The revitalization of Gap depends on a few stitches along the collar of a man's oxford shirt. On having just the right percentage of spandex in a lamb's-wool crew-neck. On the judicious placement of a waistband on a pair of boot-cut jeans.

A brand that once epitomized wholesome cool and the safest kind of scruffy-bearded rebellion has suffered terribly in recent years. Sales fell for almost three years running. Competition was squeezing it from all sides. The corporate parent's longtime chief executive and onetime creative visionary, Millard Drexler, stepped down last year. Last week he was named chief executive of J. Crew -- a Gap rival.

The company was founded in 1969 as a purveyor of jeans, and even now there is a wall of denim in every store, piled high with carefully folded dungarees organized by cut, color and size. Over the years, Gap blossomed into a nearly $7 billion company whose sole purpose was to sell jeans and things that went with jeans.

Yet it was a dependence on low-rise denim -- as well as every cropped top or peasant blouse to swish down a runway -- that ultimately pushed Gap into a financial abyss. The company saw its fortunes fade because it believed in bared midriffs and derriere cleavage and its core customers did not. The brand lost its soul.

"A year or two ago, I stopped going there because their clothes got strangely faddish. It was as if there was a big demographic shift and I felt terribly old, and I'm 32!" says Laura Schmitt, who lives in New York and was a loyal customer. "It was so noticeable. It felt like a decision had been made, like they made a philosophical shift. I felt alienated."

Over time, industry observers began to talk of Gap as a fallen Goliath. Gap customers -- those in their late twenties to forties -- complained about the quality of the merchandise, disparaged the video queen jeans, found the service lackadaisical and ultimately shunned the store.

At its worst in April 2002, same-store sales, which measure how well stores do from year to year, had declined 26 percent.

"If you go back to that time and look at what was happening in the market -- ultra-low-rise jeans, Britney Spears was everywhere -- it was easy to get too narrow, to focus on 18-to-24-year-olds. But if you were over 24, you said, 'This isn't my Gap,' " says Marka Hansen, the new executive vice president of merchandising.

In its 2001 annual report, the company issued a mea culpa: "After disappointing our customers and our shareholders in what was a very humbling year, we've learned a lot -- and we've got a lot to do."

Gap had been behaving like a middle-aged malcontent strutting around in too-tight leather pants and over-gelled hair. But now it seems to be coming to its senses. The company brought in a new chief designer -- from its sister chain Banana Republic -- and this past fall there was a sudden, obvious aesthetic shift: cotton peacoats striking in their simplicity, bright red mackintoshes reminiscent of rainy grade school days, fine-wale corduroys with a smidgen of spandex. Gap, once so terribly off track, so distracted from its fundamental philosophy of casual basics, so cowed by its competition, began to find itself.

In December, same-store sales were up 2 percent.

Everyday Fashion Jerome Jessup, Gap's new executive vice president of design, sits in his New York office -- so nondescript that it might belong to a claims adjuster -- dressed in classic Gap style, which is to say unremarkable. He is wearing loose-fitting bluejeans with a rough and tattered hem, a white crew-neck T-shirt and a slightly oversize pink oxford shirt that hangs to his pockets. Jessup himself is of average height and medium build with a round face. If one were to pass him on the street, one might think -- if a thought popped into the consciousness at all -- that there stands a regular guy. Unremarkable. Or maybe just remarkably normal. There stands Jessup. He defines his mission as "taking the things people love about casual American sportswear and making it new and exciting."

"You have to give customers what they know they love.

"It's like the difference between tap water and bottled water," Jessup says. "We strive for bottled water."

The distinction between what flows from most kitchen faucets and a bottle of Voss water, which is sold in an etched-glass cylinder with a silver top, is merchandising. It's all in the sales pitch.

And Gap's had been smooth, simple and a roaring success: The consumer's essential hipness elevates the lowly jeans jacket or T-shirt into something special.

The brilliance of Gap has been its ability to sell clothes that somehow convey nothing and in their silence allow the individual to speak volumes about his personality and sense of self. Familiarity and reassurance have been the lifeblood of Gap. This, after all, is the company that through semantics and images transformed the common T-shirt into the iconic "Pocket T" and now the "favorite tee."

"We don't use the word 'basics' anymore. We say 'perfect.' When you know you've got the quintessential item, it's 'perfect,' " Hansen says. "That takes it away from basic."

Gap clothes always managed to look modern but never trendy, stylish but not fashionable. Who can forget "Sharon Stone with that famous turtleneck" -- from Gap -- at the 1996 Oscars, asks Amy Larocca, a 27-year-old writer for New York magazine, who bought a pair of olive Gap cargo pants circa 1999, because who wanted to pay a thousand dollars for the designer version?

