President of Gap Division Resigns

Robert J. Fisher, president of Gap Inc.’s namesake division and son of founders Donald and Doris Fisher, announced his resignation Thursday, following months of weaker sales at the retailer’s largest division.

Fisher, 44, who started as a store manager in 1980 and last year presided during a Gap khaki craze that drove record sales, will turn over his post Nov. 15 to Millard Drexler, chief executive of the parent company.

Fisher also has resigned his post as a Gap Inc. vice president.

Word that Drexler, considered a master merchant, would take over the flagship division helped send the San Francisco-based company’s depressed stock up $3.13 to $34.75 on the New York Stock Exchange, amid a broad rebound on Wall Street.

The stock still is down 34% from its record high reached in summer, even though the company’s earnings rose 47% in the first half of the year, as sales rose 31% to $4.7 billion.

The Gap division has been the laggard in a triumvirate that includes powerhouses Old Navy and Banana Republic, though the company and many analysts blame that perception partly on the division’s inability to beat last year’s record sales.

But analysts also say that despite performing well overseas, Gap has fallen prey to Americans’ changing tastes: It has stocked casual basics when shoppers were increasingly turning to higher fashion.

The high-fashion trend hasn’t hurt Gap Inc.’s other divisions, which have enjoyed rocketing sales growth this year. Some suggest that Banana Republic, Gap Inc.’s fashion-forward, pricier brand, and Old Navy, its low-price casual store, are stealing customers from Gap and GapKids.

Thanks to sky-high sales at Banana Republic and Old Navy, the parent company posted a stronger-than-expected 7% September sales gain in stores open at least a year. Analysts at Goldman Sachs, however, pegged the September Gap stores’ sales decline at as much as 4%, following six months of flat or sagging sales.

Gap executives insisted, however, that there is no connection between the division’s slower sales and Fisher’s resignation. Fisher headed the unit starting in 1997, following stints as the parent company’s chief operating officer and chief financial officer. Besides the flagship Gap stores, the division includes GapKids and Baby Gap.

“This was entirely his decision, initiated by him,” Gap Chief Financial Officer Heidi Kunz said. Fisher didn’t announce his future plans.

“Fisher probably wasn’t having a good time anymore” given the sales slump, said one retail analyst who requested anonymity.

Some analysts defended the Gap stores. “When Old Navy and Banana Republic are showing double-digit increases every month, the Gap in comparison looks like a real wimp even though it has a very strong base,” said Alan Mak, an analyst with Argus Research in New York.

Still, he said, “I think people are pleased because Mickey Drexler is heading up all the divisions and people are very confident. He has done wonders for the company in the past.”

After commanding last year’s casual trend, Gap stores began to stumble at year-end, analysts said. A commitment to having khakis and jeans for everyone meant overstocked inventories and inevitable markdowns to allow the more than 1,000 stores to start the new year clean.

“I think they reached the point of diminishing returns in the fourth quarter, and margins suffered as a result,” said analyst Todd Slater at Lazard Freres in New York.

Then this year, merchandise at both Gap and GapKids stores missed the mark. In the adult stores, Gap continued to heavily stock basics and found itself without enough of the more fashionable items people wanted.

“People wanted to shop there,” said Argus’ Mak. “But they couldn’t find what they were looking for because there wasn’t enough, not because it was bad.”

The product mix also disappointed at GapKids stores. Executives began warning in the spring that they believed that the GapKids clothing was skewed to older kids, a problem they pledged to correct in coming months with merchandise geared toward younger children.

On Thursday, however, executives praised Fisher’s 19 years of service and said they believed Fisher and the rest of the management team had put corrections in place to improve the performance of Gap stores.