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The Gap, Inc.

drexler fisher store product

Awards: Advertising Age’s Marketer of the Year, 1997
         Gold Medal Winner, National Retail Federation, 1997

In the late 1960s, lifestyles in America were changing rapidly. Society was becoming more relaxed, people had more leisure time to spend on recreational activities, social roles for women were changing, and the hippy movement was questioning societal norms with open protest and blatant disregard for the establishment. It was an era marked by constant disagreement among the generations and the birth of a new, casual dress uniform: t-shirts and jeans.

Concurrently, Don Fisher and his wife, Doris, were looking for a new business opportunity. The high demand, and high-profit margin for Levi’s prompted them to open a store in San Francisco to sell Levi’s and records. The name of the store would be PAD for “pants and discs.” Shortly before opening the store, the couple attended a party where a discussion ensued on the new concept of the generation gap. Doris Fisher, who was not completely happy with the PAD name, thought perhaps that Generation Gap might be an appropriate name for a jeans store. The name seemed too long though, so it was shortened, and in 1969 The Gap was born.

The Fishers’ timing was perfect for entering the jeans market. The fashion silhouette had just changed from tapered pants to bell bottoms, and people everywhere were restocking their wardrobes. The competition for the jeans market was fierce; everybody was selling Levi’s. The key to Don Fisher’s success was aggressively to monitor and replenish his inventory. He wanted to always be in stock, so that customers would not need to look elsewhere. The Gap established a reputation for always having every size, and it developed a loyal following.

The Gap continued to expand throughout the 1970s. In 1974 Fisher decided to add private-label merchandise to the product mix. By 1976 The Gap carried fourteen private labels in 200 stores when the unthinkable happened: the bottom dropped out of Levi’s. The Federal Trade Commission ruled that Levi Strauss and Company could not set prices. Soon, stores everywhere were dropping the retail price for Levi’s, and Fisher was forced to do the same, at the sacrifice of his profit margins. If The Gap had not already expanded into private-label goods, and had not developed such a loyal following through their inventory strategy, The Gap would have had to close.

The popularity of The Gap sparked an idea with Fisher: why not take the company public? In 1976 The Gap successfully launched an IPO, and the stock traded with moderate demand, and sustained moderate profits, for the next several years. However, Fisher saw signs of trouble ahead. By 1980 only 35 percent of The Gap sales revenues were generated by Levi’s. The private-label product lines were popular, but the merchandise was not distinctive; it did not have a niche. The Gap was a basic discount retail chain with no brand image, trying to compete at a time when all retailers were expanding into private-label goods. Fisher realized that he did not fully have the background to shift The Gap from a retailer to a brand. To grow his business, Fisher brought in Mickey Drexler.

Mickey Drexler was born and raised in the Bronx. While in high school Drexler frequently accompanied his father, a button and textile buyer for a coat manufacturer, into the garment district of New York City. After high school, Drexler earned his bachelor’s degree in business from the State University of New York at Buffalo, which he followed with an MBA from Boston University in 1968. Drexler worked his way through a series of positions at the retailing giants Bloomingdale’s, Macy’s, and Abraham & Straus, developing a reputation for ingenious merchandising strategies. In 1980 he was named president of the women’s clothing chain Ann Taylor and completely revitalized it. Fisher was impressed by Drexler’s accomplishments and hired him in 1983 to invigorate The Gap.

Drexler’s first step was to discontinue all the private labels except one: The Gap line. He assembled a new design team, established high standards for quality, and renovated all the stores. It was Drexler’s merchandising expertise that created the clean Gap image. All the stores were remodeled with wood floors, clean white walls, tables with neatly folded stacks of shirts, and a back wall with jeans stacked in columns from floor to ceiling. Drexler also decided to focus on the basics: jeans and t-shirts in as many colors, styles, and sizes as each store could stock. Success followed. Stock values rose. Profit margins grew. The Gap was on top. The Gap revolutionized the concept of the specialty store; they became a brand as well as a retailer.

