with 19 national locations, would be first to go. It was launched in 2005.

“It’s gone through a fortune, and it’s not doing anything,” said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm.

“Do you have any idea how that is diverting energy, attention and money from the main event?” Davidowitz said. “It was an experiment and an insane thing to do. This company is going to rise and fall based on the thousands of stores they have in the Gap, Banana Republic and Old Navy.”

• Sell some or all of the company. Vera Van Ert, specialty store analyst with Telsey Advisory Group, said if Gap did that, it should first take the company private, so drastic and expensive changes could be made.

“What wouldn’t be a crazy idea is to take the Gap out of the public domain, spin off Old Navy and concentrate on retooling Gap,” Van Ert said. “It would be expensive to get out of their leases and no shareholder wants to see some massive charge. If it did it out of the public eye, it would be easier to execute some of these things.”

-Hire a visionary leader. “You’ve got to have somebody who can be a merchandiser, provide leadership and attract the kind of talent necessary to turn this thing around,” said Michael Appel, managing director of the retail and consumer goods practice at Quest Turnaround Advisors in New York.

“They need someone who can come in and create the merchandise magic that will bring the customer back. And there aren’t a lot of magicians around,” Davidowitz said.

• Identify the right merchandise. “If you don’t put a product on the shelves that the customer finds appealing, they have a lot of other choices,” Appel said.

Gap continues to be profitable, but its results are under pressure. Revenue has failed to advance for seven consecutive quarters, and profit has slipped for five quarters in a row.

Although the company’s upscale Banana Republic subsidiary squeezed out a 2 percent gain during the holidays at its stores open at least one year, the biggest part of the company – Gap and Old Navy – languished. Overall same-store sales – a key indicator of a retailer’s health – fell 8 percent in both November and December compared with the previous year.

Two other small operations – month-old online shoe business Piperlime and the year-old Forth & Towne – are too new to be more than a minute part of the business.

Despite Gap’s current ills, the storied company holds an allure, said George Whalin, president of Retail Management Consultants, a retail consulting firm in San Marcos.

“They were the darling of specialty apparel business for a long period of time and they dictated fashion to millions of consumers. It’s one of the premier brands in the industry,” he said.

“They will be able to find someone to be CEO that is capable, qualified and interested in that job. The fact is, they are the Gap.”