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Gap CEO was executed by error and fading brands

No longer the khaki king of the 1990s, Gap Inc. has needed a overhaul for a very long time – and Art Peck won't be the one to deliver it after all.

Gap fired his CEO late on Thursday after his turnaround failed to reignite sales growth. The clothing company, which includes the namesake Gap brand, Athleta, Banana Republic and Old Navy, brought back a member of the founding family to lead, while figuring out a long-term plan.

The stock fell 7.6% on Friday. By Thursday's closing, before Gap announced Peck's radiation and disappointing results in the third quarter, it had fallen about 30% for the year so far.

Peck's resignation comes after many years of fighting in the company. Although the retailer has made several public mistakes in recent years ̵

1; such as making armhole blazers too small for an average woman and jumping on the deplorable "normcore" bandwidth, many of the problem areas are not even unique in today's difficult retail environment: relying on on routine 50% discounts and maintaining a significant presence in declining US malls.

"It was probably the most overdue change of management we have seen in a while," said Stacey Widlitz, president of SW Retail Advisors. "There comes a point … when you can't sit and do the same thing over and over."

After a brief transition, Peck will step down from the president and CEO role and leave the position of retail board. Robert Fisher, the company's current non-consecutive chairman and son of Gap co-founders Don and Doris, will step in as president and CEO on a temporary basis.

Sales decline

Peck will be eligible for severance pay based on his resignation for no reason, the company said in a filing. Submissions show that he receives $ 2.33 million in severance pay and payment of share prices worth several million dollars. He is also entitled to health benefits and financial advice for 18 months.

Years of worst

Gap, founded in 1969 in San Francisco, became prominent as a denim emporium selling jeans from Levi Strauss & Co., another Bay Area institution. It helped the pioneers in the vertical integration of retail and started producing their own brands. In the 1990s, it had turned into a fashion juggernaut as it jumped on the khaki pants trend and built up robust secondary brands in the Banana Republic and Old Navy.

But the fighting began to brew in the middle of the next decade, from slowing shopping center traffic to operational issues. One of the most famous mistakes came in 2010, when the company unveiled a new Gap logo. Some buyers complained, so it hit the new logo just a week later.

To try to turn things around, it turned to new CEO Glenn Murphy in 2007, who came from a pharmacy chain. He closed a number of US stores, expanded overseas and invested in the supply chain. But the recession hit shortly after and stave off momentum by turning a generation of buyers into discounts. Low-cost fast-fashion chains like Zara and Forever 21 caught the attention of millennials, pushing Gap further out of favor. After a decade in the company in various roles, Peck replaced Murphy in early 2015 as part of a success plan.

Peck, a former consultant, tried to shake up leadership and experiment. But sales continued to fall, and business went down to the point that the company decided to spin off Old Navy, its most-performing division and the company's sales force in recent years. The company didn't even associate an official name with its new business when it announced the separation in February, instead calling it NewCo.

Old Navy, which had entrenched the parent company for several years, was given shepherd to Sonia Syngal. Peck was seated with Banana Republic, rooted in a sales decline and the aging nameplate Gap brand. He tried to place the Athleta chain – a Lululemon competitor – as the bright spot in the portfolio he wanted to run, but that wasn't enough to turn things around.

The company needs to find a way to sell more goods at full price and find a way to capture a new, younger consumer base, said Dana Telsey, CEO of Telsey Advisory Group, at Bloomberg Television.

"If you do not have the right product, you are not able to sell goods at full price," Telsey said. "There is work to be done with the core product."

Old Navy spinoff

Gap said Friday that the move ahead with the planned Old Navy spinoff following Peck's shooting prompted investors to take a critical look at the proposed deal.

"The board still believes in the strategic rationale for the planned separation," Gap said in It said that any "additional perspective" would be given in the November 21 earnings call.

The company, and in particular Peck, had put up speed as a way to unlock value for investors, but now as Old Navy, which was once the undisputed shining star of the clothing giant, diminishing with the rest of the firm, analysts wonder if it's still worth it.

"You have to think this is going to be a difficult sell" to investors, said David Swartz , an analyst for Mornings takes Investment Service. "Maybe the Old Navy has peaked? If it clearly went better than Gap and Banana [Republic] it makes much more sense. ”

Old Navy sees potential in China. Years ago, the management looked to push the brand overseas, but that effort flowed.

Holiday Season

“Gap is a company that clearly needed a change. Peck didn't move the needle except move it backwards, says Craig Johnson, president of retail research firm Customer Growth Partners. "There is still a company that has a large brand capital, but the remaining brand capital needs to be updated."

Still, although sales have been poor, the market did not see his departure come – at least not so close to the crucial holiday shopping season. Peck was well established as the face of Gap. In September, he and the chief of Old Navy Syngal hosted an event for analysts about the planned spinoff and their vision for the companies' future. Peck talked for a long time about how Gap had to expand its appeal, including with larger sizes and more diversity.

Despite the fact that the holidays were a makeover in retail, Peck's departure may actually be a good turning point for the company, Sa SW Retail Advisors & # 39; Widlitz, adding that goods and products are already set for this season.

"It leaves the door open" no matter how bad December is, let's think about the future, "she said.

Townsend and Holman write for Bloomberg.

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