Not Ready To Cash Out: The Gap Begins Its Search For A New CEO

Industry speculation, fueled by CNBC, that Goldman Sachs was hired by Gap Inc. to “help explore options” was denied last week by the company’s founder and Chairman Emeritus, Donald Fisher. When contacted about Mr. Fisher’s comments, the investment banking firm declined comment.

Following the resignation of Paul Pressler last month, (who succeeded Mickey Drexler as CEO four and a half years ago) the company accepted the resignation of Gap President Cynthia Harris and replaced her with Marka Hansen who enjoyed moderate success as President of the company’s Banana Republic division.

Last week, Charlotte Neuville, who was hired a year and a half ago as the Gap’s Head Designer, abruptly left the company and a search is on for her successor.

The difficult task ahead for the company is to find a top-tier CEO who would be disposed to initiate yet another a turnaround effort in the glare of impatient investors’ scrutiny and be willing to embrace the freshly minted executive team now running the companies’ three major operating divisions. (Gap recently hired Dawn Robertson to turn the floundering Old Navy around and Banana is now being run by interim President, Jack Calhoun, who worked for Hanson as Banana’s Chief Merchant.)

The competitive landscape of “apparel specialty retail” has notably changed since Mickey Drexler repositioned the Gap from a “Levi’s only” chain, to a vertically integrated private label business and blanketed the country with stores that provided consumers with an alternative shopping experience to department stores. Along the way he also created the six billion dollar Old Navy, and repositioned Banana Republic from an inconsequential “travel and safari” boutique to an iconic brand appealing to upscale consumers in their thirties and forties.

As the competition from specialty retailers such as Abercrombie & Fitch, Urban Outfitters, H & M, J. Crew and American Eagle intensified, performance at the large multi-banded retailer began to experience diminished market share and declining same-store-sales. Inexplicably, Mr. Drexler was replaced about four and a half years ago by the recently deposed Paul Pressler, a former Disney executive with limited apparel merchandising experience. Since then, retail performance of GAP has gotten considerably worse, especially in the last two years.

Today Gap is at the proverbial crossroad and all indications are that a new CEO with a strong merchandising background and a sterling reputation as a turnaround expert will be recruited as soon as possible. Despite rumors that all or part of the company will be shopped to private equity; the Fishers’ and the Gap board are clearly moving the company forward as a public company.

Under this scenario, here are just a few of the critical issues the new CEO of Gap will be facing:

1. A new management team, not of the new CEO’s choosing has already been hired or reassigned to run the company’s three major brands.
2. Impatient and skeptical investors will likely scrutinize every strategic move the company makes to restructure the business and reposition the Gap and Old Navy.
3. The new CEO will need the board’s support to initiate dramatic change, just as Mickey Drexler was able to do in the late 80’s.

The biggest job ahead for the new CEO of Gap will be to transform the merchandise assortments at Old Navy and the Gap into relevant and unique offerings and to remake the image of both brands into compelling shopping destinations. On top of that, he/she must re-engineer the company’s supply chain to enable new fashion concepts to reach their stores more quickly.

As a privately held company, the job of recruiting a top CEO for Gap would have been a lot easier, but the company has chosen its course – and one can only wish them well.