After scrapping its European design team after just two years, Gap’s strategy is back in the spotlight as it returns to classic US product in a bid to turnaround its fortunes.
Gap’s decision to axe its London-based European design team last week after creating it only two years ago signals a major change in direction for the US casualwear giant’s UK strategy.
The creation of the team, which was implemented by European president Stephen Sunnucks who joined Gap in 2006, was intended to revitalise flagging sales in Europe, including the UK, where the retailer’s US ranges have fallen out of favour with shoppers. The first full European-specific collection was introduced to stores last autumn.
However, the decision to axe the design team, understood to consist of about 30 people, after only two full seasons shows how difficult it has been for Gap to turn around its sales decline, which has been triggered by increased competition in the sector and compounded by the global credit crunch and the resulting consumer downturn.
Gap denies that the changes, involving a return to a more US product, are because the European ranges have failed to capture shoppers’ imaginations.
The company says the group’s new design chief, Patrick Robinson, whose first full collection goes into stores this autumn, has breathed new life into all of its ranges.
Robinson’s autumn collection will take Gap back to its roots – classic basics with a twist – and target its core 25- to 35-year-old customer. Creating a more cohesive brand identity between the men’s, women’s, kids’ and accessories offers is also a focus.
A Gap UK spokeswoman says: “We have been putting some of the US ranges into our stores and pieces like cargo shorts and a grey flannel quilted jacket have done very well. We have an instinct that it will be the right product for the UK. It’s not about the European product failing, it’s about avoiding a certain level of duplication between US and European ranges.”
The issue demonstrates the challenges faced by large international companies wishing to expand overseas and adapt to a changing global market. Although the European design team had responsibility for producing European-focused product – more smart casual elements and closer references to fashion trends, along with different sizing – industry sources suggest that, in reality, the team was not able to be as autonomous as it would have liked to be.
According to sources, some European designs were not signed off, or were vetoed by the US, frustrating the UK-based team. The more fashionable attitude of the European designs also presented challenges for Gap’s supply chain. Lead times at the retailer are about nine months to a year. It is understood the European team was not given the go-ahead to look outside the existing supply base to maximise speed to market and fashionability, which are both essential to compete in the UK market.
One fashion boss, who has experience in European and US markets, says Gap’s experience is typical of the approach of a US retailer. “There will have been some issues with the US,” he says. “They don’t really understand Europe and have a specific business model which they stick to wherever they go.”
The design team’s European product will be phased out over the next two seasons. However, a small amount of European-specific product will continue to be offered in the UK but will be designed by a team based in the US.
Nevertheless, some industry experts say that regardless of European or US product, Gap’s offer does not tempt UK shoppers.
One high street director says the business has confused shoppers by trying to catch up with more trend-led retailers. “Gap’s marketing has always been great, but shoppers are disappointed when they go in the store,” he says. “The product is hit and miss. When you get into the stores there is exciting product at the front, but the rest is basic, with too many jeans and casual trousers.
“I don’t know what Gap’s point of view is. It’s not fashion, it’s not aspirational and it seems overpriced. If you want basic product, the middle market in the UK is dominated by Next, Marks & Spencer and Debenhams. That kind of competition doesn’t exist for Gap in the US, so it is not used to dealing with it.
“The important thing for Gap is to make better product, to get an interesting point of difference, but, most importantly, not to disappoint the customer.”
Gap’s US sales have also been falling and the axing of the UK design office has been driven by a wider cost-cutting strategy being implemented across the business, which has also seen it shut underperforming stores and rationalise its store concepts, for example by combining its adult and kids’ standalones.
But Gap’s strategy seems to be the reverse of other US brands such as Ralph Lauren and Tommy Hilfiger, both of which have European design teams and are successfully integrating European design into their brand, as well as seeing sales rise.
One UK boss of a US business says: “Gap is very basic. It’s not a lifestyle or fashion brand. In the UK there is so much at that level. A pair of straight-leg blue jeans is a pair of straight-leg blue jeans – you can get them in River Island, Topshop, Uniqlo or Primark. Gap may also have been hit by the strong dress trend over the past couple of years, as women’s denim sales have definitely dropped off.”
He advises: “To get back on track I think they need to play on the Americana aspect of the brand.”
Born in the USA
Another industry source agrees that moving back to US product is not a bad thing. “The Gap brand is huge. It has a great heritage and it should play on that. But US retailers have recently embraced European fashion a lot more, which is reflected in their ranges and could help Gap compete.”
The decision to ditch the European design team has raised questions from industry observers over Gap’s UK strategy, and of its management, including Sunnucks and European managing director Michael Stannier. With no design team and retail expansion plans in the UK on hold, the roles of Sunnucks and Stannier would appear to be reduced.
Gap says the changes will simply mean a shift in focus for Sunnucks and Stannier towards expanding Gap’s presence in the rest of Europe and other markets outside the US. Sunnucks will also look at launching a transactional website in the UK – an area where Gap severely lags behind the competition.
Gap’s international net sales, those outside the US, were US$1.6 billion (£861 million) in 2007, which is about 10% of total turnover. International like-for-like sales fell 9% in July. Most of the retailer’s international sales come from the UK, but also include other markets such as France, Japan and Turkey.
The company has recently signed franchise agreements to expand its presence in Turkey and also to launch stores in Russia, which would all come under the European management team’s remit.
There is also the possibility to introduce other chains to the UK and Europe from Gap’s portfolio, which includes Old Navy and Banana Republic. The latter, which sells a smarter and more premium offer than Gap, opened its first store outside the US in London’s Regent Street in March. Gap’s spokeswoman says it has been a “phenomenal success”. She confirms the group is considering other locations.
Whether a return to US product in the core Gap chain can lead to a recovery remains to be seen, and with the cost-cutting strategy the scope for launching more new fascias in the current economic climate is questionable.
However, Gap retains its huge brand awareness and as one source sums up: “The key to future success is matching the merchandise with what the brand stands for. Having said that, Gap is currently operating in the toughest sector of the market, so that won’t be easy. But if Gap can get back to its real roots it could do OK.”