Fading Out of Fashion

Gap, once the king of casual cool and now struggling to define itself, is reported to be considering going up for sale.
Gap, once the king of casual cool and now struggling to define itself, is reported to be considering going up for sale. (By Justin Sullivan -- Getty Images)
By Ylan Q. Mui
Washington Post Staff Writer
Wednesday, January 10, 2007

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.

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