Analysts Call for Gap CEO’s Head
By George Anderson
Gap Inc.’s sales performance and stock price is not where analysts believe it should be and they are calling for the ouster of the company’s CEO Paul Pressler.
Under Mr. Pressler’s leadership, Gap Inc. has focused on making operational improvements.
Critics of Mr. Pressler, such as Christine Chen, an analyst at Pacific Growth Equities, believe, “A lot of the initiatives embarked on to cut costs and improve sourcing have been at the expense of the merchant and that has translated to an absence of quality.”
Supporters, such as Gap founder and chairman emeritus Donald Fisher, disagree. “Under Paul’s leadership over the past three years, Gap Inc. has built a foundation for long-term growth, dramatically improving the financial health of the company,” he told Reuters.
Richard Jaffe, an analyst for Stifel, Nicolaus, sees the reality being somewhere between the viewpoints of Ms. Chen and Mr. Fisher, although he too believes Mr. Pressler needs to leave for Gap Inc.’s stock price to rebound.
“No question they have a better business operationally than they did five years ago,” he said. “But he (Pressler) didn’t recognize the volatility of the apparel business, the fleetingness of success in retail and how you need to reinvent yourself every day.”
Moderator’s Comment: Would acceding to the wishes of analysts and replacing Paul Pressler as CEO of Gap Inc. make the company a better retailer? Do analysts
and institutional investors have too great an influence on how companies operate and does the continuing emphasis on share price come at the expense of the long-term health of
many businesses?
Donald Fisher said the company’s board is in full agreement: “Paul is the right person to lead this company.” –
George Anderson – Moderator
Stockbrokers may have a better perception of The Gap with the ouster of the current CEO. However, the reality depends upon Pressler’s current plans. The operational changes position the company well for the future but do plans for 2006 include a shift to include more focus on merchandising or not? That would be critical information to know before assuming the absence of Pressler would automatically improve the Gap’s performance.
I’m guessing that these are the same analyst who believes Costco CEO James Sinegal is too generous with his employees because he pays them a wage that people can actually live on.
I have to agree that I believe that Paul Pressler has brought some much needed focus and discipline to The Gap. If I was a Gap stockholder, which I was at one time but that made me nothing, I could care less if he has a fashion background or he was a rocket scientist. (It was interesting how Dow Jones announced their new CEO this week and for the first time ever it was a non-journalist. They promoted their CFO.) Sometimes it takes an industry outsider to break through the old ways of doing things. If I’m a stockholder what I care about is results. They’ve made some progress to date but the proof is in earnings which has been lacking. I would think he has another year or so to move from building the “foundation” to building some profits.
The Gap used to be a great place to shop – good selection of jeans and casual clothes (something for everyone) at reasonable prices. The format of the stores have changed (adult and child) to a streamlined selection for a streamlined audience and the prices are usually very high. I know very few who shop there anymore. If removing the CEO will correct this situation, so be it.
While your contributors have some interesting thoughts about GAP, Inc., I think they may have missed a point about retailer “turnarounds” in general, whether a complete court reorganization, or just a company needing a major “redo.”
It takes a CEO with both broad reorganization skils AND a strong background in merchandising skills. Mr. Pressler is basically a former marketing exec, with only three relatively unsuccessful years as a merchant CEO (Disney stores). The difference is, marketing execs tend to make decisions by committee before they are willing to make a decision, often with the intent to match the greatest impact with the least risk. That might work for hardlines and general merchandise; however, it does not work for softlines, and especially fashion apparel. Fashion apparel is a very risky business, where the retailer is always fighting to remain (or become) a “destination store.” The CEO MUST be a risk taker. In order to do that successfully, the CEO must have a strong intuitive fashion sense about the retailer under his command. If you don’t believe this, just look around at which softline retailers have become great turnaround successes, and then look at the background of the CEO, or former CEO. GAP, Inc. has lost some key merchants and buyers under Mr. Pressler, and there has been no indication that he has replaced them with equal or better people. I believe Pressler needs to go, and I think the Fishers may sense that also, regardless of what they say publicly.
The Gap’s CEO doesn’t need to be a fashion expert, but he certainly needs to know how to recruit and lead fashion experts. A long time ago, The Gap was almost as hot as Abercrombie & Fitch is now. Those days are long gone. Allen Questrom turned J.C. Penney around in about 3 years. He made operational, organizational, brand, and fashion improvements. When he left Penney, it was doing just fine. I agree that everyone (CEO’s, cashiers, store managers, buyers, systems analysts, consultants) should be given a reasonable time to perform. I have a feeling that most people would give a major retail chain CEO no more than 5 years, and many would only give him/her 2 to 4 years. If The Gap’s fashion IQ doesn’t rise sharply soon, my guess is that they’ll find a new CEO.
