Gap CEO: 80 Percent of Customers Visit Stores, Despite Online Investments

8/27/2013
Gap, Inc. finished a strong second quarter with comp sales up 5 percent and reported 27 percent growth in e-commerce. The company points to investments in activewear, expansion in Asia, harvesting Big Data and omnichannel capabilities as key drivers of its robust financial performance.

Reserve in Store pilot off to strong start
Speaking on an earnings call with analysts, Gap, Inc. CEO Glenn K. Murphy said Gap's new Reserve in Store feature has resonated strongly with customers, a result he "didn't see coming." Live for just more than eight weeks in 40 Gap and Banana Republic stores in Chicago and San Francisco, the feature is "another point along the journey for us when it comes to omnichannel," Murphy says, and enables shoppers to find and place a hold on a desired product in stores within a 25-mile radius. Most interesting, according to the CEO, is the percentage of customers engaging the service during "off hours."

"Why would I want to reserve something in-store?" Murphy asks. "With the crazy world we all live in, and the hours people have to put forward with their business life and their personal life, the ability to go online at 10:00 p.m. or 11:00 p.m. or 6:00 in the morning and see something that you want and to reserve it, and then be able to get a text from us when the store opens — I think that's proven to be a much bigger draw than I thought it was going to be."

The retailer has learned many lessons over the course of the 8-week pilot that will inform how the feature expands to other store locations and markets in the fall. What's more, Murphy points to these kinds of new services as differentiators that make the stores "incredibly valuable."

Why stores matter
"For us, the omnichannel definition is that the world becomes seamless and that it's totally transparent," he explains. Despite the explosive popularity of shopping not just online but via smartphones and tablets, 80 percent of Gap, Inc. customers still prefer to visit a store to try on the clothes. "The store matters in our category," Murphy says. The next step in the evolution of retail is merging physical and digital retail, personalizing the shopping experience in a meaningful way. Fashion retailers who can accomplish that, he adds, will come out as winners.

Staying ahead of customer attrition with Big Data
Gap, Inc. has tapped into Big Data to get a better picture of who its customers are — and who its customers should be, but aren't currently. "Big Data is important because now we can look at information and the tendencies of customers who are loyal and find out what makes them lapsed and try to speak to them and incentivize them, in some cases, before they become a lapsed customer, to stay loyal with us," Murphy explains.

In the "new normal" of the post-recession economy, "it's not uncommon for customers, for very little reason or any reason, to go into hibernation," he continues. "Whether that's for a month or whether that's for a quarter, that's just something that we become acclimatized to."

Activewear is the new denim?
Gap, Inc. added six Athleta stores in the second quarter, bringing the total count to 45 on track to close the fiscal year with roughly 65 locations. The success of the activewear brand spurred the retailer to launch the GapFit as well as athletic and leisurewear offerings at Old Navy. Given how active bottoms especially yoga pants have hijacked women's casual fashion choices, Murphy says, "it would be a little bold of me to call it the 'new denim.'" Women want a pant option that's comfortable and casual but fitted and still looks sharp, he adds.

Eyeing the East for growth
After years of preparation, the first Old Navy store will open in Mainland China with a Shanghai location in spring of 2014. Gap is adding its first Taiwan location in the same period. As Gap, Inc. reported 2013 sales in Asia of approximately $1.3 billion much of which came from the yen, however the region is ripe for growth.

Returning to television
For the first time in four years, Gap will be running TV ads in the second half of this year, though Murphy is quick to point out that the content his marketing team is creating works on social media, the e-commerce site and cinema as well. Moreover, the CEO adds that the time is right to return to television.

"Many times over the last four or five years, we've been asked if Gap would go back on television," Murphy explains. "I think the criteria for me has been pretty consistent: What's the strategy behind it? Do we feel the messaging is strong and unique? Do we believe the product is absolutely the right product in our stores in order to go out and spend the money on television to bring new people in?

"So Gap brand has been able to check off all those boxes," he concludes.
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