Bloomberg Audio Studios, podcasts, radio news. At the start of twenty twenty five, it looked like Gap was in the middle of a renaissance or a gap aisance. That's what New York Magazine's product review site, The Strategist called it. The once cool clothing company seemed like it might be in again. It dropped an ad campaign with the actress Parker Posey in the midst of her white Lotus pressed tour.
It launched new product lines and brand collapse, which, judging by the response on social media, were landing well with younger shoppers.
I influenced you to buy anything. Let it be these Gap genes.
No, we've all been waiting. Let's try and everything I got from the Gap Done collab.
This is like truly my Super Bowl.
I just got the full inventory list for the Mad Happy X Gap collab. Let's go through this collection twenty five.
It's going to be the year of Gap. After going through five CEOs in twenty years, the company's current CEO, Richard Dixon, was settling into the role.
I sort of grew up with Gap as the iconic American style that we all knew and loved, and I have found myself really interested in turnaround stories, and he.
Was feeling optimistic he could help write gaps turnaround story.
I think that there were strong signs that the gap azance was beginning.
Bloomberg's Amanda Mole has been tracing gaps ups and downs with her colleague Bloomberg Specialty retail reporter lillly Meyer.
And with Gap, it's always kind of been this whack a mole problem because they have now these four brands, and each brand has had a moment of being really successful and then a moment of really struggling.
And then Trump's tariffs hit, and Gap found itself in the center of a new, unprecedented challenge as a global brand navigating a trade war that promised to up end supply chains and transform consumer habits. I'm Sarah Holder, and this is the big take from Bloomberg News Today. On the show, we explore how new trends and new terraces have rocked the retail industry and complicated gaps latest efforts to turn its business around. Amanda, give me the Gap
origin story. When was this iconic brand born.
It was the Summer of Love, but literally it was nineteen sixty nine. Donald and Doris Fisher or living in San Francisco. They founded the store and like a single storefront to sell Levi's and records to the sort of like cool countercultural kids that were hanging out in the city at the time. It was a time of like real experimentation in retail, so they had the single storefront. It was a hit. They started making their own clothes.
It was sort of a time where a lot of American specialty retailers were trying to figure out like what a store was going to be in the decades to come, and the Fishers and Gap were front and center.
The Gap of the seventies was all about flared deans and boldly patterned shirts. It didn't really become the Gap we know today until the eighties. That's when the company hired Mickey Drexler as CEO. He'd helped turn around and Taylor's business, and the Fishers were hoping that he could also help Gap.
This was the early eighties. The American mall was growing at a rapid pace. There was all these new types of shopping centers opening around the country that needed stores, and there was like a real opportunity as like the country casualized and work casualized young people were looking for like the next way to dress. So what Drexler did sort of famously was strip out a lot of the experimentation that they were doing and be like, we're just going to make really great basics and we're going to
make them cool. So they sort of like married the jeans and buttoned down and t shirt business to this idea of cultural relevance. They recruited a lot of celebrities and taste makers and like sort of cultural figures like Spike Lee and Joan Didion.
Joined didon with Kantana Rue wearing the black turtleneck Yes Yes.
And they hired like the best art and fashion photographers and the world people who were shooting for Vogue to shoot Gap ads, to shoot just cool people in like straightforward clothes that a lot of people could imagine themselves wearing, and you know, sold a lot of jeans in the eighties and nineties that way.
Amanda says. Another stroke of nineties era, Mickey Drexler Genius was launching a new brand under the Gap umbrella that offered choppers a cheaper option old Navy.
They saw that other companies were sort of onto them as far as like, oh, we can make jeans and T shirts cool and we can undercut Gap on price. So Gap is a company basically said, well, you know, we might lose some customers to lower priced lines that offer similar clothing, but we can also open a lower priced line of similar clothing, and Gap might lose the sales as far as Gap brand, but Gap the company will retain the sales. We'll just go to Old Navy.
Old Navy helped the company stay relevant even as the Gap brand face new headwinds in the early two thousands and twenty tens. That's when customers started shifting away from Gap stores and towards online retailers and fast fashion brands like Zara and H and M that could produce basics for a fraction of the price.
