GAP's Story Shows the Price of Being Fickle About Young People

This is the story of a brand that tried to please everyone and ended up losing everyone.

GAP may be doing well in China, but at home in the United States it is struggling, and it is in the middle of a large wave of store closures.

In June, GAP Inc. announced that it would close 175 underperforming stores in North America, 18% of its stores there. GAP headquarters will also cut 250 jobs, part of a plan to make its namesake brand more productive and more profitable. Once this is done, the number of GAP stores in North America will fall from 977 to around 800: 500 specialty stores and 300 outlets.

The closures did not come out of nowhere. GAP has had a rough 10 years, and this is only the latest sign of it.

Thirteen straight months of falling same-store sales are seen as the most direct cause. The flagship GAP brand has become the one dragging down the whole group. In the first quarter ended May 2, 2015, GAP brand revenue was US$3.657 billion, down 3.1% from US$3.774 billion a year earlier. GAP Inc.'s 2014 annual report shows revenue of US$6.165 billion for GAP, US$6.619 billion for Old Navy and US$2.922 billion for Banana Republic.

Does this sound familiar? When you want basics, you go straight to Uniqlo. When you want something that looks good without costing too much, you go to Zara, or to the even cheaper H&M. So when do you go to GAP? Probably when you happen to walk past one while shopping and happen to have plenty of time to kill.

This is the predicament James Harkin describes in Niche (《小众行为学》): "GAP's target customer is very hard to capture, because its target customer is everyone. If you are something for everyone, then you are nothing."

After swinging from the mass market to young people and back to the mass market, this old casual-wear brand is far from "fashion" in both fabric and design, yet it has never perfected the basics the way Uniqlo has. GAP is one of the world's four big fast-fashion brands and was once the world's largest clothing retailer, yet in 2013 Forbes named it one of the five fashion brands most likely to disappear.

What happened to GAP?

The first GAP store opened in California in 1969, in the middle of America's counterculture upheaval. It sold Levi's jeans, vinyl records and anything else that counted as "cool."

The name came from the "generation gap" between rebellious young hippies and their conservative parents. GAP set out to bridge the two generations with simple, casual jeans and basic everyday clothes that anyone could wear.

For decades the strategy worked. Everyone could find something to buy at GAP, and casual wear became the style of the whole society. By the 1990s, GAP was the largest clothing retailer in the world. It had bought Banana Republic, expanded into Asia and Europe, and launched a cheaper brand, Old Navy.

The 1990s were when GAP conquered the fashion world. The unisex trend of the time made its plaid shirts and jeans favorites of the grunge scene. In 1996, the actress Sharon Stone walked the red carpet in a charcoal-gray GAP turtleneck and a Valentino skirt. This "high-low mix" became the fashion, and in 1998 Stone did it again at the Oscars, pairing a white GAP shirt with a lilac Vera Wang gown.

But while GAP was steadily turning itself into a mass brand for everyone, the market moved. Its first generation of loyal customers was getting older, and the new generation of young people no longer wanted to wear plain T-shirts and khakis that made everyone look the same.

From 1992, the number of American teenagers rose every year, and "Generation Y" (people born between 1977 and 1994) grew into a group of consumers no one could ignore. Trend-conscious young people began to flee GAP the way they fled their parents' authority, and went to brands that focused on teenagers: J.Crew, American Apparel, H&M and others.

At the same time, as its management aged, GAP lost the authority to say what was young and fashionable. After 2000, you seldom saw GAP and fashion mentioned together in prominent media coverage. A once-young brand growing old along with its customers may be the greatest tragedy of all.

In crisis, GAP was desperate to win over the new generation. Around 2000 it began making cropped jackets and bright pink pants, hoodies and tight sweaters, miniskirts and baby-doll dresses, and even added a dedicated line of leather pants. It hired the R&B singer Macy Gray to front an advertising push and, copying A&F, played trendy, edgy music in its stores.

It was a disaster. In the summer of 2002, GAP's executives found that the young people they had been pandering to were not buying it: they could easily tell the difference between being cool and trying to look cool. Worse, the once-loyal customers over 35 had been driven away too.

Rebuffed by the young, GAP tried to go back to the mass market and win back the middle-aged and older customers it had lost, which took twice the effort. It rolled out a dizzying series of spokespeople to create a "cross-generational" feel: the veteran country singer-songwriter Willie Nelson beside the young singer Ryan Adams, Gena Rowlands paired with Salma Hayek, and so on.

None of it worked. By the end of 2002, GAP's results had fallen for 29 consecutive months, the worst run in its history.

"GAP has been abandoned by the broad middle market (the mass market), because it first turned to the youth market, and by the time it admitted its mistake and tried to win the middle market back, it found there was no middle market left," James Harkin said.

Round after round of indecision blurred GAP's identity, hurting both the brand and its sales. The retail expert Kristin Bentz has even argued that Uniqlo should buy GAP and use it as a ready-made base for expanding in North America. "Uniqlo is the one GAP should learn from: decent design and good-quality products at low prices." What you may not know is that Uniqlo itself was inspired by GAP's warehouse-style, self-service shopping model, and set out to match GAP.

