Gap Inc. CEO Art Peck on 4 Compromises Retailers Must Reject

In a keynote presentation earlier this week at Shoptalk in Las Vegas, Art Peck, president and CEO of Gap Inc., detailed four key areas that retailers must not be willing to compromise in order to continually meet rising customer expectations and drive profitable growth. Coincidentally, Peck was on stage a mere four days after Gap Inc. announced plans to create to create two independent, publicly traded companies: Old Navy and a yet-to-be-named company ("NewCo") that will consist of the Gap brand, Athleta, Banana Republic, Intermix and Hill City.

"A conscious uncoupling is what I was told to call the split of Gap Inc. and Old Navy," Peck jokingly told the audience. Operating the fast-growing Old Navy under the same umbrella as Gap was a compromise that was yielding a lack of focus on both divisions, added Peck. "I believe we will have two stronger companies" as a result of the split.

Speaking of compromises, Peck offered the audience four that are critical for not only Gap Inc. but the retail industry as a whole to reject:

Converged Customers vs. Diverged Experiences

Retailers, including Gap, got into the habit of forcing the customer to think channel instead of brand experience, noted Peck. To address that mistake, Gap has put several solutions in place, most notably a real-time inventory update across its organization, from stores to distribution centers.

"She can shop seamlessly, frictionlessly and has access to all that we have," Peck said in regards to Gap's customers. "Wrong inventory, wrong place, wrong time leads to markdown and clearance. Now we can yield demand and meet it with inventory, leading to full-price sales. The customer is creating their experiences."

Access

Eighty percent of apparel purchases happens in-store, said Peck.

"We’re not screwed because we have all these stores," Peck added. "We closed 230 stores because they were the wrong stores in the wrong places."

Peck noted that for Old Navy, a significant percentage of its customer base doesn't have access to credit. Therefore, Gap Inc. needed to bring the brand to them by building stores and putting apparel in them. For the Gap brand, the company is taking a historical model for specialty apparel and spinning on its head, Peck said.

"The mall formula is no longer as nearly as effective as it used to be," Peck said. "Give her a store that fits into her journey."

Peck cited a new Gap store in Encintas, Calif. as an example of what he meant. The store is located next door to a Trader Joe's, and is seeing conversion rates two times to three times that of Gap's mall-based stores. "We see access to physical complemented by digital experiences as a huge opportunity," said Peck.

Service

Traffic is most intentional in-store that it has ever been, Peck said, given the ease in which consumers can make purchases online, including on their phones.

"There's plenty of traffic; not enough conversion," said Peck, citing common issues in-store shoppers are confronted with, including out-of-stocks, sizing issues, long checkout lines. Peck had some advice for the audience on how to address these challenges.

"Don’t throw inventory and payroll at the problem," Peck advised. "It starts with a longitudinal view of the customer, connected to a personalized in-store experience, morphs into localized assortment, and builds in predictive demand. This is a game changer, and is essential to future existence."

Our Planet

The apparel and textile industry is the second most polluting industry in the world, said Peck. Gap Inc. hopes to make a change.

"The secret of our industry that no one talks about: Our industry supply chain is too long," said Peck, noting that the longer the supply chain, the more pollution that occurs during it. To show Gap Inc. is trying to make a positive difference in the area, Peck told the audience that Athleta has shortened its supply chain to roughly 10 weeks or less compared to nearly a year, which is what it used to be.

Peck closed his presentation by noting that Gap Inc. is celebrating its 50th birthday, has strong brands, loyal customers, and is excited about its future prospects

According to Peck, the future of retail organizations will be based on three words: change or fail.