A public company by definition has chosen to be exposed to the vagaries of the financial markets. It is what it is. In the ideal world, if you focus on the customer, put the right merchandise in your stores, increase same store sales, add more stores, and be cost effective, then all is well for Wall St and Main St.
Once you deviate from pleasing the customer (and assuming you know who she is), or you do so without being profitable, this will eventually show up on your report card: your financial reports and you will shut your doors or do a slow bleed. We can cast negatives on Wall St. and the analysts (some are well deserved), but at the end of the day, if your sales are declining (last good quarter for Gap was April 2004), your earnings are trending down, then your shareholders have a right to ask why and what is being done to change the situation.
Those decisions are the responsibilities of the CEO who decides on the executive team and the strategic direction of the company. Pressler doesn’t need to be a merchant, he doesn’t have to select the styles, the fabrics, or the buttons, he does need to have the right people (including seasoned merchants), organization, and systems in place to execute. If they have the wrong strategy in place (what is the Gap brand? How do they differentiate their stores? How do they grow sales and do so profitably?), then all the talent and systems in the world will not help them. Doing the right thing is much different from doing things right.
Pressler came on board in October 2002. Gap’s stock price had plummeted to $8 that month and rebounded nicely after his announcement. For the next 18 months to June 2004, the stock kept on rising to $25 and there was plenty of talk of a successful turnaround. Since then, sales have stagnated and earnings have yoyo’d. For Pressler to continue he needs to pursue his focus on building for the long term but cannot lose sight that the Gap must deliver growth (sales and earnings) now as well. Otherwise you’re building for a future that you are not likely to ever see.
What fascinates me about leadership at the Gap is that when Mickey Drexler left the Gap to go to J. Crew, many would say he left in disgrace (in the end, he did not “fix” the Gap)…he was blamed for Old Navy (which was blamed for cannibalizing Gap sales) among other decisions. In any case, J. Crew is now on fire – pulled completely out of the doldrums under his leadership. Does this say that Mickey is a genius but was working in the wrong environment at Gap (he freely admits he was sick of being there and needed a new challenge)? That Gap has fundamental problems with their niche, their systems, etc. that are insurmountable? I have spoken with clients who will not hire former Gap employees because they are deemed to be too systems-driven and unable to see the big picture/work flexibly. They only know the “Gap way” and evidently, that way isn’t working.
Decisions should be made to please customers not Wall St. The analysts are unwilling to make sacrifices in the present to build a business long term…they see no further than the next quarter. In an ideal retail world you would never listen to Wall St. That said, in this case they are right, specifically Ms. Chen regarding the disregard of merchants and absence of quality. Merchants should always lead an organization like the Gap and the number crunchers and MBA’s should build support teams and infrastructure. When the financial people rule the merchants you become a well run, expense controlled loser.
If we listened to Wall Street analysts there wouldn’t be anyone left. Using Wall Street’s perspective, companies like Wal-Mart and Costco would be looking for new CEOs.
I agree that analysts are usually looking for the quick fix and the next quarter’s results — not long-term potential. Does the term “carpetbagger” ring a bell?
Wall St. and the analysts are looking for a quick fix. They want to know that if they buy now there will be an ROI now rather than 2 years from now. While many will do a buy and hold, if there is no stock appreciation in the next few months, why buy now? While there can never be a 100% accurate market timing, they want to buy when they think the stock is going to start going up.
Whereas Gap’s board has bought into the CEOs vision, it is quite evident that either Wall St. hasn’t or the CEO hasn’t properly articulated to the analysts. If he hasn’t been able to articulate it to the analysts, has he been able to do so within the organization other than to the board?
To go one step further, analysts are questioning whether or not the CEO’s lack of apparel retailing experience is another factor in downward spiral of Gap revenues and profits.
It is time corporations put Wall Street, and its financial types in place. Thank you Gap.
Not many financial types on Wall Street understand marketing or strategic planning. It’s numbers, balance sheet and P&L orientation has put our corporations on short term leases.
Nothing, and I mean nothing, occurs in a year or three, when turning a corporation around. Just look at some examples of turnarounds: P&G with the Pringles disaster, and the last CEO. Do you think P&G decided to venture out of food, and into beauty products and the medical field in a year or three? Same with the McDonald’s turn around, and even YUM.
Sorry Wall Street, but stick to Reasonable Forecasting, and learning the marketing/strategic planning subject.