It’s hard to imagine there has ever been a worse time at Gap Inc in the company’s 46-year history. The gigantic American retailer which operates more than 3,700 stores around the World under brands such as Gap, Banana Republic and Old Navy recently announced its 14th consecutive month of declining sales. Its share price is officially in the toilet too and is now worth half what it was trading for a year ago.
It’s not hard to see where the problems lie. In fact, we can use Gap as an ideal illustration of an increasingly commonplace corporate ailment that I like to refer to as ‘morbus digitalis’.
The onset of the disease usually starts when a senior C-suite leader, emboldened by their experiences and apparent success in applying digital tactics at lower levels of the firm, takes the helm and doubles down on digital to save the day. Step forward Art Peck, the current CEO of Gap Inc. Peck spent 20 years as a consultant at The Boston Consulting Group and more recently as the president of Gap’s growth, innovation and digital division. He has wasted no time in applying a digital fix during his 18 months in charge.
First up, Peck announced that he would significantly scale back TV advertising. Gap, which had made seasonal TV ads part and parcel of its success in the US, spent the Christmas holiday season off the air. The move should not have come as too much of a surprise. Organisations afflicted with morbus digitalis often suffer under the delusion that TV is dead or ineffective. Unfortunately, it is a symptom that can prove very difficult to reverse. Even exposure to relatively high doses of objective data showing television’s media supremacy can prove ineffective.
Gap also exhibited another common symptom of morbus digitalis – an overstimulated, often hallucinogenic, imagination when it comes to the business potential of social media. In Peck’s case he used a November 2015 conference call to announce that the company would rely on the power of social media and word of mouth to bring traffic into stores. Gap reduced its marketing budget by $34m as a result of the “cost-effective” nature of its focus on media such as Instagram and Tinder (yes, Tinder).
Morbus digitalis hits all companies hard, but its effect on retailers can be particularly severe and, in many cases, fatal. The fast moving and ultra-competitive nature of retail means that the hazy visions and distracted delirium of the disease mean it is particularly virulent in retail cases. The risk was tragically apparent at Gap Inc when Peck openly dismissed the value of his own visual merchandising and windows as part of his commercial success formula.
In a May conference call, Peck re-affirmed his belief in all things digital and noted the relative lack of focus he was placing on store merchandising. “I think windows today are much less relevant than they have historically been and you will see this going forward, that we are actually ‘skinnying down’ our window treatments,” Peck explained. “If you haven’t won at the digital interface on the front end, your window in the mall store is probably not going to make a difference at the end of the day.”
This is perhaps the most severe case of morbus digitalis I have encountered and, trust me, I have seen my fair share. Any retailer with any experience is going to tell you that nothing compares to windows and visual merchandising in terms of driving traffic into store. To downplay the windows in your 3,700 stores and the amazing ROI this media can offer in favour of a mythical digital presence that has somehow eluded you is nothing short of madness.
To be fair to Art Peck, some of his earlier choices are already being scaled back. Gap Inc’s brands are back on TV as the reality of a social media-led marketing campaign sinks in. He has also started to hire professional marketers to help out, with new CMOs taking the reins at both Old Navy and Gap.
Unfortunately, that latter hire – Craig Brommers, who was recruited from rival brand Abercrombie & Fitch – is now in doubt because Abercrombie has activated the 12-month gardening leave clause in his contract. Brommers, who was meant to start work at the end of this month, could well find himself in need of a hobby for the next year because Abercrombie is unlikely to relent.
That’s a double shame because Brommers is a genuinely talented marketer and his CEO genuinely is not. In serious cases of Morbus Digitalis like this only a full body transplant can cure the disease and restore the brand to full health.
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