ICYMI: Inside Gap’s Last-Ditch, Tariff-Addled Turnaround Push
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You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. All right, well, let's get to it because it's the cover of the July U.S. edition of Bloomberg Business Week. It's about the Gap CEO's battle to save the brand and the challenge that it has slammed into as a result of

of the president's tariffs. The iconic 90s retailer was on the precipice of death for years. Richard Dixon finally had momentum for a comeback. Then came Trump. Amanda Moll is the lead writer on the story. She joins us here in the Bloomberg Interactive Brokers studio. A great deep dive on Gap. Congratulations on the cover story. Thank you. I want to start historical here and just remind everybody what Gap was and

What sort of happened when it lost its way? Like, I'm asking you to give us the entire story here, but think back to the 90s. It's like fall into the gap, fell into a slump. Yes. It did. But the 90s, this was, I remember, I remember having my parents, friends coming and visiting us from Europe in a small town in California. And they wanted to go to the gap. Absolutely. When they got to the United States. Right. Yeah. That's crazy. I believe it.

Yeah, it's hard to explain to people who are too young to be aware of pop culture during the 80s and 90s. But The Gap was sort of like the king of American aesthetics for quite a while. During the 80s and the 90s, it was a store that was so powerful and so well-trafficked that it

commanded some of the same lease terms in malls is like anchor department stores that were much, much larger. It was,

It was a company that sort of married the sort of casualizing cool clothes of the era with this sort of like great fluency in pop culture. Its advertisements were these like incredible black and white portraits of, you know, iconic celebrities and tastemakers, people like Spike Lee, Joan Didion, you know, by these fashion photographers who were some of the most celebrated artists

minds in the business. It really cast a net in culture outside of the $40 jeans and $15 t-shirts.

It clothed everybody. The 100th anniversary issue of Vogue featured supermodels on the cover wearing Gap jeans and button downs. It was truly an incredible force in, you know, creating the idea of how Americans dress now. Until it wasn't. Until it wasn't. Like what brought it down? Too much competition? Like talk, walk us through. Well, you know, over the past 40 years, American retail has just changed a lot.

Gap really thrived in an era when people went out to shop, when people went to malls. The rise of the gap as a national retailer sort of mirrors the rise of the suburban mall as the place that people thought about going to do their shopping for clothes as a cool place to go. And when malls started to decline, so did Gap for many of the same reasons.

Gap had grown really, really large at that point. And it had a lot of leases and a lot of sort of aging shopping centers across America. And then you get the one-two punch of some regulatory changes in the mid-2000s that led in a lot of...

international fast fashion retailers, Zara, H&M, things like that. And then the internet gave people virtually everywhere in America a much wider access to different types of clothing. So suddenly there was just a ton of cheap clothes everywhere. And the sort of gamut that Gap ran, which was cool jeans and t-shirts,

people had caught onto it. People were imitating what they were doing. And so you combine that sort of like lease load and debt load that they had with all this new competition in these new retail channels and they just fell off. - We're gonna get to Richard Dixon and the task that he has set out for him and the obstacles he has ahead of him in a second. First though, Mickey Drexler, a legendary name in the world of retail. What was his role in where Gap is today?

Mickey was Gap for 20 years. The Fishers, the family that founded Gap, hired him in 1983 after he had turned around Ann Taylor. And he stayed at Gap for almost 20 years after that. He built the company into the sort of cultural engine that it was at its peak. He sort of understood that in order to sell jeans and t-shirts, the jeans and t-shirts had to mean something.

And he was great at making meaning out of sort of regular clothes. And he was great at, you know, organizing a company that really sort of kept its fingers on the pulse of like what people were interested in, what felt cool, like what might motivate people to go out and buy something. And he, for 20 years, was sort of fantastically successful at that. But

At the end, it wasn't enough to save his job. Yeah, and I feel like then they kind of bounced around a lot, right? I think trying to figure out what they need to be in this very... As you say, I think you played out really... I mean, let's be clear. Retail has had a really tough time for a long time. And so the dust is settling. I mean, I even think about Levi's that has gone through...

A revival of sorts. I just bought a pair of Levi's. I haven't bought Levi's in such a long time. But for The Gap, they went through a lot of bouncing around. And that also takes its toll. Yes. So in between Mickey Drexler and Richard Dixon, the current CEO, there were four CEOs who were... That's over like about 23 years? Yes. So they lasted...

it was actually almost, almost exactly 20 years. So that they lasted all about like four or five years a piece on average. Um, just about getting settled for,

Putting in initiatives and then it's like gone. Right. And you know, the, the trouble that gap has had with executives over the past 20 years mirrors a lot of the trouble that other sort of like great American companies have had in that period of time, looking for people to bring in, to like solve one problem while then accidentally making another problem worse. So you bring in someone to deal with the debt load and deal with margin. And then, uh, they do that, but creativity sort of, uh, plummets. Then you bring someone into, uh,

to deal with like the sort of overabundance of leases and closed stores and streamline and they do that, but then the quality of the clothes also goes down because they're streamlining the materials being used. So you are sort of playing whack-a-mole with all of these different problems. And when you are bringing on executives that are meant to deal with sort of like systemic issues or logistical issues or financial issues within a company,

