Gap’s President and CEO Gets Honest About the Necessary ‘Compromises’ Ahead

A few days after shocking the industry, Art Peck spoke at Shoptalk

Some compromises were too much for Gap's business.
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Almost a week ago, during what was supposed to be a routine earnings call, Gap president and CEO Art Peck shocked the industry when he announced that Old Navy was spinning out of the Gap Inc. umbrella and into its own company.

In a keynote at the Shoptalk retail conference in Las Vegas, Peck explained why the was necessary—and where Gap is headed next.

Peck said Gap Inc. spends a billion dollars a year in technology and innovation, and while the Old Navy business was doing well for the company, it led to compromises across other Gap Inc. brands, such as a lack of focus on its investments in the right ways.

“It’ll be 12-18 months to make this happen, and I do believe we’ll have two companies stronger than ever,” Peck said.

During the latest earnings call, Peck had announced the closure of 230 stores within the next two years. At Shoptalk, he explained that move, saying these closures were largely due to “the wrong store or long location.”

In fact, Peck said the company is actually moving forward with opening new stores, without specifying how many. He further cited the need for retail, since 80 percent of consumers still shop at a physical location. The new shops, he said, are flipping the “historical model of fashion apparel” and “inserting a store into [a shopper’s] life.” For example, one new store in Encinitas, Calif., is next to a Trader Joe’s and serves as the “anthesis of a mall store.”

“This is a store where there’s low traffic, low rent, properly sized,” Peck said. “And conversion that’s 2 [or] 2.5 times than when we run a store in a mall.”

Despite the latest news, Peck is confident about the direction of where the Gap business is going with seven brands under its portfolio—including the latest acquisition, Janie and Jack, a kid’s apparel brand with more than 100 stores that it acquired from Gymboree.

“This is our 50th birthday,” Peck said. “Most retailers have burned hot and burned out at 50 years. We’re going into our second half-century strong, strong brands, loyal customers, now seven in the portfolio and we’re excited about the prospects. It’s based on a platform with three simple words that our founder Don Fisher said very frequently … change or fail.”

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