At Gap Inc., the stock is trading near its 52-week high, guidance for 2024 earnings was raised and the outlook is positive — and that’s largely due to the retail conglomerate’s biggest brand, Old Navy.
“It’s been a pretty good run — three consecutive quarters of strong top line and bottom line performance, but really six consecutive quarters of discipline, inventory improvement and profit improvement,” Horacio “Haio” Barbeito, the president and chief executive officer of Old Navy, told WWD. “This is not an overnight thing.”
Historically the cash cow of Gap Inc., Old Navy appears to have sufficiently distanced itself from intensive promoting, inventory excess and some botched merchandising. Asked if the family and value-oriented fashion chain has been turned around, Barbeito said, “We are actually in reasserting mode. We’re stabilizing the ship. We don’t want to claim victory because this is a very dynamic and competitive marketplace. But we have some very good indications in our metrics that the business is undergoing consistency. That bedrock of consistency gives us room in the future to go after growth.”
Named After a Bar in Paris
At its best, Old Navy exhibits a sense of flair, marketing quirkiness, strong value, and hits upon the trends without being leading edge. The brand dates back to 1993 when the legendary Mickey Drexler, a former Gap Inc. CEO who catapulted the Gap brand into a global phenomena, converted many Gap outlets to Gap Warehouses. Discovering it was a hit with young men and women and students, Drexler, despite opposition from some board members, rebranded the business “Old Navy,” the same name of a bar in Paris that he happened to notice while visiting the City of Light. The first Old Navy opened in 1994 in Colma, Calif., with supermodel Cindy Crawford signing autographs. Other openings and special events were orchestrated with similar fanfare. In 2022, Old Navy kicked off the holiday season with The Rockettes performing at a New York City store.
Barbeito joined Old Navy two years ago, succeeding Nancy Green. When his new job was announced, Gap Inc.’s executive vice chairman Bob Martin said Old Navy’s new captain would “fuel the brand’s competitive strengths on a path to $10 billion” in annual volume. That’s clearly doable, but there’s still a way to go considering Old Navy generated net sales of $8.2 billion last year. The chain represents more than half of the $14.9 billion in sales logged by Gap Inc., which also operates the Gap, Banana Republic and Athleta brands. Considering its size, Old Navy is the key component to the overall health of Gap Inc. and continuing stock price gains. The stock price has been hovering in the $25-$26 range, close to the 52-week high of $30.59.
Barbeito didn’t provide any update on Old Navy’s volume goal for the future since Martin’s projection of two years ago, though he did say, “Old Navy has enormous potential, when you see our reach, especially in North America and with our e-commerce experience as well.”
A Healthy Q1
During the first quarter of 2024, which ended May 4, Old Navy’s net sales rose 5 percent to $1.9 billion. Comparable sales were up 3 percent. Commenting on the results, Gap Inc.’s president and CEO Richard Dickson said Old Navy saw a lift in women’s, particularly with woven tops, and added, “Across the board, we’re seeing better product overall.”
Old Navy’s summer look.
Prior to joining Old Navy, the Argentina-born Barbeito spent 26 years with Walmart, which competes with Old Navy in apparel. He spent a decade in CEO roles for different Walmart international businesses, overseeing Walmart Canada where he led modernization of the chain. Earlier, he led Walmart in Argentina and Chile.
In an interview, Barbeito spelled out what’s behind the recent progress and discussed strategies to sustain the momentum. “We are actually focusing on delivering value with more clarity, instead of having too many confusing price signs or promos, we are being very surgical. We are making sure we have sharp price points and sharp discounts, at the same time [appearing] less cluttered, as people enter our stores or surf our website. Today on OldNavy.com, you see very sharp price points, and promos where it matters, where it makes seasonal sense.”
Old Navy does market “wow” items featuring “jaw-dropping prices,” though Barbeito said, “We are not too caught in the ‘wow’ prices. It is about the equation — price, quality and experience. If you went back to our website a couple of years ago you would see a lot of banners, with clearance, big discounts, and less product and storytelling. In the last few quarters we have been able to shift from pricing, pricing, pricing, to actual storytelling around product, occasions, value and quality.”