And then you at the same time, Gap sort of meets that moment. As a retailer with like a ton of debt, a lot of leases in malls that they don't necessarily want to be in anymore, they had the makings of trouble down the road, and suddenly they were down the road.
Debt, bad real estate bets. These were real problems for Gap ones that Lily Meyer says the company tried to address through a series of corporate side quests. In two thousand and six, it launched an online shoe and accessory company called Piperlme, hoping it could compete with Zappos, and then shut it down less than a decade later. In two thousand and eight, it took over an athletic brand, Athleta,
which the company still owns. In twenty twelve, it acquired the trendy fashion brand Intermix, then sold it to a private equity firm in twenty twenty one.
It kind of kept stuttering again and again. All the while their core business was still struggling as well.
The core business of Gap Inc.
Gap Gap, the brand was getting smaller and smaller and smaller. It brings in like half the revenue of peak Gap, which was two thousand and three.
Two thousand and three was GAP's high revenue watermark. It made a record seven point three billion dollars. But by the twenty twenties, Peak Gap was squarely in the rear view mirror, and the company decided to bring on a fresh face to stage a comeback. Richard Dixon. Dixon had joined Gaps board in twenty twenty two while he was still an executive at the toy company Mattel, which makes Barbie dolls, and in the lead up to the Barbie movie premiere in twenty twenty three, with Barbie Mania in
full swing, Dixon got his next opportunity. That August, he became GAP CEO. Amanda and Lily sat down with Dixon earlier this year for several recorded interviews.
He had noticed that the Gap brand website was really hard to shop on. It was really hard to find what you wanted, and so he took a group of his executive shopping. As he described it to us, We.
Got together in the room and I was new and I said, look, you know what we're going to do. We're going to go shopping. And I pulled up the sites and we spent the next couple of hours like basically melting down the organization to deal with truth. Do we think that we're telling really great compelling narratives around our story and merchandising and why we exist.
He also held a town hall for Gap employees where he delivered some tough love.
I acknowledged to the company there's a positivity bias in this company. I sit meetings and you're all telling me how great things are. But then you look at the business, you go to our stores, you go online, you hear the drum beat in the outside world, and they think very differently. So what's happening in here? The company just wasn't dealing with the truth.
He suggested that clinging too hard to the past might be holding GAP back.
We were living in a legacy. Well remember when in the Khaki campaign, It's like, Okay, well what is it today?
Gap faces the facts and Trump's tariffs after the break. By the time CEO Richard Dixon took the reins of Gap in twenty twenty three, the company had been through many a turnaround effort. Not all of it had worked, but some of the seeds have changed. The company had planted were starting to sprout. There was a collaboration with Doenne and La It Girl brands that really took off.
Our brands are becoming more culturally relevant. People are starting to say, like, wow, Gaps pretty cool.
The company also cut back on how many products it sold and a play to be more focused on its core brand, and Amanda and Lily said Gap also figured out a way to better keep up with fast moving trends.
One thing that really is like difficult for legacy clothing brands when they're trying to compete with fast fashion, is that the sort of turnaround time between design and product in store is just really long compared to what other
brands can do. So they did something that seemed pretty smart, which is now they order textiles ahead of time and in roughly the same timeline that they used to, but they don't like commit to designs with those textiles until like the last possible second, so you could get the exact right billowy shirt, the exact length of pant that people are looking for.
Yeah, that sounds so smart, Just like buying the fabric and then being like, you tell me the shape. The TikTok will tell me the shape.
Yes, yes, yeah, you wait until you know what people actually want, which means that you don't have to discount as much. It means that you don't make as much product that doesn't get sold or doesn't get used in some way.
Okay, so Gap had some good stuff going on. How did Dixon try to build on the success? What were some of the things that are truly Dixon branded efforts?
So probably one of the most notable ones is Dixon bringing on Zach Posen, who's this fashion designer. He was on Project Runway. He's had lines with other companies, and Posen has since done a lot of Gap looks for runways. He's dressed celebrities like Anne Hathaway, and he's also created a new line called The Gap Studio, which is a bit higher end and a little bit more avant garde.
