Yesterday the clothing retailer announced flat results for its full fiscal year. Full-year revenue grew 2%, to $16.4 billion, but full-year profits were down 1.4% to $1.26 billion. Peck says:
GAP is at the top of my priority list.N one of us are happy with the performance, so we're very focused on fixing that as quickly as possible.
Product is absolutely critical to us and underneath product as a priority, our responsive supply chain capabilities, our seamless inventory capabilities, fabric platforming, obviously design and design talent, all supercritical.
Alongside this is the customer experience and the role of digital:
It's the omni-channel, the physical and the digital experience and how all of that comes together. So it's really about, in my words, powering up our focus on those as much as anything rather than deviating from them.
Over the course of 2014, we made significant progress in the omnichannel space and we are very excited about the customer response there so far and we are pushing forward to roll out all of the capabilities across our brands in North America as quickly as possible.
There have been some significant changes already made, including bringing together traditional marketing activities and the digital business inside both the Gap and Banana Republic brands. Peck expands on the rationale behind this:
Our brands are being engaged digitally much more so than two traditional marketing vehicles and the good news about digital engagement is we have a much better line of sight to the return of our spend in digital engagement versus some of the traditional marketing vehicles, like a billboard or a transit or those kinds of things. So part of what I am trying to do by bringing those two things together is to really get our arms holistically around how the customer is engaging our brand and then start managing that for the highest returns in our overall spend.
We have had the luxury of living with our digital expressions of our brands, our websites, as being very efficient transactional channels. Those digital properties also have to carry the aspiration and the emotion of the brand as well as being very efficient channels. By bringing those two things together, we really now have leaders in an organization that’s going to be thinking digitally first in everything they do.
That ‘digital first’ mindset is essential, he adds:
If you’re shooting marketing assets for traditional marketing vehicles, often times those assets don’t manifest themselves in the best way possible for digital use. We just need to pivot to a digital first mindset. I do believe we will get some efficiency out of doing that, I am much more excited about the effectiveness of our overall [marketing] spend that we’re going to see.
I am excited about that because today the digital expression of our brand is the primary way that our customers engage in our brands. If you look at our traffic, the bulk of our traffic is coming into our digital properties and I'm convinced that going forward we will win or lose at our digital leased line.
Historically, our websites needed to be, and have been, tremendously effective and efficient channels that our customer bought through. We need to continue to be that going forward, but our digital expression of the brand needs to be more than that. It needs to be aspirational, holistic, emotional, in a way that few people have expressed their brands digitally. We are focused on doing that across all of our businesses.
More tech spend
Alongside this, Peck anticipates additional technology investment:
We are really continuing to push these omni-channel capabilities which have been for us more, what I would call, spot capabilities. So, reserve in store, shipping from store, finding store, and now we are testing mobile POS. Knowing now how the customer is reacting to those, having learned a lot about how it comes together to form a customer value proposition and now starting to integrate them into a more holistic offer, that's really the focus and it's going to be the focus over 2015.
We are testing mobile POS right now, which is really, as we've been talking about, as we push our POS to really a cloud-based POS that brings all of our web services in, we've been testing that on a small device in stores and both the sales associates and the customers have been reacting incredibly positively for that.
It starts to open up a number of things for us, different ways of interacting with our customers, giving the sales associates those tools, different ways of engaging with those customers in a sitting room where we can actually get a transaction done.
This shift to digital in turn opens up questions about how much real estate GAP needs in terms of offline stores. Peck suggests:
Of course, you pivot back to what does that mean to the real estate that we currently have committed, the church that we've built for Easter Sunday, if you will, with all of the registers at the front of the store. Can we start thinking about putting some of that real estate to more efficient use and under-utilized registers for much of the year.
The shifting roles of offline and online are perhaps well illustrated by GAP’s Athleta brand, which has gone from online to offline with plans to open 20 stores in 2015. Peck says:
Obviously, [Athleta] started as a catalog and then an online retailer. We only opened stores a few years ago, and as we've opened these stores, the number one store in the market and then the follow on stores in that market, we are really learning a lot about kind of building a retailer from the digital world, if you will, into the physical world and how the two channels interact with each other.
What they've learned is very positive, which is that we can build stores and we can continue to get the growth out of the direct channel at the same time, which is obviously great growth, accretive growth and really attractive from that standpoint without having to put physical assets in the ground.
So I have no modification in my mind in any way shape or form about the growth rate and the growth prospects of the business. Just as we are learning about how we get that between the two different channels, we are trying to be really responsible obviously and optimize the overall returns of that business by the differential growth rate in the two channels.
GAP finds itself in an interesting position. It's made the digital investments, but it would seem that there's a way to go yet before it realises the optimum ROI on that spend. Peck clearly appreciates what needs to be done. One to watch over the coming quarters.