Gap Looks to Its Old Friend Levi’s as It Tries to Become Cool Again
Art Peck wants Gap to stage a comeback like the iconic jeans brand.
ap Inc. has gone full circle.
The San Francisco-based retailer’s iconic namesake brand began selling Levi Strauss& Co. jeans in the late Sixties, and although that ended after two decades, its chief executive officer is once again looking at the retailer’s neighbor in the California tech hub as it tries to regain its coolness.
Speaking at Gap’s annual general meeting, Gap Inc. ceo Art Peck told shareholders that while it isn’t often that a global company builds up a competitor, he is hoping that the struggling chain can emulate the success of Levi’s recent comeback.
“What I see in Levi’s is proof that a brand can be brought back to life and be relevant and that’s what I hope for Gap,” he said, adding that a brand’s heritage, relevance and history are its greatest assets.
Peck was no doubt referring to Levi’s meteoric rise over the past few years, which culminated in a blockbuster return to the stock market in March, with its stock jump 32 percent to $22.41 for an $8.1 billion valuation. On Tuesday the shares were trading at $22.25.
The company, also based in San Francisco, saw its sales peak in the mid-Nineties at just over $7 billion and then nosedive after it lost its cool status amid competition from the likes of premium denim brands like Seven For All Mankind and Citizens of Humanity.
But over the past few years, with the help of ceo Chip Bergh, who took over the helm in 2011, Levi’s has managed to claw back some of those sales, growing the brand’s core jeans business while expanding the women’s and tops businesses and building out the company’s stores network and international presence.
The results speak for themselves: In 2018, the 166-year-old brand’s sales topped $5.5 billion.
In contrast, Gap, which also peaked in the Nineties with its memorable “Individuals of Style” black-and-white advertising featuring celebrities including Steve McQueen, isn’t enjoying the same kind of resurgence as Levi’s, suffering from operational issues and market share losses.
Indeed, fourth-quarter results showed comparable sales at Gap were 5 percent lower and Peck told investors the quarter “did not live up to” what he knows the brands can deliver.
As a result, Gap Inc. revealed in February that it is splitting itself into two publicly traded companies. One will be made up of stronger Old Navy, while the other — a yet-to-be-named company — will consist of Gap, Athleta, Banana Republic, Intermix and Hill City.
The reasoning behind the split is that the new company will create a clearer focus on what is necessary to deliver improved profitability in the more mature brands — Gap and Banana Republic.
As part of the restructuring, around 230 Gap stores will close over the next two years, mainly in North America and including some flagships, resulting in an estimated annualized sales loss of about $625 million. After the closures, Gap expects to see significant improvement in channel mix with its profitable online and outlet businesses representing about two-thirds of the business and specialty stores accounting for a third, down from about half.
Gap and Levi’s history started in 1969 when Donald and Doris Fisher did a deal with their friend, Levi’s then-president Walter “Wally” Haas Jr., to start selling the jeans in their Bay Area shop.