WEBVTT - Deep Dive: Gap Confronts Tariff Trouble 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.680 --> 0:00:13.080 The Stock Movers podcast, your roundup of companies making moves 0:00:13.080 --> 0:00:16.520 in the stock market, harnessing the power of Bloomberg Data. 0:00:18.000 --> 0:00:20.320 I'm Tim Steanebeck along with Carol Masser. Let's take a 0:00:20.320 --> 0:00:22.479 look at some stocks on the move. It's the cover 0:00:22.560 --> 0:00:26.239 of the July US edition of Bloomberg BusinessWeek. It's about 0:00:26.239 --> 0:00:29.440 the Gap CEO's battle to save the brand and the 0:00:29.560 --> 0:00:33.120 challenge that it is slammed into as a result of 0:00:33.159 --> 0:00:37.080 the President's tariffs. The iconic nineties retailer was on the 0:00:37.120 --> 0:00:42.200 precipice of death for years. Richard Dixon finally had momentum 0:00:42.360 --> 0:00:46.320 for a comeback. Then came Trump. Amanda Mole is the 0:00:46.360 --> 0:00:48.600 lead writer on the story. She joins us here in 0:00:48.600 --> 0:00:53.080 the Bloomberg Interactive Brokers Studio. A great deep dive on Gap. 0:00:53.080 --> 0:00:54.600 Congratulations on the cover story. 0:00:54.720 --> 0:00:55.080 Thank you. 0:00:55.640 --> 0:00:59.280 I want to start historical here and just remind everybody 0:00:59.320 --> 0:01:04.200 what Gap was and what sort of happened when it 0:01:04.280 --> 0:01:06.640 lost its way. Like I'm asking you to give us 0:01:06.680 --> 0:01:09.640 the entire story here, but think back to the. 0:01:09.640 --> 0:01:12.880 Nineties and fall into the Gap fell into a slump, 0:01:13.080 --> 0:01:14.560 Yes it did. 0:01:14.600 --> 0:01:18.160 But the nineties this was so I remember. I remember 0:01:18.200 --> 0:01:20.920 having my parents' friends coming and visiting us from Europe 0:01:21.680 --> 0:01:25.039 in a small town in California, and they wanted to 0:01:25.080 --> 0:01:27.480 go to The Gap absolutely when they got to the 0:01:27.600 --> 0:01:30.280 United States. Yeah, I believe it. 0:01:31.080 --> 0:01:34.400 Yeah, it's hard to explain to people who are too 0:01:34.440 --> 0:01:37.679 young to be aware of pop culture during the eighties 0:01:37.680 --> 0:01:40.440 and nineties, but The Gap was sort of like the 0:01:40.920 --> 0:01:45.640 king of American aesthetics for quite a while during the 0:01:45.640 --> 0:01:49.080 eighties and the nineties. It was a store that was 0:01:49.120 --> 0:01:54.000 so powerful and so so well trafficked that it commanded 0:01:54.040 --> 0:01:56.240 some of the same lease terms in malls is like 0:01:56.320 --> 0:02:01.040 anchor department stores that were much much larger it. You know, 0:02:01.320 --> 0:02:04.040 it was a company that that sort of married the 0:02:04.160 --> 0:02:08.560 sort of casualizing cool clothes of the era with this 0:02:08.639 --> 0:02:12.080 sort of like great fluency in pop culture. It's advertisements 0:02:12.080 --> 0:02:15.360 were these like incredible black and white portraits of you know, 0:02:15.560 --> 0:02:19.760 iconic celebrities and tastemakers, people like Spike Lee, Joan Didion, 0:02:21.400 --> 0:02:24.320 you know, by these fashion photographers who were some of 0:02:24.360 --> 0:02:29.280 the most celebrated minds in the business. It really, you know, 0:02:30.000 --> 0:02:33.040 cast a net in culture outside of the you know, 0:02:33.080 --> 0:02:37.440 forty dollars jeans and fifteen dollars t shirts. It clothed everybody. 0:02:37.840 --> 0:02:41.400 The one hundredth anniversary issue of Vogue featured supermodels on 0:02:41.440 --> 0:02:44.920 the cover wearing Gap jeans and button downs. It was 0:02:45.000 --> 0:02:50.360 truly an incredible force in, you know, creating the idea 0:02:50.400 --> 0:02:52.160 of how Americans dressed now. 0:02:52.120 --> 0:02:54.920 Until it wasn't until it wasn't like what brought it 0:02:54.960 --> 0:02:58.080 down too much competition like walk us through. 