Fading Out of Fashion

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Fading Out of Fashion

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As Gap's Dominance Unravels, Chain May Go Up for Sale

Twenty-four-year-old Marlies Fitch of Reston has a closet filled with clothes from Gap: sweaters, ribbed turtlenecks, polo shirts and blazers, even shoes and a handbag.

A retailer's dream? Not quite. Almost every Gap item Fitch owns is at least several years old. Some items date to high school.

"I used to shop there, like, all the time when I was younger," she said. But lately, "I haven't really seen anything there that has jumped out at me."

Such is the plight of Gap Inc., which once dominated the realm of casual cool with its classic T-shirts and jeans and now is reported to be considering putting itself on the block as it struggles to find an identity in today's crowded shopping mall. Its low-priced chain, Old Navy, has been under assault from fast-fashion purveyors such as Target and H&M. Its higher-end division, Banana Republic, is barely surviving as it chases after increasingly affluent shoppers.

And Gap's namesake stores, meanwhile, are stuck in the middle: too pricey to be cheap chic but too cheap to be chic.

"What they need to do is take a stand," said Mark Montagna, an analyst with CL King & Associates. "If they continue to stand for the basics, that hasn't worked, and it's not going to work."

The identity crisis at Gap Inc. has shaken its financial performance. Sales at stores open at least a year, a key measure of success in retailing, have declined or stayed flat in all but two months since June 2004. The holidays were dismal, forcing Gap to restate its yearly earnings projections. Speculation that the iconic chain might put itself up for sale is rampant after CNBC reported this week that it has hired Goldman Sachs to explore "strategic alternatives."

Some analysts estimate that a sale could generate as much as $20 billion for shareholders, but new owners would still be left with merchandising problems. Several industry experts said yesterday that they thought a takeover was unlikely.

Gap spokesman Greg Rossiter declined to comment. The company's board said last week that it was conducting a review of Old Navy and Gap to be completed by March 1.

The company has tried a variety of salves over the past year. None has abated the sales decline.

In the fall, a TV ad campaign touting its skinny black pants featured scenes of Audrey Hepburn dancing wildly from the movie "Funny Face." Gap President Cynthia Harriss hailed the campaign as a "breakout" and said the pants, along with other pieces from a line of clean and simple apparel, were popular -- but didn't spark a turnaround.

The chain also introduced Product Red apparel, whose proceeds go toward AIDS relief. And in a handful of Gap stores in New York City, it sold dresses by European designer Roland Mouret, stealing a page from Target's handbook. The rapid pace of change led some industry analysts to question whether Gap was losing focus, launching myriad projects but failing to address core problems.

"We know it will take several seasons of compelling messaging and product to rebuild our traffic," chief executive Paul S. Pressler said.

The company has reinvented itself before. Gap, whose name references the "generation gap," was founded in 1969 in San Francisco, where it is headquartered. It started out selling Levi's jeans, but under the leadership of legendary chief executive Millard "Mickey" Drexler expanded its merchandise to include basics that were fashionably easy to throw together.

Drexler turned Gap into a powerhouse. He was known for his hands-on approach, even picking colors for polo shirts. In the mid-1990s, when the brand began to falter from overexposure, Drexler introduced Old Navy, which initially succeeded in providing affordable fashions for the entire family. A quirky 1998 TV spot featuring young adults dancing madly to Louis Prima's classic "Jump, Jive An' Wail" while wearing Gap khakis quickly became a hit.

But sales soured a few years later as the chain courted fickle teenagers, turning off older, more loyal shoppers. By 2002, Drexler resigned and Pressler replaced him.

"As they've gone back and forth between being fashion-forward and being basic, they've really confused their customer," said Christine Chen, an analyst with Pacific Growth Equities and who owns shares in the company.

Pressler, who was hired from Walt Disney Co., had no experience running a retail chain. In an early coup under his leadership, Gap signed Madonna and rapper Missy Elliott to model corduroy pants for fall 2003. That helped update an image that often walks the line between classic and boring.

However, Pressler's greatest impact arguably has been in the back office, where he improved inventory management and began tailoring stores to different kinds of customers. But that hasn't been enough to compete against retailers who sell a lifestyle as much as they do apparel.

Pacific Sunwear and Abercrombie & Fitch, which owns Hollister, blare music inside their heavily themed stores. Hollister stores look like surf shops. Abercrombie once hired male models to stand shirtless in front of its stores.

Pamela Burns, a personal shopper in the District, said she has all but given up on Gap. She used to find cute flannel pajamas and expensive-looking velvet blazers there. Now, she said, she walks out almost as soon as she walks in.

Even the basics have lost their appeal. This holiday season all she bought at Gap was a candle.

"I feel like there's no style right now," she said. "Who wants to really walk in for khakis and white shirts?"