Gap’s new CEO needs more than “digital sunshine” after COVID-19 fuels the worst results in half-a-century, despite the retailer’s omni-channel capabilities

Profile picture for user slauchlan By Stuart Lauchlan June 8, 2020
Summary:
Let the (digital) sun shine! Gap's new CEO has taken on the role at the most overcast of times, but her omni-channel credentials remain the retailer's best bet.

Gap CEO
(The GAP Inc )

March saw two big events for Gap - a new CEO in the form of one of its most successful digital champions and the closure of its stores as COVID-19 kicked in. That last move left the retailer’s new leader facing up to the single worst quarterly loss in the firm’s 51 year history as one of her first pubic appearances. 

That $932 million loss clearly can’t be laid at the feet of Sonia Syngal herself, but it will add to the burden of an already onerous ‘to do’ list to turn around the fortunes of one of the America’s best-known retail brands. Syngal is a long time Gap exec, having joined back in 2004 and worked in various divisions of the company across the years. She’s best known for taking the Old Navy brand from $7 billion to $8 billion in the space of three years with her at the helm and for turning its e-commerce arm into one of the biggest online fashion retailers in the US in its own right. 

Digital assets

At this point it would be tempting to suggest that that omni-track record will come in handy right now across the rest of the Gap group, but in reality the firm hasn’t been a digital laggard. Syngal’s predecessor Art Peck was an out-and-proud retail tech enthusiast, arguing that Gap’s San Francicco roots gave it a Silicon Valley mindset

I sit here on the Bay Area surrounded by 'New Economy' companies whose entire business model is data. They know that data is a scalable asset and the more that you have, the more value you can extract. Because of our size and our scale, we have an immensely valuable data asset that we're just beginning to exploit.

That said, Peck complained that the retailer never got the credit he saw it as deserving for its digital work: 

We were early movers in the digital space, launching e-commerce more than two decades ago. More than a decade ago, we saw the power of our brands together and quickly migrated to one platform where our customers could cross shop all of our brands with one easy checkout. I'm not aware of any of our competitive companies that have multiple brands that offer a single cart shopping experience, and we know that this matters for our customers.

Peck’s tenure came to an abrupt end late last year when another quarter of poor results came in and his ambitious plan to break up the Gap empire, cutting Old Navy free to operate on its own, was called into question and ultimately abandoned. Syngal came in with the brief to steady the ship and put the whole group on the same sort of trajectory as Old Navy has enjoyed of late. 

But before she even got started, along came COVID-19 and 75% of the group’s business went away. Store closures have resulted in sales decline of 61% year-on-year, which wasn’t balanced out by a 13% increase in online. In fact the online operation also stalled in March, then picked up in April to hit around 40% growth and higher in May, while Gap itself and Banana Republic turned in declines in online performance over the quarter, with only Old Navy recording growth.

Stores are now starting to re-open and Syngal is putting many to good omni-channel use by using them as fulfilment hubs, the trick that Target has pulled off so successfully for years:

We're now operating over 2,100 [Old Navy] stores as mini fulfilment hubs through ship-from-store and over 500 stores as curbside pick-up locations, a capability we launched during the COVID crisis. 

Sunshine 

It’s incumbent on all CEOs to pitch the glass as always half-full and despite the appalling financials situation she’s inherited, Syngal is rising to the occasion here, insisting that the firm is “playing to our strength” even as COVID-19 enforced changes in consumer behavior. The biggest strength she points to isn’t the digital pedigree that Peck cited, but the brand itself: 

In a time of crisis, brands matters. Customers want to spend their hard-earned money on brands and products they trust and not with the bad customer experience with one that's not familiar. We believe the Gap brand is better than recent business results. During the crisis, Gap has benefited from its high brand awareness and deep emotional customer connection…Our brands are among the most well-known in retail apparel with Old Navy, Banana Republic and Gap all exceeding 75% brand awareness.