"If you want a black crew-neck T-shirt, and if you're going to be fashiony about it and mix it with a Balenciaga skirt, and you don't want to feel taken advantage of by paying $80, you'd go to the Gap because you know it's going to be cut fairly well and cost $10," she says. (Actually, the "Favorite T" is $16.50.)

Gap jeans and pullovers never announced one's allegiance to a specific social tribe in the way that Levi's or Dockers or Brooks Brothers do. Through its sleek print advertisements and TV spots featuring catchy tunes and loose-hipped dancers, Gap always maintained that everyone -- Marianne Faithfull, Danny Glover, a nameless model, your next-door neighbor -- wears its clothes. The brand was akin to the versatile kid in the high school cafeteria who floats easily between the jocks and the nerds, the preps and the punks.

But at the end of the '90s, Gap, part of the $13.8 billion corporation that also includes Banana Republic and Old Navy, saw its economic fortunes falter, as did a host of other clothing concerns. As a corporation, Gap Inc.'s net earnings had risen steadily over the last decade, reaching $1.1 billion in 1999. But in 2000, earnings dropped to $877 million. In 2001, the corporation saw an $8 million loss.

Gap's downfall was all the more striking because no other brand had so expertly merchandised the most generic American sportswear on such a mass scale. Gap is "part of the standard mallification of America. But I'd go anyway," says Laura Schmitt, who produces academic bulletins for the School of Continuing Education at Columbia University. "I have a casual work environment. I don't need suits or anything."

A Yawning Gap While companies like Polo Ralph Lauren, Tommy Hilfiger and Nautica also sell Americana, they're selling fantasies of cottages in the Hamptons, sailboats docked in Kennebunkport and Colorado ranches stocked with cashmere horse blankets. Abercrombie & Fitch, one of Gap's most direct competitors, sells sex just as surely as it hawks its faded university T's. While other companies catered to customers' aspirations toward the exceptional, Gap told them that being average wasn't a sign of failure but rather evidence that they were connected to a large, happy community of normal folks.

Gap tapped into the heart of why so many Americans are skittish about Fashion. They fear that fashionable clothes will overwhelm their personality, mock their intelligence and distort their views. Gap did none of that because its clothes never made a peep.

But a few years ago, the frocks started blathering away. The women's jeans, which no longer had even a passing relationship with the natural female waistline, started humming Britney Spears songs. The belly-baring tops rhapsodized about MTV, Skechers and what it meant to be bootylicious.

"It was a merchandising question. The low-rise [jeans] might have been two-thirds of the mix when it should have been one-third," says Hansen, the merchandising executive vice president, a sandy blonde in a black wrap skirt and charcoal turtleneck, who speaks in a blunt but politic style.

The jeans were only part of the troubled mix of merchandise in the stores. The brand not only had moved away from its base -- by adding underwear to its product mix, for example -- which is a natural way for a company to evolve. But it had forgotten its reason for being in business, according to the Tobe Report, a New York-based retail advisory firm, which counts Gap among its clients. "They were in the forefront of the casual market," notes Susan Rolontz, executive vice president of Tobe. "Everybody copied them. They were the hot people and it happens with everyone who is successful. But you have to be true to yourself, true to your essence." Gap had turned its back on straightforward, widely palatable casual wear and begun focusing on trend-driven sportswear.

Gap also faced increased competition, particularly from its sister brand Old Navy, which wooed customers with campy advertising and rock-bottom prices. "It used to be that if you wanted a T-shirt, the obvious choice was the Gap," says Larocca, the writer. "Now if you want the fashion thing at a lower price you can go to Zara or H&M or Old Navy, and if you're not into fashion, you can go to J. Crew."

Hansen says Gap has narrowed its focus by purging stores of about one-third of the merchandise variety. The jumble of trendy ideas contributed to the poor quality. There were too many details to keep straight, and manufacturers were stepping outside their areas of expertise.

At the same time that Gap and its contractors around the world were taking on the challenge of producing flash-in-the-pan trends, allegations of employee abuses abroad -- poverty-level wages, hazardous working conditions and corporal punishment -- suggested a "system of oppression," according to a report from New York-based UNITE, which advocates for the rights of garment workers. UNITE even called for a Gap boycott during the holiday season. Gap says that it has resolved some of UNITE's concerns. The company continues to require factories to sign its code of vendor conduct, which instructs them to follow local labor laws and promote fair working conditions for employees.

"We're confident that our track record and continued efforts to resolve any remaining issues will speak to our commitment on factory conditions," says Gap spokeswoman Rebecca Weill.

