• by Sarah Mahoney  @mahoney_sarah, October 18, 2006

Gap Inc., struggling to shake off two years of disappointing sales and store traffic, just unveiled its newest retail brand, an online shoe store named piperlime.com.

Gap has seen strong performance in its online units, with sales last year up more than 27 percent, said Alex Clark, a spokesman for the San Francisco-based company. Online sales for all three brands--Gap, Old Navy and Banana Republic--were $595 million in 2005, "and we have very high expectations for Piperlime," he said.

Right now, the big shoes to fill in cyberspace belong to Zappos.com, No. 34 on Internet Retailer's list of the top 500 retailers, which predicts that its sales will total $600 million this year, according to CEO Tony Hsieh.

Gap said that two-thirds of its online shoppers have said they would buy shoes online from Gap Inc., and Clark said initial marketing efforts for the new site would focus on direct mail and e-mail to its loyal customer base, as well as credit-card statement mailings.

Gap said online footwear is growing nearly 15 percent annually and will become a $5.5 billion market by 2010, according to analysis conducted by Forrester Research in 2005. (Zappos' Hsieh believes the market's long-term potential is $6 billion, or 15 percent of the total $40 billion U.S. shoe market.)

Piperlime--which eventually will have up to 150 brands--covers a range, from $985 stiletto boots to $20 flip-flops, Clark said. No word yet on whether fussy footwear shoppers will return shoes at a higher rate than Gap's other merchandise. But like its other sites, Piperlime will have a free shipping and return policy.

The move comes amid continued pressure on the Gap to amp up performance at its main lines. Earlier this week, an analyst at Goldman Sachs downgraded Gap to a sell.

"Gap faces major structural challenges at the same time that it has repeatedly experienced merchandising missteps," the analyst wrote. "The company is being squeezed by smaller and more nimble specialty competitors on one hand and lower-cost big box retailers selling high quality basic fashion apparel, on the other." Nor is the company expecting a quick fix, even in terms of shoe sales: "The issue is secular and will not recede."