• by Sarah Mahoney  @mahoney_sarah, July 26, 2023

Old Navy's back-to-school ads

Just over a year after sending its last chief executive packing, the Gap has named Richard Dickson, currently president and chief operating officer of Mattel, as its new CEO.

And while Dickson is no stranger to fashion and retail -- he's been on the Gap board for more than a year and spent four years running what used to be known as the Jones Apparel Group -- he certainly faces daunting challenges in his new role when he begins next month.

He will oversee the flagship Gap, as well as Old Navy, Banana Republic and Athleta.

"The company has experienced years of inconsistent results and has recently suffered major merchandising and supply chain woes," writes David Swartz, an analyst who follows the company for Morningstar.

And while he regards Old Navy, the biggest division, as "a solid business," he doubts it can reach the company's stated goal of 2,000 stores in the U.S.

Old Navy "faces considerable competition in the discount apparel space and already has more than 1,250 North American stores, so much of its future growth is expected to come from stores in smaller, unproven markets. We forecast it will have just over 1,400 locations in 10 years."

Swartz sees little competitive advantage in Gap, Banana Republic or Athleta, citing steadily declining profit margins and inconsistent sales as proof. And Swartz points out that flagship Gap has seen its sales decline in eight of the last nine years, dropping more than 5% in five.

In the company's most recent quarterly results, sales fell 6% to $3.28 billion, and it posted a net loss of $18 million. By division, Old Navy sales slipped 1% to $1.8 billion; Gap sales dropped 13% to $692 million, which includes the aftermath of its ill-fated partnership with Yeezy Gap; Banana Republic sales declined 10% to $432 million; and Athleta's sales decreased 11% to $321 million.

When he starts next month, "Dickson's inbox will be crammed full of challenges," writes Neil Saunders, managing director of GlobalData, a retail consultancy. "The core Gap brand is in desperate need of reinvention, the deep-seated problems at Old Navy need to be addressed, the faltering recovery at Banana Republic needs to be put back on track, and the now-fading momentum at Athleta needs to be reinvigorated. In short, being CEO of Gap is not for the faint of heart."

It's hoped that Dickson will bring some Mattel magic with him. In his 10 years as president, he led the global transformation that reinvigorated Barbie, Hot Wheels and Fisher-Price and restored the company to growth. And it's hard not to be in awe of the final achievement under his watch: the movie "Barbie," developed by company division Mattel Films, continues to shatter box office records.

"Gap Inc. is a portfolio of iconic brands, known for having defined American style with bold thinking and making quality fashion accessible to millions," Dickson says in the announcement. "But it's the work ahead that excites me most -- the chance to work hand-in-hand with the teams to evolve Gap Inc. for a new era."

He replaces Sonia Syngal, who departed last July. Before her appointment in March 2020, she had spent years running the Old Navy business.