0:02:58.320 --> 0:03:01.840 Well, you know, over the past forty years, American retail 0:03:01.880 --> 0:03:05.920 has just changed a lot. Gap really thrived in an 0:03:05.919 --> 0:03:08.760 era when people went out to shop, when people went 0:03:08.800 --> 0:03:11.480 to malls. The rise of the Gap as a national 0:03:11.520 --> 0:03:13.920 retailer sort of sort of mirrors the rise of the 0:03:13.960 --> 0:03:17.080 suburban mall as the place that people thought about going 0:03:17.120 --> 0:03:19.280 to do their shopping for clothes is a cool place 0:03:19.320 --> 0:03:22.840 to go. And when malls started to decline, so to 0:03:22.919 --> 0:03:26.120 Gap for many of the same reasons. Gap had grown 0:03:26.160 --> 0:03:27.960 really really large at that point, and it had a 0:03:27.960 --> 0:03:30.280 lot of leases and a lot of sort of aging 0:03:30.880 --> 0:03:33.960 shopping centers across America. And then you get the one 0:03:34.000 --> 0:03:36.560 two punch of some regulatory changes in the mid two 0:03:36.600 --> 0:03:40.920 thousands that led in a lot of international fast fashion 0:03:40.960 --> 0:03:44.119 retailers Zara, h and M things like that. And then 0:03:44.240 --> 0:03:49.160 the Internet gave people in you know, virtually everywhere in 0:03:49.200 --> 0:03:52.160 America a much wider access to different types of clothing. 0:03:52.480 --> 0:03:56.360 So suddenly there was just a ton of cheap clothes everywhere. 0:03:57.200 --> 0:04:01.280 And the sort of gambit that Gap ran, which was 0:04:01.520 --> 0:04:04.960 you know, cool jeans and T shirts, people had caught 0:04:04.960 --> 0:04:07.800 onto it. People were imitating what they were doing, and 0:04:07.840 --> 0:04:10.280 so you combined that sort of like lease load in 0:04:10.360 --> 0:04:13.360 debt load that they had with all this new competition 0:04:13.440 --> 0:04:16.280 in these new retail channels, and they just fell off. 0:04:16.520 --> 0:04:18.719 We're going to get to Richard Dixon and the task 0:04:18.760 --> 0:04:20.640 that he has set out in the for him and 0:04:20.680 --> 0:04:22.560 the obstacles he has ahead of him. In a second. 0:04:22.760 --> 0:04:26.360 First though, Mickey Drexler a legendary name in the world 0:04:26.440 --> 0:04:30.839 of retail. What was his what was his role in 0:04:31.640 --> 0:04:32.719 where GAP is today? 0:04:33.920 --> 0:04:39.000 Mickey like was Gap for twenty years. The Fishers, the 0:04:39.040 --> 0:04:42.839 family that founded GAP, hired him in nineteen eighty three 0:04:42.960 --> 0:04:46.560 after he had turned around and Taylor and he stayed 0:04:46.560 --> 0:04:49.640 at GAP for almost twenty years after that. He built 0:04:50.000 --> 0:04:53.440 the company into the sort of cultural engine that it 0:04:53.600 --> 0:04:56.840 was at its peak. He sort of understood that, like, 0:04:56.920 --> 0:04:59.080 in order to sell jeans and T shirts, you had 0:04:59.120 --> 0:05:02.120 the jeans and T shirts had to mean something. And 0:05:02.160 --> 0:05:05.240 he was great at making meaning out of sort of 0:05:05.279 --> 0:05:08.800 regular clothes. And he was great at, you know, organizing 0:05:09.080 --> 0:05:11.599 a company that really sort of kept its fingers on 0:05:11.640 --> 0:05:15.120 the pulse of like what people were interested in, interested 0:05:15.160 --> 0:05:19.680 in what felt cool, like what might motivate people to 0:05:20.400 --> 0:05:24.200 go out and buy something. And he for twenty years 0:05:24.279 --> 0:05:29.279 was sort of fantastically successful at that, but at the 0:05:29.400 --> 0:05:31.520 end it wasn't enough to save his job. 0:05:31.800 --> 0:05:33.480 Yeah, And I feel like then they kind of bounced 0:05:33.520 --> 0:05:35.719 around a lot, right, I think, like trying to figure 0:05:35.720 --> 0:05:38.360 out what they need to be in this very as 0:05:38.360 --> 0:05:40.840 you say, I think you played out really like I mean, 0:05:40.920 --> 0:05:43.600 let's be clear, retail has had a really tough time 0:05:43.680 --> 0:05:46.400 for a long time, and so the dust is settling. 