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It’s fair to say that even within the context of retail sector disruption – pre and post COVID – Gap has had a bad time over the past few years, despite having put in more than the prescribed spadework on digital and omni- transformation. (Its former CEO compared it to a Silicon Valley tech firm at one point and despaired of the lack of digital respect the firm got!).

But the reality is that the firm has lurched from one ‘jam tomorrow’ rescue plan to another for a long time, with the group’s only real success story being its lower-end Old Navy brand. Its Athleta offerings have ticked along and seen an uptick during COVID lockdowns, but the core Gap brand has struggled, while the higher-end Banana Republic has, not to put too fine a point on it, gone off in the retail fruit bowl.

Earlier this year the firm turned in its worst results in half a century – $932 million quarterly loss – while its turnaround CEO Sonia Syngal talked about “digital sunshine” bringing hope ahead. This week the company turned in some better numbers, essentially flat on a year ago – which at present it can take as a win – with online sales rising 60% year-on-year to make up 40% of total revenue.

As for that digital sunshine, there have been positive notes struck, largely triggered by emergency responses to COVID – Buy Online, Pick-up In Store and curbside pick-up have seen a 56% increase year-on-year, for example. And the firm points to 3.4 million new customers that it says have used online channels over the past three months, a 145% increase year-on-year. Whether those customers are now long term Gap users or just face mask shoppers – the big growth area for Gap –  is a question inevitably left unanswered at this point, although Syngal insists:

Our total customer file now sits at 176 million, up 15% from last year. Our customers also spent 6% more with us on average than last year…It is our goal to turn every customer into a loyalist. One of the things I’m most energized about is the strong launch of our multi-tender loyalty program and the enhanced value this program can unlock. Since the rollout on 22 September, just two months in we have enrolled 3.5 million new members to double digit conversion in stores and online enrolment.

Overall, it’s a more upbeat CEO in evidence as the firm braces itself for the Holidays season, talking up the prospect of 50% of total revenues coming from digital by the end of 2023:

Fuelling our brands are our powerful omni-capabilities. We are ranked number 2 in US apparel e-commerce sales. We have sharpened our real estate strategy so that our stores will be where our customers want to shop today. And we have increased focus on convenience and experience and uniquely ownable digital and physical spaces. These advantages give us the power to deliver. This is such a unique moment in time.

That said, the performance and omni-capabilities of the various brands still tell a story of wildly different performance. While Old Navy’s online sales expanded 86% over the past quarter, Gap’s growth rate was less than half of that – 38% – while Banana Republic’s online numbers haven’t been broken out.

Powering up?

So what lies ahead? The firm’s official fiscal outlook positions 2021 as a year of “profitable growth”, described by Chief Financial Officer Katrina McConnell as “a rebound year”. But in practice, the firm is looking further out, with all eyes on 2023 as a key date. That’s when the so-called Power Plan 2023 strategy – the latest, greatest turnaround plan – is meant to kick in.

What Is Power Plan 2023? Well, it’s pitched as having 3 core categories and objectives:

• Power of the Brands  – grow four purpose-led, billion-dollar lifestyle brands.
• Power of the Portfolio – extend customer reach across every age, body and occasion through “collective power”.
• Power of the Platform – leverage omni-capabilities and scaled operations and extend “an engineered approach to cost and growth”.

OK, that sounds nice and looks good on a PowerPoint slide, but what does all that mean in practice? The previously mentioned target of 50% of revenues coming from online is one metric by which the success or otherwise of this latest ‘with one bound we are free’ thinking, which puts a lot of focus on the digital underpinnings of the plan.

In a recent briefing, John Strain, Gap’s Chief Digital and Technology Officer, drilled down further on the respective components of the strategy, beginning with some by now familiar assertions:

We have a number of sustainable competitive advantages when it comes to our platform. We are ranked number two in apparel e-commerce sales, we have strong brand recognition and love and a platform that is built around scale technology capabilities, omni-channel loyalty and personalization.

We put the customer at the heart of everything that we do and our Net Promoter Score (NPS) is the number one way we measure customer satisfaction. Our teams and our stores are laser-focused on these numbers and it shows….We have seen double digit positive comps in our Net Promoter Scores in our stores. We leverage NPS for our digital properties as well. For context, the average e-commerce score for NPS is 62 and scores over 70 mean that your customers love you and your company is generating a lot of positive word of mouth referrals. At a time when great brands matter, we are in a tremendous position to drive the customer relationship.

Knowing the customer

So far, so omni-yada, yada, yada. On the customer aspect, Strain cited 595 million customer online and offline touchpoints in Q2 – when the firm turned in its worst numbers in over 50 years – which he pitched as “a great starting point”:

We think our file is truly an asset. That said, we know we are leaving opportunity on the table. Loyalty is just a great example. We think of loyalty as both our 11 million credit card holders and the 9.7 million members that are in our multi-tender loyalty program…We relaunched our loyalty program and went full fleet – all stores, all markets, across all brands – just four weeks ago and we turned on our digital capabilities and really put some marketing behind it. As a result, we have seen tremendous growth, adding 2.4 million customers to the program in only a month. As we continue to roll out our loyalty program, we’ll have an opportunity to drive significant number of our customers into our brands.

