Gap to Start Chain for Baby Boomer Women

Gap Inc. said Wednesday that it planned to launch its first chain in a decade, to target female baby boomers who helped build its brand in the first place.

The San Francisco-based parent of Gap, Old Navy and Banana Republic stores said it would begin testing the concept next year with the opening of as many as 10 stores. Gary Muto, president of the Gap division, has been tapped to develop the unnamed chain, and the company has retained an executive search firm -- Egon Zehnder International -- to find Muto’s replacement.

The unveiling of plans for a new brand didn’t surprise analysts, who had been expecting the retailer to initiate a growth strategy now that its turnaround appears to be on track. For analysts, the interesting question is: Who will the company select to run the Gap division?

“I think there’s a hole in the company in the merchandising and product side, so it’s critical that they bring in the right person,” said Robert Buchanan with A.G. Edwards & Sons.

As for the new chain, he said: “All the focus is on this new concept, which may or may not work, frankly. I think they’re fishing off the right pier, but whether or not they’re going to be able to catch anything remains to be seen.”

By zeroing in on baby boomers, Gap will more directly compete with Ann Taylor Stores Corp., Talbots Inc., Chico’s FAS Inc. and others that are targeting the same group: discerning consumers born from 1946 to 1964 with plenty of money to spend. These shoppers present a prickly test for retailers, as the women tend to remain determined to look clued-in and fashionable even as their body shapes shift and comfort becomes a higher priority.

“I think it’s very, very challenging for this customer to go in and feel she’s finding appropriate clothing,” Muto said in an interview. “She wants to be stylish, but she wants to be age-appropriate.”

Gap said it decided to create the new division after conducting extensive research over the last couple of years into the $174-billion U.S. apparel mar- ket. The company, which operates about 3,000 stores worldwide, estimates that its share of the U.S. apparel market is about 7% but with female baby boomers it’s only about 3%.

Having better defined the target customer at its other chains, Gap decided that the female baby boomer -- who Muto said was inclined to “cherry-pick” at Gap, Old Navy and Banana Republic stores -- represented an opportunity for growth.

As it is, Muto said, “We’re just another stop on the shopping trip for her.”

The company declined to disclose details about the new chain, which it said in a statement would sell “apparel for a range of occasions.”

It will open the first stores in two geographic regions, the statement said, in the second half of the year. Analysts speculated that New York and San Francisco were likely locations.

The new venture probably won’t have much immediate financial effect on the firm, but it could hold promise if Gap finds a way to differentiate itself from other retailers already slugging it out in this arena, analysts said.

For Gap, said Donald Trott, an analyst with Jefferies & Co., “The test will be how well they’ll be able to execute the concept.”

The move marks something of a turning point for Gap, which revived itself after an extended sales slump and then began looking for a way to stretch itself.

The retailer posted its seventh straight quarter of earnings growth in the first fiscal quarter before hitting a snag in the second quarter, with profit dropping 7.2% because of slow store traffic and a one-time charge. Same-store sales, a key indicator of a retailer’s health because they include only stores open at least a year, were flat in the second quarter.

“They’re not showing the ability thus far to generate any sustainable or meaningful increases in traffic,” Trott said. “That is the challenge.”

Gap’s stock closed Wednesday at $20.17, up 15 cents, on the New York Stock Exchange.