In a retail scenario that is constantly shifting with changing consumer preferences and economic pressures, Gap Inc., and specifically its flagship brands Gap and Old Navy, have emerged as unexpected winners in 2024. Once facing concerns about their relevance with declining sales, these iconic American brands have staged a remarkable comeback, with a blend of nostalgia, affordability, and a keen understanding of the modern consumer.
The numbers don't lie
Gap Inc.'s Q 2024 earnings revealed a significant turnaround. Gap brand saw a 7 per cent increase in comparable sales, a stark contrast to previous quarters. Old Navy, the company's value-driven powerhouse, reported a 5 per cent rise in comparable sales, exceeding analyst expectations. This increase is reflected in the company's stock price, which has seen a 30 per cent increase year-to-date. Moreover, net income rose 11 per cent to $206 million, and the company maintains a healthy balance sheet with $2.6 billion in cash reserves.
Success with a multi-pronged approach
Several key factors and initiatives have contributed to this resurgence, pushed up by the leadership of Richard Dickson and the execution of brand presidents:
Leadership and merchant focus: Dickson, with his proven track record at Mattel, brought a ‘new playbook’ focused on ‘championing original, trend-right products’ and ‘linking the product story with popular culture.’ His emphasis on ‘continuous improvement through innovation’ has shifted the company from ‘fixing the fundamentals’ to sustained growth. “We continue to perform while we transform,” Dickson opines, highlighting the company’s evolution.
Nostalgia and re-embrace of iconic styles (Gap): Gap's resurgence is heavily attributed to its successful revival of classic denim styles. The ‘90s Loose’ and ‘Carpenter’ jeans have resonated strongly with Gen Z and millennials, tapping into the current nostalgia trend. "Gap is back in the cultural conversation. This brand was built on strong product narratives, with brilliant marketing expressed through big ideas. And over the past year, each of these were reignited," Dickson says. Collaborations with influencers and high end brands like Dôen and Cult Gaia, alongside targeted social media campaigns, gave a boost to this message. Gap’s campaigns, like ‘Linen Moves’ and ‘Get Loose’ with artists like Tyla and Troye Sivan, have successfully reconnected with its audience. What’s more the introduction of innovative fabrics like Cashsoft has also driven sales.
Old Navy's value proposition: In an era of economic uncertainty, Old Navy's focus on affordable, family-friendly apparel has proven to be a winning formula. The brand has re-vamped its product offerings, with greater focus on denim and ‘relevant’ fashion. "Something that looks like Gap at Old Navy makes the customer feel they have access to relevant fashion at prices the family can afford," said Janet Joseph Kloppenburg. The multicategory approach, including activewear (with the new StudioSmooth collection), wear-to-work, and casual wear, has given it competitive advantage. “Old Navy has been connecting our customers with products they want through compelling storytelling and executing with clarity in price," Dickson said.
The company is also actively cutting costs through ‘low-value work’ elimination and redeployment into high-value projects, with a goal of $150 million in expense reductions in 2025.
Focus on inventory management and sourcing: Gap Inc. has improved its sourcing speed, allowing it to quickly capitalize on trending styles. “They’re also sourcing faster,” Kloppenburg says. “When a trend like the barrel-leg jean comes out and everybody wants it, they have been able to get it in season.” The focus on monthly product drops and agility has been crucial.
Omnichannel excellence: Gap Inc. has invested heavily in its omnichannel capabilities, seamlessly integrating its online and offline presence. Initiatives like "buy online, pick up in store" (BOPIS) and enhanced mobile shopping experiences have contributed to increased convenience and customer engagement. Data shows that BOPIS orders have increased by 25 per cent in the last six months, highlighting the success of this strategy.
Meanwhile both Gap and Old Navy have made strides in promoting inclusivity and diversity in their marketing and product offerings. This has resonated with a broader customer base and enhanced brand perception. Gap has increased its size range and featured diverse models in its campaigns, reflecting the changing demographics of its customer base.
Also, the appointment of Zac Posen as creative director has brought renewed focus on design and attention to detail across all brands. His influence is seen in high-profile events like the Met Gala and the Oscars.
Thus Gap Inc. is focused on maintaining momentum by continuing to innovate, enhance customer experiences, and adapt to evolving market trends. With a strong leadership team and a renewed focus on its core strengths, Gap and Old Navy are well-positioned for continued success.