0:05:46.480 --> 0:05:48.640 I mean, I even think about Levi's that has gone 0:05:48.680 --> 0:05:52.320 through a revival of sorts. I just bought a pair 0:05:52.360 --> 0:05:54.919 of Levi's. I haven't bought Levi's in such a long time. 0:05:55.360 --> 0:05:57.440 But for the gap, they went through a lot of 0:05:57.480 --> 0:06:00.960 bouncing around, and that also takes its tall. 0:06:01.200 --> 0:06:04.240 Yes, So in between Mickey Drexler and Richard Dixon, the 0:06:04.240 --> 0:06:07.600 current CEO. There were four CEOs. 0:06:07.320 --> 0:06:10.279 Who were that's over like about twenty three years. 0:06:10.480 --> 0:06:14.920 Yes, so they lasted it was actually almost almost exactly 0:06:15.000 --> 0:06:17.680 twenty years, so that they lasted all about like four 0:06:17.760 --> 0:06:19.880 or five years of piece on average. 0:06:20.320 --> 0:06:23.599 Just about getting settled in initiatives and then it's like 0:06:23.680 --> 0:06:24.240 gone right. 0:06:24.640 --> 0:06:27.120 And you know, the trouble that GAP has had with 0:06:27.200 --> 0:06:29.719 executives over the past twenty years mirrors a lot of 0:06:29.720 --> 0:06:32.040 the trouble that other sort of like great American companies 0:06:32.080 --> 0:06:33.960 have had in that period of time looking for people 0:06:34.360 --> 0:06:37.719 to bring in to like solve one problem while then 0:06:37.960 --> 0:06:40.719 accidentally making another problem worse. So you bring in someone 0:06:40.760 --> 0:06:43.320 to deal with the debt load and deal with margin, 0:06:43.800 --> 0:06:47.800 and then they do that, but creativity sort of plummets. 0:06:47.800 --> 0:06:51.640 Then you bring someone into to deal with like the 0:06:51.880 --> 0:06:55.280 sort of overabundance of leases and closed stores and streamline 0:06:55.320 --> 0:06:56.839 and they do that, but then the quality of the 0:06:56.839 --> 0:06:59.680 clothes also goes down because they're streamlining the you know, 0:06:59.720 --> 0:07:03.000 the the materials being used, right, So you are sort 0:07:03.000 --> 0:07:05.520 of playing whack a mole with all of these different problems, 0:07:05.920 --> 0:07:08.720 and when you are bringing on executives that are meant 0:07:08.720 --> 0:07:11.880 to deal with sort of like systemic issues or logistical 0:07:11.920 --> 0:07:15.560 issues or financial issues within a company. In a company 0:07:15.560 --> 0:07:19.240 that sells aesthetics, that sells ideas, that sells coolness, that 0:07:19.280 --> 0:07:21.760 can be really, really difficult in the long term unless 0:07:21.760 --> 0:07:24.360 you have like a sort of rare type of person 0:07:24.560 --> 0:07:26.120 and it's just hard to find that person. 0:07:26.320 --> 0:07:28.000 And you know, it's funny as they've gone along, I 0:07:28.360 --> 0:07:30.240 think about I don't know, when my daughter was young, 0:07:30.280 --> 0:07:34.640 our Gap Baby and Gap Kids, like it seemed super successful, 0:07:34.640 --> 0:07:37.080 like there are things that they've done that have done well, 0:07:37.080 --> 0:07:39.320 and then I don't know, like just I don't know 0:07:39.320 --> 0:07:41.080 whether it runs out of steam or momentum. 0:07:41.080 --> 0:07:41.480 I don't know. 0:07:41.880 --> 0:07:44.720 Yeah, No, Gap is a fascinating company because it's got 0:07:45.160 --> 0:07:47.680 a bunch of brands within it. It's got Gap, but 0:07:47.720 --> 0:07:50.600 then Old Navy, Banana Republic, Athleta Athleta, right, and then 0:07:50.720 --> 0:07:53.640 it's a bunch of those brands have sub brands too, 0:07:53.760 --> 0:07:57.320 So like Gap has Gap Kids, Banana Republic, tried Banana 0:07:57.320 --> 0:08:00.880 Republic Home. There used to be Piper, which was a 0:08:01.040 --> 0:08:05.000 Zappo's competitor. There was Intermix, which got bought and then 0:08:05.040 --> 0:08:07.400 sold to private equity. It was trying to get more 0:08:07.400 --> 0:08:09.920 into