Old Navy’s newest campaign, “Summering,” was orchestrated by designer Zac Posen who became the brand’s chief creative officer in February. Posen also holds the title of executive vice president and creative director of Gap Inc.
The campaign stars actresses Tracee Ellis Ross and Yara Shahidi, who worked together on the television series “Blackish.” It’s set at a spirited California house party, reminiscent of Old Hollywood glamour. “There’s a great combination of fun and fashion. It has that Old Navy ‘wink’ but we try not to overdo it,” Barbeito said. “We have been getting into more optimistic messaging. Summering is an example of marketing, and telling our story, differently but it feels very connected to the essence and roots of Old Navy. You will see a lot more interesting, innovative and surprising initiatives as we roll into the back half.”
Meanwhile, summer products are selling well, Barbeito said. They should be with temperatures soaring over 100 degrees in many parts of the West and Southwest this month. “We are chasing product. I am trying to get more,” Barbeito said. The blue linen two-piece outfit worn by Tracee Ellis Ross in the campaign sold out with customers very quickly, he said.
An Old Navy midriff-bearing summer outfit.
Refreshing and Remodeling
As of the end of the first quarter this year, Old Navy had 1,243 stores, occupying about 19.3 million square feet. Asked about store openings, closings and renovations, Barbeito said: “We are doing the three of them. Between openings and closings. We will have net positive openings. But [the program] revolves way more around renovations,” he added. “We are refreshing a lot of stores. Keep in mind we have over 1,200 stores, but we have the ability to be mindful and choiceful on which is the right priority on refreshing the stores. Some need a little bit of a refreshing. Some need to be completely remodeled, and some need to move somewhere. We are planning on refreshing roughly 10 percent of the stores in the Old Navy fleet by the end of fiscal 2024. Refreshes are mostly maintenance versus store experience changes. And Old Navy’s fleet is the largest of any apparel brand in the U.S. Our Veranda store, about 45 minutes away from our San Francisco headquarters, is our lab store where we test new concepts to potentially be used at scale. Our real estate choices are very well thought out. We are very confident we are investing in the right doors.”
Barbeito emphasized keeping the stores “in fighting shape…We always need to move at the speed of the customer. Our stores need to be omnichannel prepared, digitally enabled. We need to renew fixtures, give more room to categories that have been growing faster than the average. Active is an example.” After almost 29 years in business, the Old Navy fleet needs to be refreshed, almost constantly, he added. “Customers find better options if you don’t.” In the past, some retail pundits criticized Old Navy as too slow to update stores and as having a very ’90s feel.
OldNavy.com, Barbeito said, has been “shifting towards storytelling and not just operating as an e-commerce site…It is a great door into our customer value proposition. In terms of the product we project, the value we project and what we project in terms of service and experience, I really like the evolution that’s taken place. We are one of the largest apparel online retailers.”
In an interview late last year, Dickson addressed Old Navy’s opportunities and challenges, saying: “Old Navy still has a strong fleet with opportunities to continue to expand. However, the focus is going to be on ensuring our footprint reflects a better brand persona and a better brand experience before we continue to expand more doors. Collectively we have got to do fewer things better. That, to some extent, is a bit of a mantra, and it applies to many things, including store expansion.” Old Navy continues to build an international presence and recently has had its franchise business expanding in Latin America through partnerships that saw launches in Chile, El Salvador, Dominican Republic and Ecuador.
Old Navy’s bestselling wide-leg denim jean.
Dickson acknowledged that Old Navy’s plunge into plus sizes beginning in 2021 “took a very big toll” on the business. “It was a strategically well-intended initiative around body diversity and inclusivity. But it was also an over-rotation, which led to inventory issues. Marketing messages got a bit confusing. It was a misfire that was kind of a shock to the system.” The company got too zealous investing in inventory and marketing the plus sizes and came up short or late with sizes and styles in demand. The pandemic, supply chain disruptions, late deliveries, temporary closings of Vietnamese factories and Gap Inc. stores created a perfect storm, Dickson said. “The mechanics of the business collapsed,” he said.
