Are Gap Execs Fleeing a Sinking Ship?
By George Anderson
The company says its just the normal comings and going of people on various career paths, but the timing of recent departures and poor financial results raises the question of whether executives at Gap Inc. are getting out while the getting is good.
The company said on Friday that two of its vice presidents were leaving following an announcement earlier in the month that Andrew Rolfe had chosen to step down as president of Gap’s international business unit to take a job with a private equity group. Mr. Rolfe’s position would not be replaced.
Another senior merchandising executive, Julie Rosen, left the company last month after being with the Gap for 14 years.
Alan Barocas, the senior vice president of real estate for Gap Inc., is retiring after 25 years with the company.
Felix Carbullido, vice president and general manager of gap.com, also left although no information was immediately available for the reason he was leaving.
Kris Marubio, a spokesperson for Gap, said too much should not be read into the recent executive departures.
“We’re a large company,” she told Reuters. “At any point in time, executives will come and go. We’ve recently added great executives to our lineup.”
On February 7, Gap Inc. named the former head of Warnaco Group Inc. to run its GapBody business.
Moderator’s Comment: Does the number of executives that have left Gap Inc. in recent months suggest bigger problems at the company than have been made
public? In general, how are executive changes at headquarters perceived throughout large retail organizations and what does that mean for company performance? –
George Anderson – Moderator
Every living system has a life cycle. Theoretical biologists like Stuart Kauffman and before him the father of ‘scientific management’ Frederick Taylor used complex calculations to show that all things follow a specific life path. This became known as the ‘S-curve’. The stages of the s-curve are Seed/launch; Emerging; Established, Maturity and finally, Decline. Every retail operation is on the life-cycle S-curve somewhere.
The problem with organizations that have had a grand and successful past is that they think they’ve been granted divine exemption from Decline and death. Like they’ll live forever. Not so. Once an organization becomes mired on the plateau of maturity the end is not far off. Unless…
The only way to bring new life and re-invention is for the organization to throw itself wholeheartedly into a transformational process. We can’t get into that process in this space – but I will make two quick points:
1. The last people to see that their organization is dying are those who created and built it.
2. The team that built the organization is almost never the team that can lead a transformation.
That the Gap leadership team is changing is probably a good thing. Gap now has a choice to bring in new leaders able to lead a true transformation or leaders who will keep Gap mired on the plateau.
With 6 quarters in a row of declining comp sales and an 11% profit decline in the 4th quarter, it’s no surprise that people are leaving, voluntarily or not. The volunteers probably assume that their bonuses and stock options won’t be lucrative. And execs tend to get pushed out when things are going poorly. If and when the clothes get exciting, sales and margins will rise, and the executive turnover will decline. It’s always more fun to work for a winner. The merchandise excitement is the only issue.
Perhaps the announcement last week that Gap is planning to open more Old Navy stores and reduce the number of Gap stores made some just want to throw in the towel. There will be Old Navy, trying to duke it out in budget casual arena, surrounded by a new crop of competitors such as Uniqlo from Japan and American Apparel and oldies-but-goodies like Target, Wal-Mart, Sears, and Penney’s that have been honing their sourcing and creating sub-brands for every purpose.
As Mark Lilien’s comment says, with declining sales, change in leadership is bound to happen. Depending upon which executives are leaving and for what reasons and depending upon which executives come in with what set of skills, the future of Gap may be bright, mediocre, or sad. The Gap has lost its way and needs to reconnect with its consumers. As consumers age, a new group of people are in the age range of your target consumers. Appealing to the needs and wants of the old group does not necessarily work any longer. Gap now has the opportunity to reformulate itself in a way that does appeal to the current consumers in their target age range or lifestyle.
This may be one case where departures and performance are linked. Yet, it may not be linked tightly enough.
Departures, along with poor performance, are not really a surprise. In my journey at Christmas time this year — having a teenager — I was dragged through The GAP several times. Each time couldn’t have been more disappointing. I am not at all surprised by their poor financial performance and exodus of executives.
The Gap in 2006 is a great situation for contrarians…everything looks wrong. Their concept is too broad, age wise and economically, so that there is no clear target customer. Plus, their strength is basic items in basic colors (hello Wal-Mart), so they do not have a distinctive look to leverage. Also, they are caught in the middle between price shoppers and fashion shoppers. Add in the fact that the bulk of their locations are in malls where, if you haven’t noticed, things are not happening…most are no longer “cool” and the primary weekday traffic is seniors, moms with carriages and then young teens which is not a great demographic to build a dramatic comeback on. Things look so bad that, based on the history of such consensus, it may be not only a good time for Gap executives to “jump ship,” it may be a good time to buy Gap stock.
The leadership at the Gap seemed to be so in-tune with their original market that they couldn’t let go of it, despite what they may have thought they were doing. This is one of the many dangers of rapid and early success. But then it became clear that they were losing the age range they originally sought, so seemed to try to reach that market while at the same time not being able to let go of their original market. So the Gap ended up confusing consumers.
Eighteen to twenty-four year-olds buy more articles of clothes, but thirty-four to fifty-four year-olds spend more money on clothes. Both are great markets. The Gap seems to be having the same problem many retailers have: thinking they are doing better than they are and discounting ready information that will tell them otherwise and will tell them how to improve. Ultimately, that is the Gap’s problem, above all else: listening and responding to uncomfortable, critical information.
The departure of senior executives is rarely a “red flag” for the rank and file middle managers getting most of the work done. They’ve seen the red flag a long time before that. If you’ve never worked in a retail environment with 6 consecutive quarters (that’s 18 months, folks) of down comps…well, it’s a bit like life in hell. At the individual buyer level, even if you are doing an incredible job, footstep reduction is simply slowing everything down. The day to day pressure of trying desperately to make something happen with your particular tip of the dog’s tail is almost indescribable.
Evidently, GAP has lost traction in its emotional connection with the target customers. Until something is done in a concerted, cohesive, and sustained way to turn that around, being in any functional silo for this company is going to be a very bad feeling.