like the higher end fashion game. Like there's been 0:08:09.960 --> 0:08:12.200 all these sort of like side quests and boondoggles and 0:08:12.320 --> 0:08:15.320 sub brands and things that just didn't work. 0:08:15.680 --> 0:08:16.080 And. 0:08:17.520 --> 0:08:19.520 What has underwritten a lot of that for a long 0:08:19.560 --> 0:08:23.640 time is Old Navy. One of Nickey Drexler's big things 0:08:23.720 --> 0:08:26.280 that he did for the company was launch Old Navy 0:08:26.280 --> 0:08:29.480 in nineteen ninety four and in that time GAP's revenue 0:08:29.520 --> 0:08:33.600 has fallen by about half since its peak in two 0:08:33.600 --> 0:08:38.440 thousand and three ish. But Old Navy sells over eight 0:08:38.480 --> 0:08:40.959 billion dollars worth of clothes every year and has really 0:08:41.000 --> 0:08:42.680 like financed all these boon doggles. 0:08:42.679 --> 0:08:43.960 Can I tell you so many times I'll be like, 0:08:44.080 --> 0:08:48.240 that's really great Old Navy, Like it's just like fashion forward, 0:08:48.520 --> 0:08:50.000 even like it's pretty impressive. 0:08:50.920 --> 0:08:52.920 So let's fast forward to today, because you've got a 0:08:52.920 --> 0:08:56.560 lot of time with Richard Dixon and some really interesting 0:08:56.559 --> 0:08:58.760 commentary about like what he did when he first got 0:08:58.800 --> 0:09:02.120 to the role in terms of taking the executives shopping, 0:09:02.640 --> 0:09:06.480 hearing about their like relentless positivity and meetings that he 0:09:06.559 --> 0:09:10.720 didn't necessarily see as realistic. What is his path forward 0:09:10.720 --> 0:09:13.560 in the face of tariffs, which you write the piece, 0:09:13.840 --> 0:09:16.640 this company's actually pretty well positioned to deal with right, 0:09:16.960 --> 0:09:18.280 So on the face right. 0:09:18.360 --> 0:09:20.440 A lot of what Dixon did when he got there 0:09:20.600 --> 0:09:24.840 was sort of changed the attitude of the company, I think, 0:09:25.640 --> 0:09:29.000 because it's something that's interesting always as someone who sits 0:09:29.000 --> 0:09:30.800 like outside of these companies and is trying to figure 0:09:30.800 --> 0:09:32.320 out what's going on that Like when you have a 0:09:32.320 --> 0:09:35.240 company that's been like sort of beleaguered for a long time, 0:09:35.559 --> 0:09:37.920 it's I always wonder, like, what do they think about 0:09:37.920 --> 0:09:41.920 what everybody says about them externally? And something that Dixon 0:09:41.960 --> 0:09:44.680 told us about. Lily Meyer was my co reporter on 0:09:44.720 --> 0:09:48.920 the piece. She he was like, you know, he had 0:09:48.920 --> 0:09:50.960 this town hall when he first got there where he 0:09:51.280 --> 0:09:54.880 you know, had a slide presentation put together of all 0:09:54.880 --> 0:09:57.840 the negative headlines about the company and got up in 0:09:57.840 --> 0:10:00.640 front of the company and was like, everybody knows what 0:10:00.679 --> 0:10:03.040 we should be doing except us, and it's hard to 0:10:03.040 --> 0:10:05.200 say that they're wrong. It was sort of like, you know, 0:10:05.640 --> 0:10:09.800 this like huge legacy company had become like a little 0:10:09.840 --> 0:10:13.240 bit more abund a little bit complacent, and just sort 0:10:13.240 --> 0:10:15.920 of figuring out a way out of that psychologically, I 0:10:15.920 --> 0:10:18.880 think has been a big part of his tenure so far, 0:10:19.960 --> 0:10:22.680 and when you combine that with the sort of like 0:10:22.800 --> 0:10:25.440 long un sexy work that has been going on, you know, 0:10:25.559 --> 0:10:28.760 under him, but also before him, of cleaning up the 0:10:28.800 --> 0:10:32.160 company's debt, of cleaning up the discounting situation, because a 0:10:32.160 --> 0:10:33.960 big issue for Gap has been that they've trained their 0:10:33.960 --> 0:10:36.400 customers to expect everything to be fifty percent off all 0:10:36.480 --> 0:10:39.640 the time. And it's really hard to grow a business. 