This Week, Gap Proves Its Staying Power

In his first full year at the helm of Gap Inc, chief executive Richard Dickson has taken big swings to bring the company back into the zeitgeist and get sales growing again.

So far, he appears to be succeeding in both of those goals. Dickson appointed Zac Posen as creative director of Gap and chief creative officer at Old Navy in February; he has delivered on the first edict, orchestrating buzzy moments like dressing Oscar winner Da’Vine Joy Randolph for the Met Gala and putting Anne Hathaway in a floor-length white shirt dress for a Bulgari event that sold out within hours. Collaborations with buzzy indie labels including skater-focused Palace, Californian cottage-core standout Dôen, and most recently, the ultra-feminine occasionwear seller Cult Gaia also added to the hype.

Sales have followed. In the second quarter of the year, revenue at Gap and Old Navy were up 3 percent and 5 percent year-over-year on a comparable sales basis, respectively. Sales were flat at Banana Republic, an improvement from an 8 percent drop during the same period last year. This month, its stock is up 30 percent year over year.

Those inroads are promising, but Gap Inc. has to prove it can perform consistently. The company is known to have temporary breakthroughs in its portfolio: Banana Republic, for example, saw sales jump 8 percent in the third quarter of 2022, only to fall 6 percent the following quarter. When the company releases its third quarter earnings on Thursday, investors will get a clearer picture of whether Gap Inc’s brand building initiatives across its labels can keep the parent company out of a decades-long slog.

To its credit, Gap Inc is realistic about its turnaround. The company expects revenue across all its brands to be “up slightly” in the third quarter. That may signal to Wall Street that the impact of its brand building efforts — from red carpet moments to brand collaborations — will be a slow burn. It’s also a clever way to temper investors’ expectations as consumer sentiment remains murky. Setting a low bar has gone over swimmingly at Adidas. Over the past two years, the German athletic giant has managed to revive sales following the discontinuation of its profitable Yeezy line by leaning into demand for its classic Samba styles and telling investors to wait and see how that would drive growth. Gap is also refocusing its image after a failed Yeezy tie-up in 2022, putting classics like its denim, khakis, crisp white button-ups and crewneck sweaters front and centre in its marketing.

Looking forward, traditional marketing will play a role in getting the brand in front of consumers. Already this year, buzzy pop stars Tyla and Troye Sivan have starred in campaigns for Gap brands, while a holiday campaign released earlier this month featuring a group of unknown singers clad in brightly-coloured sweaters, belting Janet Jackson’s chart-topping 1990s hit “Together Again,” has racked up nearly 10 million views on Gap’s TikTok page.

Still, Gap Inc. has to make sure its smaller brands don’t fall through the cracks either. Sales at activewear brand Athleta slipped 4 percent in the second quarter as competitors like Alo Yoga and Vuori, which just secured a near $6 billion valuation, become category leaders.

This week’s earnings update will tell investors how well Dickson can balance it all.

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