With efforts to revive its namesake brand falling short, Gap Inc. announced that brand CEO Jeff Kirwan is resigning and a CEO search is underway.
The unexpected move comes as the California-based retailer prepares to release its fourth-quarter results. “While I am pleased with our progress in brand health and product quality, we have not achieved the operational excellence and accelerated profit growth that we know is possible at Gap brand,” said Gap Inc.’s Chief Executive Officer Art Peck. Brent Hyder, Executive Vice President of Global Talent & Sustainability, will serve as interim CEO until a replacement is found. Hyder was previously Chief Operating Officer of the Gap brand.
Kirwan was appointed CEO in 2014, at a time when the chain – like many in the retail sector – was struggling with sliding sales. His initiatives included overhauling the operating model to better test products, assess their performance, and manage inventory by refreshing underperforming lines and bringing new styles in more quickly. Kirwan also focused on the overall quality of Gap’s offerings and its online presence. But based on comparable sales at the chain, which fell in 13 of the past 15 quarters, this has not been enough to counter the shift in consumer preferences to online shopping
In November Gap raised its 2017 earnings and same-store sales forecasts, likely as a result of company-wide turnaround initiatives. However these are primarily having an impact at Old Navy. Gap only improved in the third quarter, when comparable sales rose 1%. Analysts expect sales dipped 0.17% in the holiday quarter, according to Reuters. “I think it’s just frustrating because in their last earnings report there was a lot of optimism that Gap was making a comeback and at this point it indicates it really has not,” said Gabriella Santaniello, CEO of retail consulting firm A-Line Partners. “Ultimately this is the right decision,” she added in reference to Kirwan’s departure.
The company’s Athleta brand is growing at a double-digit rate, though with $700 million in revenue, it is relatively small and won’t act as a meaningful earnings driver for some time, according to Edward Yruma, an analyst with KeyBanc Capital Markets. “While we remain confident in Old Navy’s ability to post solid results against difficult comparisons, we have less confidence in an operational turn at Gap banner in the short to medium term,” Yruma said. He expressed concern that issues with the brand’s products, perception and store fleet “may be difficult to fix.”
In September Gap announced plans to close about 200 Gap as well as Banana Republic stores within the next three years, and open about 270 Old Navy and Athleta stores in the same period.