Over the past decade, fast fashion has come to be dominated by four brands: Zara, H&M, GAP and Uniqlo. Having lost its core strength, GAP looks outmatched in a fiercely competitive market.

"In the 1980s and 90s, people had no way to reach higher-end fashion. That was the golden age of business casual, and retailers' core basics all sold well," said Kate Davidson Hudson, co-founder of the online fashion magazine Editorialist. "But now everyone can see the latest trends on social media and blogs, everyone is a critic, and consumers want to buy something the moment they see it. A brand like GAP looks very dated."

A brand that once stood apart now has to define itself by "other people's" labels.

As a "fast fashion" brand, is it fast enough?

A Goldman Sachs report at the end of 2013 said: "The buying teams of fast-fashion retailers purchase currently trendy clothing from third-party manufacturers, while the design teams of traditional fashion retailers first predict the trends 12 months ahead and only then develop the relevant products." GAP works the second way.

Goldman Sachs argued that forecasting fashion a year ahead is risky, and that this is what holds back retailers such as GAP, Abercrombie & Fitch, Ann Taylor and American Eagle. When they guess wrong, they have to mark the products down, and profits suffer.

Zara does the opposite: it keeps little stock and launches new products often. Traditional brands bring out new products once a season; Zara can do it twice a week. From first sketch to new product in store, GAP needs ten months, three times as long as Zara or H&M. Its new CEO has said he wants to cut that to 30 weeks, which would still be about twice as long as its rivals.

So is GAP a basics brand? And why can Uniqlo win with basics, while GAP, which once conquered America with basics, has lost?

To many people, basics mean not only "goes with everything" but also "ugly." That is one reason some people criticize Uniqlo, too. Where Uniqlo is smarter than GAP is this: yes, it is ugly too, but it is cheap, and it keeps finding new ways to play with technology. One of Uniqlo's core strengths is developing new fabrics such as fleece, ultra-light down and Heattech. These technical materials add value to basics and give customers a reason to pay for them.

Julie Zerbo, a fashion-industry lawyer and founder of The Fashion Law, thinks the problem is constant turnover at the top. Since the star CEO Mickey Drexler stepped down in 2002, a string of creative directors and executives have come and gone, from Paul Pressler to Patrick Robinson to Rebekka Bay. The churn has done nothing to capture or rebuild the brand's style, and has cost GAP any consistency in its design direction.

The result is clothes that look bad. Shoppers can't find the basics they want at GAP; instead they get lost among awkwardly cut T-shirts, strange printed pants, garish colors and cheap fabrics. When the product itself is the problem, customers no longer know what to go to GAP for.

"GAP has no creative direction and no sense of itself, and customers can see that," said Davidson Hudson of Editorialist. "GAP needs to make it clear: these are the two styles we think really matter this season, these are the two styles we stand behind, and this is the style that suits you best."

The good news is that GAP seems to be doing reasonably well outside the United States, especially in Asia. Since entering China in October 2010, it had opened 81 stores there by the end of last year, 34 of them in 2014, and it expects to open another 30 this year. Earlier this year GAP said it hoped to double its China sales to US$1 billion within three years, making China its second-largest market in the world. The closures and layoffs will not touch China. GAP appears to be trying to depend less on North America and shift its focus to Asia and other regions.

One thing to be wary of, though, is that GAP's gains in China come mostly from children's clothing. In most stores the kids' section takes up a third of the floor space, and the same goes for Old Navy, the sister brand GAP later brought to China. GAP does not disclose its China revenue, but in their few media interviews its executives always stress how popular its children's clothing is there. Jeff Kirwan, who became GAP's Greater China CEO in 2011, told Fortune China that the GapKids and BabyGap lines are loved by more than 80% of mothers in China's first- and second-tier cities.

According to data Euromonitor provided to QDaily, GAP's children's line is the only brand in the top 10 of China's children's clothing market, ranking seventh in 2014, with H&M in 11th. That also carries a warning: GAP may not have won over young people themselves.

Art Peck, who became global CEO at the start of the year, is pushing reform through a series of moves.

In March he brought in Wendi Goldman, who has a business background, to replace the creative director Rebekka Bay. The job itself was replaced too: GAP will no longer have a "creative director," and the new title is "executive vice president of product design and development." Goldman's remit covers commercial areas such as marketing, product operations and customer experience, which means GAP will pay more attention to marketing from now on.

Since last year, GAP has also built closer ties with designers and artists, as seen in its autumn ads directed by David Fincher and the recently unveiled second round of the GAP Remix Project, in which trend-setting artists from 11 cities designed T-shirts around the GAP logo. The hope is that distinctive prints will draw in the "millennial" market.

GAP is also pushing its "buy online, pick up in store" program, which has generated 500,000 orders so far. Because it has worked well, GAP plans to make the "reserve" button more prominent on its product pages.

Art Peck has said GAP will move to a "3.0" retail model, focused on building omnichannel sales capabilities such as its own e-commerce and a mobile presence. Once the strategy is settled, closing or shrinking some physical stores will be "inevitable."

Seen this way, the wave of closures in North America is also a way to cut costs and meet the competition with a leaner operation. Everything Art Peck is trying to do looks like the right thing. But winning back a voice in fashion will not be easy.

Graphics: Lin Yuyao

Cover image from Zcool Hellorf