The immense success of The Gap allowed The Gap, Inc., to expand, both within The Gap store offerings, and by adding new divisions to the corporation. In 1983 Fisher bought the small retail chain Banana Republic. The merchandise carried in Banana Republic was inspired by such movies as Indiana Jones (1981) and Out of Africa (1985). The division generated strong sales and profits until the popularity of the “safari look” waned in the late 1980s. Fisher and Drexler began work immediately to do for Banana Republic what they had done for The Gap. They created a new image, based upon sophisticated, upscale career separates which embraced trends without looking trendy. The store interiors were remodeled, and the mosquito netting was ripped down and replaced by sleek, European-inspired wood and metal fixtures. In 1986 Drexler, unable to find basic, moderately priced clothing for his son, launched GapKids, creating the first new Gap division. The following year, The Gap opened its first store outside of the United States, in London. The Gap attempted to add shoes in 1992, but met with little success and closed the division in 1994. Also in 1994, The Gap debuted its first fragrance. With steady growth occurring in The Gap, Fisher and Drexler looked for the next challenge. Since Banana Republic provided an upscale division for The Gap, they decided to develop a budget division. There was a distinct growth in discount retail sector with companies such as Target and Wal-Mart providing budget merchandise. However, Drexler and Fisher asked, “Does bargain shopping have to be dreary?” “Does the quality have to be inferior?” The answer came in 1994 with Old Navy. Old Navy provided a fun alternative to the typical budget-price retailer. These open, bright stores resembled a warehouse with exposed pipes and concrete floors. Refrigerators were used to display the merchandise. The Old Navy product line stuck with simple basics which could be produced inexpensively without sacrificing quality. Old Navy made it chic to bargain shop, even for those who could afford designer labels.

While Drexler and Fisher focused on building Banana Republic and Old Navy, The Gap began to suffer. In 1991 Vogue magazine featured supermodels in Gap jeans and t-shirts. By the mid-1990s, everyone was copying The Gap, from store design to merchandising strategies to product development. The basics that The Gap carried could be found in J.C. Penney, Ralph Lauren, and Wal-Mart. In 1992 The Gap’s stock prices dropped 50 percent. Store sales began to decline, experiencing only a 5 percent sales growth in 1993, a 1 percent growth in 1994, and finally sales went flat in 1995 with no increase. Suddenly the golden child of the retail industry was the subject of ridicule for failing to stay ahead of the competition. Wall Street dubbed The Gap “mature,” indicating it had saturated the marketplace and would no longer continue to experience growth. In 1996 Drexler was shocked by the appearance of The Gap stores. The interiors were run down, and the clothing resembled Calvin Klein’s unisex, heroin chic look. Radical change was required to reposition The Gap.

Drexler immediately transformed both the advertising and product design departments and brought in new staff. He returned the product focus to The Gap basics: khaki pants, jeans, woven shirts, and t-shirts. Every product that is generated by the design department must be “ordinary, understated, unpretentious and familiar” (Munk, p. 70), because that is what The Gap is—everyday, basic American clothes. The competition is tough for this basic market; everyone from Levi’s to Ralph Lauren to J Crew to Abercrombie & Fitch is selling the same core product. What The Gap is able to do, better than their competition, is develop innovative marketing campaigns to create a “cool” image for their products. In 1997 The Gap made a triumphant return to television advertising, resurrecting the “Fall into the Gap” campaign which first appeared in 1974. The Gap drew upon a diverse range of performers, including LL Cool J, Lena Horne, and Luscious Jackson, to sing their signature tune on television and appear in print ads. The concept was simple—one person singing against a white background—and consistent with The Gap’s philosophy that less is more, whether it is in advertising, store design, or product development. The campaign was a success, and The Gap posted a 6 percent increase in sales in 1997. Determined to keep The Gap in the forefront of basic fashions, The Gap began to conduct advance planning for its merchandising, advertising, and product development strategies. The Gap decided in 1997 that 1998 would be “the year of the khaki.” The concept was promoted throughout all facets of The Gap corporation. The design team generated hundreds of color and style variations, the merchandising team generated window display concepts, the sales clerk were dressed exclusively in khakis (they could buy them for $10), and the advertising department launched the Khakis Swing, Khakis Rock, Khakis Groove, and Khakis A-Go-Go campaigns. When the products hit the stores, the advertising and merchandising strategies created a “must have” phenomenon.

The Gap’s other strength is their product availability. Drexler, who became chief executive officer of The Gap in 1995, believes that The Gap’s inventory strategy should be modeled after supermarkets. “If you go to the supermarket, you would expect to find milk. I don’t know why apparel stores should be any different” (Munk, p. 68). Unlike most retail stores, which try to carry as little back stock as possible, The Gap stores carry a high inventory and pride themselves on always being in stock. Drexler has transformed The Gap into a staple, just like Coca-Cola, McDonald’s, and Gillette. He believes that it should be as easy to purchase a Gap t-shirt as it is to purchase a Coke. This strategy seems to be working. In 1998 Americans spent an average of $700 per capita on clothing, and $23 of that was spent at The Gap.

The Gap, Inc., encompasses five divisions—The Gap, GapKids, Baby Gap, Banana Republic, and Old Navy—each is targeted to a different customer base. The Gap, Inc., grows, on average, between 15 and 20 percent every year, opening a new store almost every day. Under Drexler, The Gap, Inc., has grown to over 2,000 stores located in the United States, Japan, England, France, and Germany. The combined annual sales volume for all The Gap, Inc., divisions in 1999 was $9.05 billion. The phenomenal success experienced by The Gap, Inc., is due to the integration of merchandising, marketing, and product development strategies that never lose sight of the target customer.

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