By the numbers or by the brands?

By the numbers or by the brands, which is the best way to run a company? By the brands, of course.

The economy is slowing and gas prices are soaring, but consumers are still spending. And luckily for the Gap and other retailers, still wearing clothes. Bad times usually exaggerate the differences between brands: Which brands are doing the right things and which brands are doing the wrong things. Powerful brands survive even the worst of times.

So has the Gap been doing the right things or the wrong things? It’s a mixed bag.

One of America’s premier brands has fallen on hard times. Is the recent news that the Gap Inc’s fourth-quarter net income rose 21% a sign that things are turning around for the retailer? A closer look reveals a sad and resounding “no.”

Back in 1969, The Gap was started by Donald Fisher and his wife. The Fishers opened their first store near what is now San Francisco State University. (The name referred to the generation gap.) The Gap catered to teenagers and sold mainly Levi’s jeans. A classic example of a focused brand (The Gap) using a great name (Levi’s) to lead a movement and in the process create a new category.

What do teenagers want most in life? Not to be like their parents. Parents wear pants and teenagers wear jeans. The store that supplied the uniform of choice (Levi’s jeans and t-shirts) to teenagers throughout the 70’s and 80’s was The Gap.

What happened next? You know what happened next. They expanded.

First, The Gap faced what it saw as a serious problem. Its core customers were growing up and still shopping in the store. Not wanting to lose those valuable customers, The Gap added more active wear and styles suitable for people in their 30s and beyond. At the same time these customers started having children of their own.

As I said, what do teenagers least like to do? Look like their parents. If Mom and Dad are wearing Levi’s and shopping at The Gap, then forget about getting the kids into the store. Both The Gap and Levi Strauss suffered as teens drifted to other brands like American Eagle and Abercrombie & Fitch which their parents didn’t wear.

Second, The Gap line-extended the brand by opening GapKids, babyGap and GapBody. If shopping where your parents shop wasn’t bad enough, shopping where your baby cousin does is the kiss of death. Sure, some parents like dressing their babies in Gap clothes. But these expansions undermined the meaning of the Gap brand and essentially killed its coolness factor.

While all this crazy expansion and brand dilution was going on, The Gap made two wise decisions when they launched two successful second brands. In 1983, the company bought Banana Republic a chain of jungle-themed stores that sold safari clothing. After the novelty of safari-wear wore off, the company rebranded the stores and focused on more expensive and sophisticated clothes. In 1994, they launched the Old Navy chain to sell less-expensive clothing and regain some credibility with teens.

The current problems at The Gap are due primarily to the watering down of the brand. When a brand tries to appeal to everybody, it suffers. And in a fickle business like fashion, you can easily miscalculate the next trend, which is exactly what happened in the past few years to The Gap.

The company’s latest attempt at a turnaround involves the naming of a new Chairman, Glenn Murphy, who was brought in last July and who previously was CEO of Shoppers Drug Mart in Canada. So what is Murphy’s plan for success? Cutting costs. What?

He hopes to solve the company’s problems by cutting spending, advertising and inventory. The Gap doesn’t have a spending problem, The Gap has a branding problem. And a lack of investment in the brand is just going to exacerbate the problem in the long term. While cutting costs has produced a short term increase in net income, the future looks bleak at The Gap unless it addresses its primarily problem. How to build the brand.

It’s what we saw at Sears-Kmart. Eddie Lampert’s solution to the company’s woes was to cut costs. When you run a company purely by the books instead of by the brand, you usually run it right into the ground. Initially, investors cheered Lampert’s cost cutting. But today the company is in shambles. Once, Sears and Kmart were weak brands. Today, they’re on life support.

Could the same thing happen to The Gap? You bet, if the cost cutting continues and the brands don’t refocus, they face trouble.

Not all The Gap’s spending did a lot of good. The Gap has been a huge devotee of massive advertising, particularity television advertising. An established brand needs to advertise, but unless the message is right, the money is wasted.

What did The Gap spend most of its money on? Celebrities. A wide variety of expensive celebrities. Madonna, Sarah Jessica Parker, John Mayer, Audrey Hepburn, Forest Whitaker, Lucy Liu, Chris O’Donnell, you name the celebrity, he or she probably got paid by The Gap at one time or another.

The problem is two-fold. (1) Using too many celebrities diminishes the value of any one celebrity. (2) None of the celebrities had credentials with the brand. Madonna would rather be caught dead than seen wearing something from The Gap. The Material Girl is not going to parade around in the basics.