Denim Dynamics To improve the merchandise mix, the company zeroed in on its dungaree problem. "We know that to maintain a strong brand, we have to dominate in pants and denim," Hansen says. In 2001 Gap ranked sixth in retail sales of jeans, following No. 1 Wal-Mart, JC Penney, Kohl's, Old Navy and Kmart, according to research conducted by NPD Group, a market information company. In 2002, Gap moved up to the No. 4 position. (The top three remained unchanged and Sears came in at No. 5, according to NPD's study.)

The company restyled its boot-cut jeans. It used the same fit model -- the body on which the prototype is sized -- but changed the cut, Hansen says. Technically, the jeans are still low-rise, because they do not sit on the natural waistline but rather several inches below it. But after so many seasons in which trousers were more easily measured by how far they rose above the crotch than by how far they sank below the waist, the new boot-cut jeans are practically Amish in their modesty.

The new cut, and here Hansen pauses and chooses her words with care, "sells to someone over 30 or over 40," Hansen says. "It fits a certain body type, probably a gal who's average, but who has hips."

Nips and tucks were made in a host of other garments. The peacoats, says Jessup, the design executive vice president, are longer and have more of an hourglass shape. Spandex was added to the lamb's-wool cable-knit sweaters so that they fit closer to the body and have less of a slouchy, boxy feel. And the brand advertised its "crazy stripe" sweaters -- an idea that came from the company archives -- and scarves with such a vengeance this past holiday season that it was impossible to turn on a television and not see narrow hips swiveling to "Love Train" or to leave a Gap store without the song stuck on a mental loop.

For its men's oxford shirt, which the company plans to promote this spring with the same enthusiasm it had for striped sweaters, Gap ripped apart a Polo Ralph Lauren shirt to understand what, in its construction, made it a favorite among men. They counted the stitches per inch. (More is better.) They noticed the shape of the collar and how the label was attached. And now, Hansen notes in a display of verbal chest-thumping, "I'd put our shirt up against Ralph Lauren any day and ours is $39.50. It's not the same, but it exceeds expectations." Polo dress shirts range in price from $59.50 to $97.50.

The company modeled its T-shirts after those sold by Petit Bateau, a French children's brand popular among women because of the soft cotton and slim fit.

Gap has always depended on subtlety for its appeal, and as much as people are quick to say that they don't notice the details, they do. They care about the sliver of a white T-shirt that will be visible beneath a sweater. And so Jessup spends much of his time thinking in terms of millimeters.

He's been "putting up guardrails" so that the brand doesn't swerve into a ditch again. "Flounced necklines and jabots may be on the runway, but people don't come to us for that," says the designer, who directs a staff of 131 people charged with creating clothes for adults, children and babies.

But the return to fashion of velour and fleece was something that was pure Gap and sparked the kind of enthusiasm that only a designer -- some can get dizzy discussing cashmere -- can register. "The idea of velour was very exciting 10 years ago. The '70s hook-up suit or track suit has been off the scene for a while," Jessup says. "For Gap fleece, we put a little stretch in it for women. It was really exciting."

It has paid off, luring Larocca back to Gap for more than underwear. "I'm not someone to go buy $200 Juicy Couture cashmere sweat pants," Larocca says. "The stuff at the Gap is nice."

Clothes-Minded In Gap's New York design headquarters, a workroom overflows with jeans and carpenter pants in various washes: antiqued, faded, rinsed. They are more subtle than what once filled the stores, such as the overwrought "whiskering" that Schmitt describes as making "you look like you've been rubbing yourself against sandpaper." There are none of the aged jeans, which looked as though they'd been dropped in a puddle of bleach.

Tacked to the walls are fabric swatches for work shirts and antiqued Gap labels, along with inspirational notes refering to a salt-of-the-earth casualness and the notion that there is character in blue-collar details. "Cousins of the trucker," reads one.

Since fall 2002, Gap merchandise has looked familiar. And that has been good. Schmitt went in and bought a "plain black V-neck sweater." Men in their late twenties and thirties have praised the loose-fit jeans over more expensive brands such as Gucci and Giorgio Armani. The Gap jeans are roomy but not sloppy, flattering to the derriere but not snug like a European-style cut. And they're only $49.50. Over the holidays, the company sold out of its "crazy stripe" scarf, no easy feat considering there are more than 1,000 Gap stores nationwide. And so far no sketchy spring runway trends such as oversize blousons and mini-kimonos have turned up in the stores for $39.50.

Gap tumbled into a deep hole. It hasn't climbed out yet, but at least it has stopped falling.

Gap is back to basic jeans and oxford shirts, and hopes to win customers back, too. "We don't use the word 'basics' anymore. We say 'perfect,' " says Marka Hansen, the executive vice president of merchandising. Jerome Jessup, below, Gap's executive vice president of design, defines his mission as "taking the things people love about casual American sportswear and making it new and exciting."Gap's restyled classics include soft, slim-fit T-shirts and longer peacoats with more of an hourglass shape.