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Can the Old Navy Chief Bring Growth Back to The Gap?

By Adria Cimino - Mar 11, 2020 at 11:51AM

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If Sonia Syngal can apply her strategy for boosting Old Navy to the parent company, bright days may be ahead.

As chief executive officer of The Gap's (GPS 3.03%) Old Navy brand, Sonia Syngal helped grow sales to $8 billion from $7 billion in three years. Now the question is: Can this leader of The Gap's strongest brand boost sales at the struggling parent company as well?

The Gap recently named Syngal as its new permanent CEO. The naming of a leader is a relief for investors, removing at least one source of uncertainty and allowing interested parties to imagine a recovery plan on the horizon. The lack of visibility until this point has weighed on the company's already suffering shares, dragging them lower by 34% since former CEO Art Peck's surprise departure in November.

Head shot of Sonia Syngal.

Image source: The Gap.

The stock lost 31% in 2019 as sales at The Gap declined, and even its usual star -- Old Navy -- saw performance weaken. In the third quarter, for example, The Gap as a whole reported a 4% decline in same-store sales, compared with flat sales in the year-earlier period. And Old Navy's same-store sales fell 4% compared with a 4% increase in the same period a year earlier.

The Gap's woes stem from online competition, as well as competition from other generally less-expensive retailers like Hennes & Mauritz (H&M) or retailers that offer new ways of shopping for apparel, such as Stitch Fix. The company is also dealing with a general decline in mall traffic, where many of its stores are located.

A logical choice

The choice of Syngal as a leader is logical. Former CEO Peck's plan was to spin off Old Navy into a separate company, with Syngal remaining at the helm. The Gap has since canceled the spinoff, but the key point here is Syngal has spent nearly a year preparing to lead an independent company closely tied to The Gap. She now can transfer many of her ideas to operating The Gap and its brands.

Syngal's ideas are a reason to be optimistic as they speak to what is important to today's shopper. In various press interviews, Syngal has said she reads the customer comments that come in daily, specifically seeking to tailor Old Navy's offerings to what shoppers want.

Syngal also champions diversity and inclusivity -- and she applies them to how she runs the company and to what the company offers customers. Accenture research shows 29% of consumers may start shopping at a retailer because of the importance that the retailer places on these types of issues.

Strength in e-commerce

At Old Navy, Syngal has produced results. Through her work, the brand's e-commerce site became the fourth-largest for apparel sales in the U.S. And Syngal has focused on developing a seamless experience for customers who shop in-store and on the website. For instance, in 2018 Old Navy launched the popular buy online, pick up in-store service nationwide. The Gap brand doesn't yet offer that.

Syngal's strength in e-commerce is a significant point. In the fourth quarter, e-commerce retail sales climbed more than 16% year over year, and e-commerce represented 11% of total sales, the U.S. Commerce Department reported. And services like in-store pick up also can be decisive for shoppers. More than 80% of consumers used the service in 2018, according to eMarketer.

The Gap reports fourth-quarter earnings on Thursday, March 12, and though any guidance is important, I want to hear more from Syngal about strategy -- most likely after she takes the job on March 23 -- before making investment decisions.

It's too early to be optimistic about The Gap's shares, and headwinds facing the company haven't disappeared. But with Syngal in the driver's seat, there may be a glimmer of hope for this consumer discretionary stock.

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