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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. At the start of

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Speaker 1: twenty twenty five, it looked like Gap was in the

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Speaker 1: middle of a renaissance or a gap aisance. That's what

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Speaker 1: New York Magazine's product review site, The Strategist called it.

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Speaker 1: The once cool clothing company seemed like it might be

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Speaker 1: in again. It dropped an ad campaign with the actress

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Speaker 1: Parker Posey in the midst of her white Lotus pressed tour.

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Speaker 1: It launched new product lines and brand collapse, which, judging

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Speaker 1: by the response on social media, were landing well with

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Speaker 1: younger shoppers.

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Speaker 2: I influenced you to buy anything. Let it be these

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Speaker 2: Gap genes.

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Speaker 1: No, we've all been waiting. Let's try and everything I

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Speaker 1: got from the Gap Done collab.

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Speaker 3: This is like truly my Super Bowl.

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Speaker 2: I just got the full inventory list for the Mad

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Speaker 2: Happy X Gap collab. Let's go through this collection twenty five.

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Speaker 1: It's going to be the year of Gap. After going

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Speaker 1: through five CEOs in twenty years, the company's current CEO,

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Speaker 1: Richard Dixon, was settling into the role.

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Speaker 4: I sort of grew up with Gap as the iconic

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Speaker 4: American style that we all knew and loved, and I

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Speaker 4: have found myself really interested in turnaround stories, and he.

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Speaker 1: Was feeling optimistic he could help write gaps turnaround story.

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Speaker 2: I think that there were strong signs that the gap

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Speaker 2: azance was beginning.

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Speaker 1: Bloomberg's Amanda Mole has been tracing gaps ups and downs

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Speaker 1: with her colleague Bloomberg Specialty retail reporter lillly Meyer.

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Speaker 3: And with Gap, it's always kind of been this whack

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Speaker 3: a mole problem because they have now these four brands,

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Speaker 3: and each brand has had a moment of being really

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Speaker 3: successful and then a moment of really struggling.

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Speaker 1: And then Trump's tariffs hit, and Gap found itself in

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Speaker 1: the center of a new, unprecedented challenge as a global

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Speaker 1: brand navigating a trade war that promised to up end

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Speaker 1: supply chains and transform consumer habits. I'm Sarah Holder, and

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Speaker 1: this is the big take from Bloomberg News Today. On

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Speaker 1: the show, we explore how new trends and new terraces

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Speaker 1: have rocked the retail industry and complicated gaps latest efforts

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Speaker 1: to turn its business around. Amanda, give me the Gap

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Speaker 1: origin story. When was this iconic brand born.

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Speaker 2: It was the Summer of Love, but literally it was

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Speaker 2: nineteen sixty nine. Donald and Doris Fisher or living in

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Speaker 2: San Francisco. They founded the store and like a single

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Speaker 2: storefront to sell Levi's and records to the sort of

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Speaker 2: like cool countercultural kids that were hanging out in the

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Speaker 2: city at the time. It was a time of like

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Speaker 2: real experimentation in retail, so they had the single storefront.

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Speaker 2: It was a hit. They started making their own clothes.

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Speaker 2: It was sort of a time where a lot of

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Speaker 2: American specialty retailers were trying to figure out like what

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Speaker 2: a store was going to be in the decades to come,

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Speaker 2: and the Fishers and Gap were front and center.

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Speaker 1: The Gap of the seventies was all about flared deans

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Speaker 1: and boldly patterned shirts. It didn't really become the Gap

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Speaker 1: we know today until the eighties. That's when the company

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Speaker 1: hired Mickey Drexler as CEO. He'd helped turn around and

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Speaker 1: Taylor's business, and the Fishers were hoping that he could

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Speaker 1: also help Gap.

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Speaker 2: This was the early eighties. The American mall was growing

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Speaker 2: at a rapid pace. There was all these new types

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Speaker 2: of shopping centers opening around the country that needed stores,

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Speaker 2: and there was like a real opportunity as like the

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Speaker 2: country casualized and work casualized young people were looking for

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Speaker 2: like the next way to dress. So what Drexler did

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Speaker 2: sort of famously was strip out a lot of the

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Speaker 2: experimentation that they were doing and be like, we're just

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Speaker 2: going to make really great basics and we're going to

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Speaker 2: make them cool. So they sort of like married the

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Speaker 2: jeans and buttoned down and t shirt business to this

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Speaker 2: idea of cultural relevance. They recruited a lot of celebrities

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Speaker 2: and taste makers and like sort of cultural figures like

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Speaker 2: Spike Lee and Joan Didion.

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Speaker 1: Joined didon with Kantana Rue wearing the black turtleneck Yes Yes.