When your brand stands for “basic clothing for young people,” old celebrities are the last people that should be in your ads. This has been an expensive lesson for the company to learn.

What The Gap should do is to go back to basics. Literally. They need to better define and better focus each of their individual brands.

Successful companies manage the brands, not the numbers.

Comments

[Pedro Rocha]

Excellent point of view and great writting. But how can we trasnmit that message to the board? By presenting case studies?

[Veronica Monterrubio]

More risky line extensions:
Google GULP! Beta, a drink by Google that apparently "changes your brain structure" and makes you "smarter", while, of course, saving your information.

http://www.google.com/googlegulp/faq.html

[Martin Calle]

Perrier never recovered it's fall from popularity by the brand or by the numbers either. Another classic example of the minds of the Nestle few trying to communicate, inefficiently, with the minds of the CONSUMER many, yet never doing the kind of product-based problem-solving positioning homework required to change rather than pace consumer habits and practices. Just easier to go with the flow, down the flat sales drain pipe. When will they realize it's not about fashion mandates, it's about consumer perception and mediating consumer perception with positioning ideas to win the battle for consumer minds? Why do they leave it like a restaurant? I like that fashion entree, I don't like that one?
MADISON AVENUE Blog
http://advertising-age.blogspot.com
Martin Calle

[jwhite518]

This is a great article that clearly states the path to success for Gap Inc. I think you can't judge Glenn Murphy as strictly a numbers guy. He has stated repeatedly and publicly that he believes in strengthening brand identity and focusing more tightly on a target market for each brand. It just takes ime to make those changes.

And no, Gap Inc does not own Hot Topic.

[Roger]

Arun / Laura - it happens again & again because companies focus on making the numbers from quarter to quarter to quarter, most don't have any brand measures visible to senior management & the majority of the senior people are never in the market talking to consumers first hand (& I am not talking a token gesture "market visit", I'm talking Burton style 125 days a year snowboarding & talking directly to his team riders & consumers). When you work for a company that doesn't have any brand measures on the simplest of things e.g. Market Share Value & Price Premium you get a whole of of dynamics that are wrong. People get rewarded based on hitting an arbitary number (a budget or forecast & Wall Street rewards that too) that may mean a Market Share loss. So on the ground they're loosing ground to competitors but everyone is happy with the "great" job they're doing. Or alternatively they could be driving the price through the floor causing a price war but keeping revenue (for the short term) & screwing the business long term, but everyone is happy with the "great" job they're doing. The stars of your business meanwhile who might be taking the tough assignments & actually winning on the ground (inc. market share & price premiums) but loosing in the numbers because of a declining market for instance get crap & eventually leave...it's a viscous cycle. Because in most businesses Senior Management, HR & Finance are totally detached from the world of consumers & brands many big companies fall over time & time again as they put the wrong people in charge & promote the wrong people. I've often thought of writing a book called "great job" with stories of all the people who breeze through organisations, make it to the top & leave a trail of destruction that someone else gets the blame for...The good thing is more & more brand people are dropping out of the circus & starting their own things which kill businesses that aren't in touch, unfortunately they normally sell them back into the circus again!

[David Tillinger]

This is the same phenomenon that's going on with Victoria's Secret right now, the whole concept of Victoria's Secret getting too sexy and youthful for its previous sophisticated female audience. When a company rides a wave of momentum and expand, they need to be careful not to go so far past their original customer base that they lose that base.

[Greg Hollingsworth]

I have heard for many years that the Gap also owns the counter culture brand Hot Topic. If this is true it is definitely an attempt to market to the generation of kids that are rebelling against the Gap brand.

Although Hot Topic markets it's own brand of conformity it is one that targets teens who are doing everything they can to "rebel" against the norm. Would this not be a great brand expansion for the gap in terms of dollars and cents?

[Arun]

Laura, wats funny is when you mention "The problem is two-fold. (1) Using too many celebrities diminishes the value of any one celebrity. (2) None of the celebrities had credentials with the brand."
though I can unedrstand the second point but the first one seems disputable when the 2nd point is taken care of. You can have multiple celebs echoing your brand values and culture. Lux is an example on that. In india the actress lamost changes every six months...and luc stays up as soap of successful film stars.

[Jay Ehret]

Laura, you have so deftly and concisely pointed out the simplicity of The Gap's problem. And this puzzles me. The solution you present sounds so obvious and easy, yet it is so difficult for CEO's like Murphy to understand. Why?

It's darn near impossible to find examples of companies that shrink their way to success, yet this tactic is repeatedly repeated.