Old Navy, which sells only its own in-house designed and developed product, continues to carry a wide range of sizes in women’s, men’s, boys’, girls’, toddlers’, baby and maternity, including plus sizes. In 2020, the corporation pulled back on a plan to spin off Old Navy, due to the division’s sluggish sales trend and market conditions around that time.
Keeping it fun, with Old Navy kids’ clothing.
Both in stores and online Barbeito said Old Navy should stand for “fun, fashion for her and her family.” (Note the emphasis on “her.”) According to Barbeito, the Old Navy team is working on “reasserting women’s as key driver of our business, traffic and relevance.”
Drilling down a bit, he said, “Active and denim are two key categories.” He also said that given the size and scale of Old Navy, “I do not discard entering new categories. First, we want to make sure our core business is super consistent on delivering on our value equation before we go into new categories and partnerships. Of course, there are some we do have in mind in our strategic long-range plans,” he said, without specifying.
Active at Old Navy is a “key” category.
How Zac Posen Figures In
When Posen’s roles at Old Navy and Gap Inc. were announced, eyebrows were raised because Posen has a reputation for designing red carpet looks, glamorous evening gowns and cocktail dresses rather than low-priced sportswear for mass appeal, and past partnerships with designers at Gap Inc., have had mixed success. Still, at this year’s Met Gala, Posen created a one-of-a-kind, custom Gap denim gown for actor Da’Vine Joy Randolph which sparked a lot of social media buzz. He also designed a Gap sheer white shirtdress worn by actress Anne Hathaway in Rome that sold out online.
Asked about the nature of Posen’s role at Old Navy, Barbeito said, “What Zac is bringing, besides his amazing creative talent, is really helping us to get that fashion credibility that we want to regain, maintain and even grow. Zac has a role at Old Navy and the entire [Gap Inc.] portfolio. You see Zac’s impact in the summer campaign, with some of his creativity, his art, in motion. I see him as a great asset to Old Navy’s transformation.”
In addition, Old Navy and Gap Inc.’s other brands will be collaborating with Omnicom Media Group as its new “strategic cross-brand” agency of record. In addition, Gap Inc. created a marketing shared services organization to standardize key media functions. The company is seeking someone to head up the new unit.
An Old Navy laid-back men’s outfit for summer.
Across the retail landscape, consumers have been trading down because of inflation and macro-economic uncertainties, and Old Navy could be benefiting by the movement, at least in part, with its recent sales gains. Asked if that was the case, Barbeito said, “When you look at our customers, they’re not really at the bottom of the pyramid. There are customers that may trade down from us, but it’s really about having the right product, the right value and the right value messaging. The consumer is under some pressure and has been for some time, but also consumers are resilient. They demonstrated in the last couple of years that they’re being very choiceful and they sometimes are not only choiceful around value brands. We still think we just need to focus on what we can control, and what we can control is product, relevance and experience, and having the best talent. The team that Old Navy has put together makes me very proud. We have great merchants, great designers, great marketers, great operators. Old Navy can thrive if the consumer is under pressure or if the consumer has more oxygen, it’s really up to us.
“When you see the lineup of Old Navy’s leadership, you have a mix of people coming from luxury brands or from Nike and Walmart, or from finance. It’s a really diverse and experienced team of great talent coming from different places in the last couple of years, and some great internal talent, making it happen. But it’s a very interesting mix,” Barbeito said. He cited the head of merchandising who formerly worked at Nike and J.Crew, the head of e-commerce and experience who worked for Walmart before, the head of marketing from Gucci and Ralph Lauren, and the head of strategy, who was formerly with Starbucks, while the head of design and product development is a 10-year veteran of Old Navy design, and previously worked at Abercrombie & Fitch.
“It’s not an overnight story,” Barbeito reiterated. “It’s a strong team behind these recent results.”