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Speaker 2: And they hired like the best art and fashion photographers

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Speaker 2: and the world people who were shooting for Vogue to

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Speaker 2: shoot Gap ads, to shoot just cool people in like

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Speaker 2: straightforward clothes that a lot of people could imagine themselves wearing,

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Speaker 2: and you know, sold a lot of jeans in the

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Speaker 2: eighties and nineties that way.

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Speaker 1: Amanda says. Another stroke of nineties era, Mickey Drexler Genius

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Speaker 1: was launching a new brand under the Gap umbrella that

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Speaker 1: offered choppers a cheaper option old Navy.

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Speaker 2: They saw that other companies were sort of onto them

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Speaker 2: as far as like, oh, we can make jeans and

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Speaker 2: T shirts cool and we can undercut Gap on price.

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Speaker 2: So Gap is a company basically said, well, you know,

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Speaker 2: we might lose some customers to lower priced lines that

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Speaker 2: offer similar clothing, but we can also open a lower

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Speaker 2: priced line of similar clothing, and Gap might lose the

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Speaker 2: sales as far as Gap brand, but Gap the company

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Speaker 2: will retain the sales. We'll just go to Old Navy.

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Speaker 1: Old Navy helped the company stay relevant even as the

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Speaker 1: Gap brand face new headwinds in the early two thousands

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Speaker 1: and twenty tens. That's when customers started shifting away from

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Speaker 1: Gap stores and towards online retailers and fast fashion brands

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Speaker 1: like Zara and H and M that could produce basics

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Speaker 1: for a fraction of the price.

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Speaker 2: And then you at the same time, Gap sort of

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Speaker 2: meets that moment. As a retailer with like a ton

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Speaker 2: of debt, a lot of leases in malls that they

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Speaker 2: don't necessarily want to be in anymore, they had the

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Speaker 2: makings of trouble down the road, and suddenly they were

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Speaker 2: down the road.

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Speaker 1: Debt, bad real estate bets. These were real problems for

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Speaker 1: Gap ones that Lily Meyer says the company tried to

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Speaker 1: address through a series of corporate side quests. In two

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Speaker 1: thousand and six, it launched an online shoe and accessory

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Speaker 1: company called Piperlme, hoping it could compete with Zappos, and

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Speaker 1: then shut it down less than a decade later. In

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Speaker 1: two thousand and eight, it took over an athletic brand, Athleta,

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Speaker 1: which the company still owns. In twenty twelve, it acquired

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Speaker 1: the trendy fashion brand Intermix, then sold it to a

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Speaker 1: private equity firm in twenty twenty one.

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Speaker 3: It kind of kept stuttering again and again. All the

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Speaker 3: while their core business was still struggling as well.

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Speaker 1: The core business of Gap Inc.

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Speaker 2: Gap Gap, the brand was getting smaller and smaller and smaller.

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Speaker 2: It brings in like half the revenue of peak Gap,

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Speaker 2: which was two thousand and three.

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Speaker 1: Two thousand and three was GAP's high revenue watermark. It

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Speaker 1: made a record seven point three billion dollars. But by

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Speaker 1: the twenty twenties, Peak Gap was squarely in the rear

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Speaker 1: view mirror, and the company decided to bring on a

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Speaker 1: fresh face to stage a comeback. Richard Dixon. Dixon had

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Speaker 1: joined Gaps board in twenty twenty two while he was

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Speaker 1: still an executive at the toy company Mattel, which makes

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Speaker 1: Barbie dolls, and in the lead up to the Barbie

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Speaker 1: movie premiere in twenty twenty three, with Barbie Mania in

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Speaker 1: full swing, Dixon got his next opportunity. That August, he

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Speaker 1: became GAP CEO. Amanda and Lily sat down with Dixon

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Speaker 1: earlier this year for several recorded interviews.

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Speaker 3: He had noticed that the Gap brand website was really

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Speaker 3: hard to shop on. It was really hard to find

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Speaker 3: what you wanted, and so he took a group of

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Speaker 3: his executive shopping. As he described it to us, We.

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Speaker 4: Got together in the room and I was new and

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Speaker 4: I said, look, you know what we're going to do.

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Speaker 4: We're going to go shopping. And I pulled up the

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Speaker 4: sites and we spent the next couple of hours like

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Speaker 4: basically melting down the organization to deal with truth. Do

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Speaker 4: we think that we're telling really great compelling narratives around

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Speaker 4: our story and merchandising and why we exist.

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Speaker 1: He also held a town hall for Gap employees where

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Speaker 1: he delivered some tough love.

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Speaker 4: I acknowledged to the company there's a positivity bias in

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Speaker 4: this company. I sit meetings and you're all telling me

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Speaker 4: how great things are. But then you look at the business,

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Speaker 4: you go to our stores, you go online, you hear

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Speaker 4: the drum beat in the outside world, and they think

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Speaker 4: very differently. So what's happening in here? The company just

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Speaker 4: wasn't dealing with the truth.

