Gap designer strategy may not be a good fit

Bloomberg News

Cynthia Sanner got to Gap Inc.'s Fifth Avenue store in New York on Friday two hours before it opened to make certain that she would get one of the dresses French designer Roland Mouret made exclusively for the clothing chain.

She needn’t have bothered. She stood alone for an hour and 20 minutes before being joined in line by two other shoppers.

“I was shocked,” said the 35-year-old personal assistant from New York. “I thought it was going to be a mob scene.”

Sanner’s experience suggests that not even borrowing a tactic used by Swedish rival Hennes & Mauritz will help Gap ignite holiday sales.


Chief Executive Paul Pressler is struggling to lure shoppers after comparable sales declined in 27 of 30 months. H&M; drew throngs by partnering with designers such as Karl Lagerfeld and Stella McCartney.

More retailers are using high-end designers to boost traffic and sales. Target Corp. sells Isaac Mizrahi clothing; Kohl’s Corp. will sell a collection by Vera Wang.

Mouret’s designs have been worn by celebrities such as Nicole Kidman and Cameron Diaz. But unlike H&M;'s treatment of its designs, Gap didn’t display Mouret’s name in stores or windows or even on the clothing.

“It’s missed execution,” said Mark Montagna, an analyst at New York-based CL King & Associates who rates Gap stock “underperform.”


“It’s good they are doing this test,” Montagna said of the San Francisco-based retailer. “It’s more to raise the image of the Gap brand. But it’s a missed opportunity.”

Gap’s shares rose 28 cents to $18.96 on Monday. The stock has increased 7.5% year, compared with a 13% gain on the Standard & Poor’s 500 index.

Analysts estimate that Gap’s profit will decline for a second year as slumping sales force the retailer to discount. November sales at stores open at least a year tumbled 8%, more than the 5.4% that analysts had expected.

“They already blew” the holiday, Montagna said.


Gap sold a larger Mouret collection in Europe last month. The dresses, priced in the U.S. from $88 to $108, included cowl-neck and capped sleeves and were sold at seven New York stores. Spokeswoman Robin Carr declined to give the European sales performance, except to say the company was “very pleased with customer response.”

At New York Gap stores, Mouret’s pieces were featured in windows with a sign reading, “The Five Dresses. Limited Edition. Designed Exclusively for Gap.” Nowhere did Mouret’s name appear. When H&M; last month sold Dutch duo Viktor & Rolf’s collection, their name was prominently displayed and lines snaked around the outside of stores.

“I don’t think it was wellpublicized,” said Kate Casey, 30, a registered nurse from New York who said she had not shopped at Gap in two years and came only to buy the dresses. “I even went online, and they didn’t have this on the website.”

To boost holiday sales, CEO Pressler introduced a television commercial for the Gap brand after an absence last year and increased radio and direct mail for its Old Navy chain. On the Friday after Thanksgiving, more than 150 Gap outlets opened at midnight, compared with about 10 last year.


The third-quarter introduction of skinny black pants with advertising featuring Audrey Hepburn and clothes supporting the AIDS campaign by U2 singer Bono also failed to boost traffic.

“We have lost confidence in management’s ability to source the right product,” Todd Slater, an analyst at Lazard Capital Markets, wrote in a note to investors. He lowered Gap’s rating to “hold” from “buy” on Nov. 30.

In addition to the Mouret partnership, Gap is working with a number of other individuals, spokeswoman Carr said.

“It’s encouraging to see they are trying different avenues,” said Lawrence Creatura, a portfolio manager at Rochester, N.Y.-based Clover Capital Management, who said he would consider buying Gap shares if sales improved.


The key is to convert shoppers such as Barbara Saunders, 48, a museum curator from Ormond Beach, Fla. Saunders, who had not been to a Gap store in two years, bought three Mouret dresses and browsed through other racks.

“I was shocked there were so many cute things,” she said. “I’m going to try to encourage my girls to shop here.”