That said, she concedes that “years of inconsistent execution have depleted brand health”, but insists this can be corrected. She points, perhaps inevitably, to Old Navy as a case in point: 

Old Navy provided access to critical category and much needed liberty in the crisis with digital sunshine as a unique asset in a social and web marketing, resulting in meaningful online acceleration. As well as achieved all-time high engagement metric through wondrous storytelling and virtual community activations with a focus on at-home workout and cozy product content.

Quite what ‘digital sunshine’ means in practical terms and how its rays get spread across the other Gap brands isn’t clear.  But behind the brand marketing speak there does remain a clear focus on digital and omni-channel capabilities. Syngal says: 

During the widespread shelter-in-place orders, we leaned on the strength of our online presence, which is the second largest apparel e-commerce site in North America at $4 billion in annual revenue, pre-COVID. During the crisis, we doubled the way customers can shop with us, by expanding our Buy Online, Pick-up In Store capability to include curbside pick-up, as well as a new virtual concierge that Athleta has begun testing, offering customers the chance to have one-on-one interactions with the store associates in the comfort of their own home. Before the pandemic hit the US, 25% of sales came from e-commerce. We've seen a meaningful acceleration online as customer choose our suites of omni-capabilities as a preferred way to shop. The interaction between stores and online continues to grow. 

The firm has also seen a 40% increase in customers migrating from retail-only to multi-channel versus last year. The multi-channel customer is highly valuable, says Syngal, and so cementing direct relationships is crucial:

Our brands are leveraging their direct connection with 60 million customers to make customer-fuelled  decisions and deliver must-have product with attributes that matter most to them. We're in daily communication with our customers…We’re providing clarity and confidence in the shopping experience they're returning to, however they choose to safely interact with us. 

And the re-opened store network part of the omni-channel balance will be an asset here, she insists: 

Importantly, our stores remained integral to the experience we offer. With approximately 70% of our stores located in outlet and off-mall real estate locations, we expect customers to gravitate toward these locations as they consider health and safety, an opportunity for us going forward.

If Syngal’s upbeat assessment proves correct, then attention will shift back to that ‘to do’ list that she was appointed to work through. The CEO is clearly aware of the need to be seen to make progress on a turnaround, but isn’t, it seems, about to be rushed into things, particularly against the volatile retail market conditions COVID-19 has exacerbated: 

As we studied past crises, and we have done that deeply, the most important thing on strategy is not to set the strategy too early. It's to stay flexible and to very clearly and acutely listen to what is happening, what our customers are doing, and that's what we're intending. That’s where we intend to operate right now. What we know is our omni capabilities, stores and online working together, is critical for us and we know that we will be invested in that capability holistically, that ecosystem around the customer, that fuel our powerful brands.

She also plans to tap into Peck’s data playbook, noting that Gap has a bank of information on 60 million customers:

It's an enviable customer file that we intend to capitalize on. Those are really the top three assets we see, our powerful brands, our customer file and our omni capabilities. Those three together, enabled through our lean operations and our values, which values matter today more than ever are going to be the elements that shape and refashion this company and how that plays out. I don't know that we're ever done on that front. It's an evolution. It's a daily work to move toward those aspects.

My take

This is a really unique moment. The industry and everything is changing and we intend to lead that change by being a progressive leader in this transformation.

It has been the proverbial baptism of fire for Syngal - to top things off, 20 of the newly re-opened stores across the US were extensively damaged in last week’s protests in the US - and it’s hard at this point to make any clear assessment of what her future plans for omni-channel turnaround are  going to be in practical terms. Spreading digital sunshine soundbites will have to suffice for now, but not for much longer.

That said, her proven track record at Old Navy bodes well and she knows Gap as a whole inside out, for better and for worse. Once the macro-turmoil of recent months has subsided a bit more, then a clearer picture will emerge of how she plans to deal with the self-inflicted turmoil Gap has imposed on itself in recent years.