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Speaker 1: He suggested that clinging too hard to the past might

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Speaker 1: be holding GAP back.

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Speaker 4: We were living in a legacy. Well remember when in

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Speaker 4: the Khaki campaign, It's like, Okay, well what is it today?

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Speaker 1: Gap faces the facts and Trump's tariffs after the break.

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Speaker 1: By the time CEO Richard Dixon took the reins of

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Speaker 1: Gap in twenty twenty three, the company had been through

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Speaker 1: many a turnaround effort. Not all of it had worked,

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Speaker 1: but some of the seeds have changed. The company had

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Speaker 1: planted were starting to sprout. There was a collaboration with

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Speaker 1: Doenne and La It Girl brands that really took off.

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Speaker 4: Our brands are becoming more culturally relevant. People are starting

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Speaker 4: to say, like, wow, Gaps pretty cool.

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Speaker 1: The company also cut back on how many products it

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Speaker 1: sold and a play to be more focused on its

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Speaker 1: core brand, and Amanda and Lily said Gap also figured

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Speaker 1: out a way to better keep up with fast moving trends.

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Speaker 2: One thing that really is like difficult for legacy clothing

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Speaker 2: brands when they're trying to compete with fast fashion, is

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Speaker 2: that the sort of turnaround time between design and product

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Speaker 2: in store is just really long compared to what other

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Speaker 2: brands can do. So they did something that seemed pretty smart,

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Speaker 2: which is now they order textiles ahead of time and

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Speaker 2: in roughly the same timeline that they used to, but

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Speaker 2: they don't like commit to designs with those textiles until

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Speaker 2: like the last possible second, so you could get the

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Speaker 2: exact right billowy shirt, the exact length of pant that

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Speaker 2: people are looking for.

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Speaker 1: Yeah, that sounds so smart, Just like buying the fabric

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Speaker 1: and then being like, you tell me the shape. The

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Speaker 1: TikTok will tell me the shape.

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Speaker 2: Yes, yes, yeah, you wait until you know what people

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Speaker 2: actually want, which means that you don't have to discount

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Speaker 2: as much. It means that you don't make as much

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Speaker 2: product that doesn't get sold or doesn't get used in

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Speaker 2: some way.

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Speaker 1: Okay, so Gap had some good stuff going on. How

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Speaker 1: did Dixon try to build on the success? What were

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Speaker 1: some of the things that are truly Dixon branded efforts?

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Speaker 3: So probably one of the most notable ones is Dixon

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Speaker 3: bringing on Zach Posen, who's this fashion designer. He was

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Speaker 3: on Project Runway. He's had lines with other companies, and

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Speaker 3: Posen has since done a lot of Gap looks for runways.

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Speaker 3: He's dressed celebrities like Anne Hathaway, and he's also created

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Speaker 3: a new line called The Gap Studio, which is a

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Speaker 3: bit higher end and a little bit more avant garde.

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Speaker 1: That secret sauce Gap had in the nineties, essentially making

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Speaker 1: basics cool by putting them on cool people. Dixon was

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Speaker 1: bringing it back. This all created that gap aissance feeling

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Speaker 1: we were talking about earlier, the sense that this time

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Speaker 1: this rebound might stick.

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Speaker 2: There were a lot of pieces of circumstantial evidence that

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Speaker 2: things were head in the right direction, Like their young

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Speaker 2: consumer numbers were up. They were seeing people coming back

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Speaker 2: to the brand who had like not bought anything there

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Speaker 2: in years and years. Sales in general were good.

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Speaker 1: And then on April second, Donald Trump announced his aggressive

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Speaker 1: reciprocal tariffs on trading partners around the world. Lillly and

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Speaker 1: Amanda were actually with Dixon in a conference room the

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Speaker 1: day the news hit.

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Speaker 2: So we were in this interview and we talked in

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Speaker 2: sort of like general terms about the tariffs but like

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Speaker 2: the room was stealed. None of us had our phones

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Speaker 2: out and there was no TV playing. But like we

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Speaker 2: all got outside and sort of looked at our phones

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Speaker 2: and were like, ah, oh okay. You know, things were

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Speaker 2: like a lot worse than we all expected.

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Speaker 1: There were steep tariffs planned for Vietnam, which applied more

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Speaker 1: than a quarter of the company's goods last fiscal year,

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Speaker 1: and steeper tariffs on China, though the country accounted for

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Speaker 1: less than ten percent of GAPS assortment last year. Dixon,

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Speaker 1: like many CEOs in his position, had to start thinking

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Speaker 1: about how to adapt.

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Speaker 2: We know that he got on the phone pretty quickly

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Speaker 2: with his CFO and their head of supply and logistics.

