Khakis Get the Blues

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The Gap's advertising, too, veered off course. Signing up the rapper Common as a pitchman was a play for teen consumers, but analysts point out that it might have been better to forget that fickle demographic and win back folks who remember the Gap in its heyday. Meanwhile, Pressler missed his chance to remind people in their 20s and 30s how hip the Gap could be. (Remember the thrilling Jump & Jive khaki-campaign holiday spots?) Pressler launched two entirely new brands-- Forth & Towne, a midpriced line aimed at baby boomers, and Piperlime, an online shoe store--instead of working to make the Gap, Old Navy and Banana Republic relevant again. Rather than trying to be everything to everyone again, says David Bassuk, retail consultant at Kurt Salmon Associates, Gap ought to focus its brands on a narrower group--shoppers in their 20s and 30s.

Those consumers have been gorging themselves at the so-called fast-fashion boutiques, such as H&M, Zara and Mexx. These stores have figured out how to cut the clothing cycle down from six months to six weeks, so their racks are constantly replenished with fresh styles still wet from the runway. Gap, on the other hand, with its huge operations and slower reaction times, has been forced into the riskier business of guessing up front how a season's trends will play out (skinny jeans? newsboy caps?) and making huge bets on a few ideas.

For the wardrobe basics that used to be the Gap's bread and butter, consumers now expect higher quality at a bargain price. Banana Republic has had some success filling that niche, promoting classically styled work clothes that can be brightened up for an evening out. Analysts say that brand is the one hot spot in Gap's portfolio, with sales rising 2% last year. "You don't want to waste Banana's profits fixing other parts of the company," says Bruce Greenwald, an economics professor at Columbia Business School.

Can this company be saved? Why not? Retailing is full of 360° turnarounds. Wall Street darling Abercrombie & Fitch, for example, was once an afterthought unit of Limited Brands but spun itself off and repositioned itself as the hottest label for the teen crowd. Even once dowdy JCPenney reinvigorated itself by hiring a smart merchandiser, Vanessa Castagna, as executive vice president and giving her the freedom to remake the brand. "She helped make Penney's cool, and the Gap needs to be cool," says Chen.

A new CEO would have the advantage of deep pockets and patient owners. Founders Donald and Doris Fisher, along with their son and interim CEO Robert Fisher, own about 33% of Gap shares and have never seemed interested in selling their baby; they want it fixed. One possibility: breaking up the company into three more-nimble parts, with each brand focused on a specific customer demographic. "The combination is overly complex and unmanageable," says Todd Slater, managing director at Lazard Capital Markets. Whether or not it remains one intact company, industry experts say Gap will have to get back to the fashion basics at its flagship or risk losing even its undisputed title as the king of khaki.