That secret sauce Gap had in the nineties, essentially making basics cool by putting them on cool people. Dixon was bringing it back. This all created that gap aissance feeling we were talking about earlier, the sense that this time this rebound might stick.
There were a lot of pieces of circumstantial evidence that things were head in the right direction, Like their young consumer numbers were up. They were seeing people coming back to the brand who had like not bought anything there in years and years. Sales in general were good.
And then on April second, Donald Trump announced his aggressive reciprocal tariffs on trading partners around the world. Lillly and Amanda were actually with Dixon in a conference room the day the news hit.
So we were in this interview and we talked in sort of like general terms about the tariffs but like the room was stealed. None of us had our phones out and there was no TV playing. But like we all got outside and sort of looked at our phones and were like, ah, oh okay. You know, things were like a lot worse than we all expected.
There were steep tariffs planned for Vietnam, which applied more than a quarter of the company's goods last fiscal year, and steeper tariffs on China, though the country accounted for less than ten percent of GAPS assortment last year. Dixon, like many CEOs in his position, had to start thinking about how to adapt.
We know that he got on the phone pretty quickly with his CFO and their head of supply and logistics.
What if we increased production in the US why not? What if we diversified our footprint even more? What if I went to the administration? Why not?
After Liberation Day, Dixon ultimately did fly to DC to meet with the President himself.
We are the single largest specialty in parao detail in the country. We employed over seventy thousand people. The indirect consequence of those tariffs could impact our store openings or even have the closed stores because they just become they don't become profitable, explaining those different scenarios to the administration and the context of our support for their intent, but the indirect and or direct consequences to our business is a real dialogue.
By May, many of the tariffs had been paused and GAPS leaders were developing a plan to deal with them. But anyway they crunched the numbers, tariffs were going to impact their bottom line. The CFO delivered the news to investors on an earnings call on May twenty ninth.
We estimate a gross incremental cost of approximately two hundred and fifty million to three hundred million dollars.
Two hundred and fifty to three hundred million dollars. The COFO said the company's mitigation strategies could cut that number in half, but the company was still looking at a loss of up to one hundred and fifty million dollars this year. Lily says the market reaction was intense. The company stock plunged more than twenty percent in just a few hours.
That day.
Gap lost about two billion in market cap, despite having really strong earnings and showing some strategies for mitigation, like changing their sourcing and switching to some American grown.
Client Yeah let's talk about some of those mitigation strategies. How well is GAP positions to adapt to these tariffs compared to some of its competitors in the retail space.
I mean, I think one thing that really helps GAP is how big the company is and how big their order sizes are, so it makes it a little bit easier for, you know, the company to entice factories in other countries. So one of their goals is they want no country to account for more than twenty five percent of supply by the end of this year, which they're in the process of doing. They also plan for China to be less than three percent by the end of this year.
After so many years dealing with factors within Gaps control company culture, brand relevance, debt, GAP is now up against a new external challenge, a trade war.
They are still so early in the turnaround, and like people want like hard and fast answers about like is it going to work? Is it going to happen? And it's just like impossible. As it's all right now, they have like a lot of stuff left to do in order to like continue to stabilize the company.
And Amanda says, for a nic American brand that's managed to survive the rise of online shopping, the retail apocalypse, and the fast fashion revolution. The question of whether Gap can stick the landing matters to more than just as CEO, because Gap, with its crisp white teas and blue jeans, has something going for it that some of its trendiest peers just can't compete with history.
Something that really stood out to me when trying to wrap my arms around what was happening with all of this, is just how much other people, like just in general, like really want Gap to be good, really want to buy clothes a Gap, want to feel good about shopping there, want to feel like there is something there for them. Companies, especially in twenty twenty five, do not generally have this
like positive nostalgic feeling from the general public. But like, basically everyone I talked to of like a bunch of different ages, a bunch of different backgrounds. Everybody was like, I loved shopping there, it was so cool when I was a kid, or like I really wanted my mom to take me. It's sort of rare that you encounter that many people like rooting for a company.
This is the big take from Bloomberg News I'm Sarah Holder. To get more from The Big Take and unlimited access to all of bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow