By Alexandria Sage
Reuters
Wednesday, January 10, 2007; 3:07 PM
LOS ANGELES (Reuters) - Apparel retailer Gap Inc. (GPS.N) on Wednesday announced management changes in its merchandising and design divisions, seen as the first steps in a broader revamp of its stores to combat sliding sales and rejuvenate the classic American brand.
Gap announced the departure of Denise Johnston, the president of Gap Adult who joined the company in April, and Ivy Ross, executive vice president of product design for the Old Navy chain. Searches for their replacements are being conducted, the company said.
The company also named Karyn Hillman, formerly of the company's Banana Republic chain, as senior vice president of merchandising for Gap Adult.
Gap, the world's largest apparel retailer, has been known for its casual, basic American looks for over 30 years, but it has been struggling to find an audience for Gap and Old Navy, its two main chains, in recent years as their merchandise has failed to inspire shoppers.
Last week, Gap said its executive team and board would review brand strategies at the two divisions, and many analysts have been predicting change -- either a management switch at the division level or the ouster of Chief Executive Paul Pressler.
Jefferies analyst Timothy Allen said that management changes were not unexpected and that similar turnover may be seen in the next few weeks within the merchandising or product design divisions.
"You would think that if they're really going to focus on the divisions, it's the division head (that would leave)," Allen said. "Apparently Pressler still has faith in them. He's not giving up on them."
Gap also has hired investment bank Goldman Sachs, according to Reuters sources on Monday, a move interpreted on Wall Street as a sign that a leveraged buyout by private equity groups might ensue. Shares of Gap surged 7 percent that day on that news.
Except for two months since 2005, Gap has reported monthly declines in sales at stores open at least a year -- a key measure of financial performance. Pressler, who was hired in late 2002 following 3 years of mostly falling sales at established stores, oversaw a year of same-store sales increases in 2003, but they again turned lower for six months of 2004.
At Gap, analysts say the main problem is too-bland apparel, or, on the opposite side of the coin, fashions too focused on youth trends that don't appeal to shoppers in their 30s and over.
Old Navy stores, which sell cheaper apparel for the entire family, are in need of a makeover and its market share has eroded amid fierce competition for basics from retailers from Target Corp. (TGT.N) to Kohl's Corp. (KSS.N).
Allen noted that turnover at Gap has been high within merchandising, reflecting tension between that division and senior management.
"These people have great merchandising backgrounds with great companies. They're just not able to have an impact," Allen said.
Hillman will report to Cynthia Harriss, the Gap brand's North American president, and Old Navy's design team will report to Old Navy President Dawn Robertson until replacements are found for Johnston and Ross.
Shares of Gap edged down 0.8 percent at mid-afternoon to $20.03 on the New York Stock Exchange.