To assist in this, Gap recently underwent a customer segmentation exercise in a bid to understand  better who its customers are. It began by profiling the existing US domestic apparel marketplace, explained Strain:

We brought in experts, we leveraged data science and customer insights. We ran a lot of surveys and focus groups and panels and all this effort resulted in 12 potential target segments across the total spectrum of the US apparel market. We then applied data science to our existing file, placing 74 million customers from the past 24 months into these target segments, looking at a variety of factors, including demographics, psychographics, geographics. We brought in third party data and did a bunch of overlays.

Among the key segments identified were:

• Car pool parents – parents with kids who are 5 years or older, suburban and spend a lot on apparel.
• New parents – parents with kids under 5, more urban, also spend a lot on apparel.
• Active achievers – higher household income, more environmentally conscious, work out more often than average.
• Trend seekers – very fashion-forward and tend to spend the most of any apparel segment.

That last segment is interesting as it exposes a running flaw in what’s undermined Gap for so long, as Strain admitted:

They’re not a segment that any of our brands chose to target because they are notoriously expensive to acquire and have no loyalty to a brand.

In other words, Gap needs to re-think who it’s targeting. Strain insists that it does currently choose to target 80% of the $184 billion US addressable market. It now needs to (a) use analytics and presonalization to target those customers better and (b) think about the untapped 20%  On the first point, he argued:

We believe that customer engagement is a new currency for customer relevance. As much as you’re relevant, customers will engage. If you can get them to engage, you can build a relationship. If you can build a relationship, all good things come. A lot of people in the industry are talking about personalization. We’ve actually made significant progress. Today we personalize marketing content, emails, on site experiences. We do this based on channel preference, loyalty status, product affinity. This includes 74% of our website visits are personalized, 80% of our emails are personalized, 80% of our product presentation is personalized. So while we feel good about our coverage and position amongst our competition, we actually know there’s a lot of opportunity to double-down and automate personalization scale so it’s driven more by Artificial Intelligence and machine learning.

Tech underpinnings

Another asset at hand is the underling Gap tech platform, said Strain, built on “a custom-developed proprietary architecture” which he insisted “provides us with the ability to innovate at speed”. Meanwhile the company websites are hosted in the cloud to allow for “scalability in a seamless manner” across the brands:

One of our signature competitive unlocks is a feature we call universality, where each of our brands has their own site with a dedicated look-and-feel and navigation. The platform also has common components, where we’ve shared customer profiles, checkout and bag. In this way, we have the best of both worlds…This universality capability is really unique in the industry and is one of the reasons why we are well-positioned to drive from a single-brand, single-transaction customer to a multi-brand, multi-transaction customer.

At this point, the O-word comes back into focus, with Strain declaring that omni-channel is “a true unlock” for the retailer:

We think of every sale as an omni-sale. We can’t forget the importance of our stores. They’re not only an important part of building customer relationships and community, but an extension of our online experience. Sometimes e-commerce orders are fulfilled from stores. Other times, e-commerce orders are picked up in-store, at curbside or shipped from a store or the order may have actually been inspired by a local store visit. It works the other way around as well. Research papers from Deloitte and Salesforce show that over 80% of retail store visits are preceded by an e-commerce visit or may even include online shopping while in the store. So every sale truly is an omni-sale.

And as part of the 2023 plan, expect more focus on mobile as Strain pledged to build on current levels of 70% of online traffic and 50% of transactions coming via mobile devices:

We believe our mobile experience can be so much more in the context of omni, from scanning QR codes on products in store to be able to get additional information, to using QR codes to sign up for a credit card or a loyalty program, to leveraging doorbell functionality on curbside, to some day even potentially enabling self-service checkout on a customer’s own device. This is why we are working on enhancing our mobile site and app experiences to enable further degrees of personalization, inspiration and frictionless omni-channel shopping. Mobile is a key enabler for in-store engagement and we see it as a loyalty enhancement opportunity as well.

My take

It’s all about evolving our omni-thinking to the next level, seems to be the underlying argument here. That’s fine in its own right and easy enough to say and stick on a slide, but the measure of success lies inevitably in practical application. It also, given the nature of the apparel industry, relies heavily on something far more basic and less tech-centric – designed and selling clothes that customers actually want to buy!

That’s an important point. As noted over the years on diginomica, Gap can’t be accused of not having put digital effort in place under the reign of Syngal’s predecessor Art Peck. The firm isn’t so much looking at playing tech catch-up, as so many others are, as facing the equally challenging issue of getting its business strategy right. In that respect, a focus on analytics and customer segmentation makes much sense.

That said, there’s still stuff to be learned and honed in terms of digital and omni-thinking as Strain highlighted when he cited the firm’s BOPIS success:

We launched Buy Online, Pick-up In Store two years ago. We really thought of it at the time as primarily a fulfillment option, but COVID has taught us that it really is an engagement opportunity. We saw 50% year-over-year increases of Buy Online, Pick-up In Store orders, resulting in 3.5 million new online customers.

More citations like that and maybe we can approach this latest, greatest turnaround plan with more than a ‘been here before’ cynicism.