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Speaker 4: What if we increased production in the US why not?

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Speaker 4: What if we diversified our footprint even more? What if

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Speaker 4: I went to the administration? Why not?

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Speaker 1: After Liberation Day, Dixon ultimately did fly to DC to

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Speaker 1: meet with the President himself.

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Speaker 4: We are the single largest specialty in parao detail in

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Speaker 4: the country. We employed over seventy thousand people. The indirect

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Speaker 4: consequence of those tariffs could impact our store openings or

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Speaker 4: even have the closed stores because they just become they

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Speaker 4: don't become profitable, explaining those different scenarios to the administration

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Speaker 4: and the context of our support for their intent, but

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Speaker 4: the indirect and or direct consequences to our business is

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Speaker 4: a real dialogue.

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Speaker 1: By May, many of the tariffs had been paused and

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Speaker 1: GAPS leaders were developing a plan to deal with them.

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Speaker 1: But anyway they crunched the numbers, tariffs were going to

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Speaker 1: impact their bottom line. The CFO delivered the news to

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Speaker 1: investors on an earnings call on May twenty ninth.

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Speaker 3: We estimate a gross incremental cost of approximately two hundred

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Speaker 3: and fifty million to three hundred million dollars.

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Speaker 1: Two hundred and fifty to three hundred million dollars. The

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Speaker 1: COFO said the company's mitigation strategies could cut that number

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Speaker 1: in half, but the company was still looking at a

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Speaker 1: loss of up to one hundred and fifty million dollars

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Speaker 1: this year. Lily says the market reaction was intense. The

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Speaker 1: company stock plunged more than twenty percent in just a

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Speaker 1: few hours.

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Speaker 2: That day.

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Speaker 3: Gap lost about two billion in market cap, despite having

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Speaker 3: really strong earnings and showing some strategies for mitigation, like

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Speaker 3: changing their sourcing and switching to some American grown.

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Speaker 1: Client Yeah let's talk about some of those mitigation strategies.

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Speaker 1: How well is GAP positions to adapt to these tariffs

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Speaker 1: compared to some of its competitors in the retail space.

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Speaker 3: I mean, I think one thing that really helps GAP

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Speaker 3: is how big the company is and how big their

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Speaker 3: order sizes are, so it makes it a little bit

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Speaker 3: easier for, you know, the company to entice factories in

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Speaker 3: other countries. So one of their goals is they want

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Speaker 3: no country to account for more than twenty five percent

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Speaker 3: of supply by the end of this year, which they're

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Speaker 3: in the process of doing. They also plan for China

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Speaker 3: to be less than three percent by the end of

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Speaker 3: this year.

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Speaker 1: After so many years dealing with factors within Gaps control

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Speaker 1: company culture, brand relevance, debt, GAP is now up against

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Speaker 1: a new external challenge, a trade war.

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Speaker 2: They are still so early in the turnaround, and like

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Speaker 2: people want like hard and fast answers about like is

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Speaker 2: it going to work? Is it going to happen? And

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Speaker 2: it's just like impossible. As it's all right now, they

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Speaker 2: have like a lot of stuff left to do in

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Speaker 2: order to like continue to stabilize the company.

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Speaker 1: And Amanda says, for a nic American brand that's managed

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Speaker 1: to survive the rise of online shopping, the retail apocalypse,

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Speaker 1: and the fast fashion revolution. The question of whether Gap

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Speaker 1: can stick the landing matters to more than just as CEO,

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Speaker 1: because Gap, with its crisp white teas and blue jeans,

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Speaker 1: has something going for it that some of its trendiest

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Speaker 1: peers just can't compete with history.

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Speaker 2: Something that really stood out to me when trying to

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Speaker 2: wrap my arms around what was happening with all of this,

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Speaker 2: is just how much other people, like just in general,

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Speaker 2: like really want Gap to be good, really want to

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Speaker 2: buy clothes a Gap, want to feel good about shopping there,

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Speaker 2: want to feel like there is something there for them. Companies,

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Speaker 2: especially in twenty twenty five, do not generally have this

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Speaker 2: like positive nostalgic feeling from the general public. But like,

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Speaker 2: basically everyone I talked to of like a bunch of

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Speaker 2: different ages, a bunch of different backgrounds. Everybody was like,

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Speaker 2: I loved shopping there, it was so cool when I

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Speaker 2: was a kid, or like I really wanted my mom

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Speaker 2: to take me. It's sort of rare that you encounter

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Speaker 2: that many people like rooting for a company.

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Speaker 1: This is the big take from Bloomberg News I'm Sarah Holder.

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Speaker 1: To get more from The Big Take and unlimited access

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Speaker 1: to all of bloomberg dot com, subscribe today at Bloomberg

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