4 Things to Know About Gap's Business Right Now

Here's the latest on how Gap Inc. plans to fix its slumping sales.
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Eliza Brooke
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Here's the latest on how Gap Inc. plans to fix its slumping sales.
Photo: Ben Pruchnie/Getty Images

Photo: Ben Pruchnie/Getty Images

Art Peck gives a good webcast. The quarterly conference calls on which executives report their latest financial results — and that interested parties like shareholders and reporters can tune in for — are often dry and scant on details about the business. Not so with Gap Inc., at least since Peck took over as CEO in February of last year. He goes long on his observations about each of the company's brands, isn't shy about admitting their failings and, discussing those disappointments, knows when to drop an Obama-esque "Just to be clear..." The general sense you get is: A) that this dude is not messing around and B) that he will get the situation under control. We're not saying he won't; we're just saying his public performance is pitch perfect.

Thursday afternoon, when Peck and his team shared Gap Inc.'s results for 2015, during which total company sales fell from $16.4 billion in 2014 to $15.8 billion, was no exception. Here are a few of the big takeaways.

Banana Republic is not going to be a cutting-edge fashion brand.

Banana Republic went through the ringer this year. Former Creative Director Marissa Webb's somewhat fashion-forward designs for the brand didn't land with customers in May — in part, Peck says, because there wasn't enough color in the collection — and they weren't hitting the mark by the time July rolled around. In October, Webb was out, though Gap kept her on as a creative adviser, and sales remained weak through January. All in all, Banana Republic's sales dropped to $2.66 billion this year, from $2.92 billion a year ago. Moving into 2016, Banana Republic isn't angling to be a trendsetter. "We took Banana to a place where we were trying to lead on fashion and trend, and [the customer] does not want Banana to be that," Peck says, adding that at this point "we have centered on the classic, appropriate, expected aesthetics of the brand."

But despite its weak sales, Banana Republic had the strongest foot traffic in stores.

Interestingly, Banana Republic did win on one count relative to Gap and Old Navy: foot traffic. "The good news is that when the product comes back, we're at least getting the footsteps in the door," Peck says of Banana's persistent ability to pull shoppers into its brick-and-mortar locations. Gap's store traffic was the weakest, while Old Navy's was "solid" if slightly negative. The latter took a plunge in November and December, and came back in January, which wasn't ideal since that's when product goes on markdown.

Gap's going deep on optimism and femininity in its women's collection.

With its fourth quarter sales down 6 percent and its annual revenue down from $6.2 billion in 2014 to $5.8 billion in 2015, Gap is still working on getting itself back to growth. Still, Peck seems convinced that the product is moving in the right direction. Specifically, it's returning to an "optimistic," "colorful," "casual," "American" aesthetic that's "feminine for the women, masculine for the men" — certainly one way to cater to an America that's on the verge of a nervous breakdown about the upcoming presidential election, and, in many circles, increasingly flexible on the point of performing gender binaries. Peck reemphasized the need for more feminine womenswear designs a few times throughout the call, though, so perhaps that's just what the customer is looking for.

Mobile comes first.

Following what is just common sense at this point, Peck says Gap Inc. is prioritizing digital and, specifically, mobile shopping development. The "moment of truth" for a retailer used to arrive when the customer crossed the threshold into a store; today, it comes when they enter a brand's website on their phones. At that point, Peck says, "we either win or lose." As overall traffic moves toward mobile, expect Gap to be investing in that area.