In a company that sells aesthetics, that sells ideas, that sells coolness, that can be really, really difficult in the long term unless you have like a sort of rare type of person. And it's just hard to find that person. And, you know, it's funny as they've gone along, like I think about, I don't know, when my daughter was young or Gap Baby and Gap Kids, like it seemed super successful. Like there are things that they've done that have done well. And then I don't know, like just I don't know whether it runs out of steam or momentum. I don't know.

Yeah. No gap is a fascinating company because it's got a bunch of brands within it. It's got gap, but then old Navy banana Republic, Athleta, right. And then it's, um, a bunch of those brands have sub brands too. So like gap has gap kids, um, banana Republic, tried banana Republic home. Um,

there used to be Piper lime, which was a Zappos competitor. There was intermix, which got bought, um, and then sold to private equity. It was trying to get more into like the higher end fashion game. Like there's been all these sort of like side quests and boondoggles and sub brands and things that just didn't work. And it, it,

What has underwritten a lot of that for a long time is Old Navy. One of Mickey Drexler's big things that he did for the company was launch Old Navy in 1994. And in that time, Gap's revenue has fallen by about half.

since its peak in 2003-ish. But Old Navy sells over $8 billion worth of clothes every year and has really like financed all these boondoggles. Can I tell you, so many times I'll be like, that's really great, Old Navy. Like it's just, and like fashion forward even, like it's pretty impressive.

Um, so let's fast forward to today because you've got a lot of time with Richard Dixon, uh, and some really interesting commentary about like what he did when he first got to the role in terms of taking the executives shopping, hearing about their like relentless positivity in meetings that he didn't necessarily see as realistic. What is his path forward in the, in the face of, of tariffs, which you write in the piece, this company's actually pretty well positioned to deal with. Right. So on the face. Right.

A lot of what Nixon did when he got there was sort of...

the attitude of the company, I think. Because something that's interesting always as someone who sits outside of these companies and is trying to figure out what's going on, that when you have a company that's been sort of beleaguered for a long time, I always wonder, what do they think about what everybody says about them externally? And something that Dixon told us about, Lily Meyer was my co-reporter on the piece, he was like,

you know, he had this town hall when he first got there where he, you know, had a slide presentation put together of all the negative headlines about the company and got up in front of the company and was like, everybody knows what we should be doing except us. And it's hard to say that they're wrong. It was sort of like, you know, this like huge legacy company, uh,

had become a little bit more abundant, a little bit complacent, and sort of figuring out a way out of that psychologically, I think, has been a big part of his tenure so far. And when you combine that with the sort of long, unsexy work that has been going on under him, but also before him of...

cleaning up the company's debt of cleaning up the discounting situation because a big issue for gap has been that they've trained their customers to expect everything to be 50 off all the time and it's really hard to grow a business it's so true it's so true like you get used to it why would i buy it if it's not on sale no no and then exactly you know it and you know it's coming i thought you were going to say the barrel jeans saved the company well they i think are i

indicative of something that might save the company, I would say, which is the capacity now for Gap, because it's cleaned up its logistics, it's cleaned up its supply chain a little bit, to see a trend coming, to have a product ready to go, and then have the technological and data capability to put it into stores at the right moment in order to sell a bunch of it and not have to discount it and not have to send it to outlet.

and not have to, you know. - Doesn't end up at TJ Maxx. Sorry. I love TJ Maxx. - So far not for these. So far not for these jeans. And it's interesting because it's a, barrel jeans are sort of these like curved outward, like sort of cartoon cowboy leg jeans that are a little bit silly and like very trendy and very young. And it's the type of thing that for 20 years Gap has not been able to do because they either bet on the wrong thing or it's too early or it's too late.

But the success that they've had with these jeans, which aren't cheap and they don't discount all of the popular colors regularly, is indicative that they figured out the data and logistics capabilities to be able to compete in this realm, which is big for them, I think. Yeah, but it's certainly fashion forward. I've tried them on. They're just not quite for me. I don't know.

I don't know. Tim, have you tried them on? I don't even know what you're talking about. Have you tried them on? I bought a pair while I was reporting the story. You did? Yeah. If you get them in the right weight of denim, they look more slouchy than curvy when on. Okay. Yeah.

because otherwise you feel like you're like okay Corral yes it's a little it's a little cartoon cowboy all right amenable you are amazing she is senior reporter for Bloomberg Businessweek her story it is the cover story of the upcoming new issue of Bloomberg Businessweek about Gap CEOs battle to save the brand slamming into Trump's tariffs because yeah that is certainly an aspect of this story as well in a big way

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