0:10:39.679 --> 0:10:41.960 So true, it's so true, like you get used to 0:10:42.000 --> 0:10:46.000 it and no, no, and then exactly you know it 0:10:46.040 --> 0:10:47.320 and you know it's coming. I thought you were going 0:10:47.360 --> 0:10:49.160 to say the barrel gene save the company. 0:10:50.040 --> 0:10:54.000 Well, they I think are indicative of something that might 0:10:54.040 --> 0:10:57.280 save the company. I would say, which is the capacity 0:10:57.400 --> 0:10:59.760 now for Gap? Because it's cleaned up its logistics, it's 0:10:59.800 --> 0:11:02.640 clean up its supply chain a little bit to see 0:11:02.679 --> 0:11:05.120 a trend coming, to have a product ready to go 0:11:05.280 --> 0:11:08.960 and then have the technological and data capability to like 0:11:09.200 --> 0:11:11.720 put it into stores like at the right moment in 0:11:11.840 --> 0:11:13.280 order to like sell a bunch of it and not 0:11:13.360 --> 0:11:15.000 have to discount it and not have to send it 0:11:15.000 --> 0:11:17.040 to outlet and not have to you. 0:11:16.920 --> 0:11:18.760 Know, doesn't end up at Tjmax. 0:11:19.360 --> 0:11:19.720 Sorry. 0:11:19.800 --> 0:11:22.920 Yeah, So far not for these so far not for 0:11:22.960 --> 0:11:25.679 these genes. And it's it's interesting because it's a barrel. 0:11:25.720 --> 0:11:28.600 Genes are sort of these like like curved outward like 0:11:28.640 --> 0:11:31.720 sort of cartoon cowboy leg jeans that are a little 0:11:31.720 --> 0:11:33.800 bit silly and like very trendy and very young, and 0:11:33.840 --> 0:11:35.600 it's the type of thing that for twenty years GAP 0:11:35.640 --> 0:11:37.920 has not been able to do because they either bet 0:11:37.960 --> 0:11:40.040 on the wrong thing or it's too earlier, it's too late. 0:11:40.440 --> 0:11:43.240 But the success that they've had with these genes, which 0:11:43.240 --> 0:11:46.160 aren't cheap and they don't discount all of the popular 0:11:46.160 --> 0:11:51.079 colors regularly, is indicative that they figured out the data 0:11:51.120 --> 0:11:54.600 and logistics capabilities to be able to like compete in 0:11:54.640 --> 0:11:56.120 this realm, which is big for them. 0:11:56.160 --> 0:11:58.520 I think, yeah, I mean, but it's certainly fashion forward. 0:11:58.520 --> 0:12:00.600 I've tried them on. They're just not quite for me. 0:12:00.840 --> 0:12:02.160 I don't know. Have you tried them on? 0:12:02.200 --> 0:12:03.439 I don't even know what you're talking about. 0:12:04.120 --> 0:12:05.280 Have you tried them on? 0:12:05.600 --> 0:12:09.600 I bought a paarawise did. Yeah, if you get them 0:12:09.600 --> 0:12:12.160 in the right the right like weight of Denham, they 0:12:12.280 --> 0:12:15.079 like they look more slouchy than Curby went on. 0:12:15.360 --> 0:12:18.360 Okay, because otherwise you feel like you're like, okay, Corral. 0:12:18.240 --> 0:12:20.400 Yes, it's a little it's a little cartoon cowboy, all. 0:12:20.400 --> 0:12:24.240 Right, Amnimal, you are amazing. She is seen a reporter 0:12:24.280 --> 0:12:27.840 for Bloomberg BusinessWeek. Her story it is the cover story 0:12:27.920 --> 0:12:30.520 of the upcoming new issue of Bloomberg Business Week, about 0:12:30.559 --> 0:12:33.760 Gap CEO's battle to save the brand slamming into Trump's terrors. 0:12:33.800 --> 0:12:35.960 Because yeah, that is certainly an aspect of this story 0:12:36.000 --> 0:12:37.120 as well in a big way. 0:12:38.000 --> 0:12:42.120 The Stock Movers podcast from Bloomberg Radio. Check back with 0:12:42.200 --> 0:12:44.960 us throughout the day for the latest roundup of companies 0:12:45.000 --> 0:12:48.040 making news on Wall Street and for the latest market 0:12:48.080 --> 0:12:52.439 moving headlines. Listen to Bloomberg Radio Live, catch us on YouTube, 0:12:52.480 --> 0:12:55.720 Bloomberg dot com, and on Applecarplay and Android Auto with 0:12:55.800 --> 0:12:57.280 the Bloomberg Business app.