Los Angeles Times - 09.11.2019

LATIMES.COM/BUSINESS C3

No longer the khaki king
of the 1990s, Gap Inc. has
needed an overhaul for a
very long time — and Art
Peck won’t be the one to de-
liver it after all.
Gap fired its chief execu-
tive late Thursday after his
turnaround efforts failed to
reignite sales growth. The
apparel company, which in-
cludes the namesake Gap
brand, Athleta, Banana Re-
public and Old Navy,
brought back a member of
the founding family to lead
while it figures out a longer-
term plan.
The stock fell 7.6% on Fri-
day. Through Thursday’s
close, before Gap an-
nounced Peck’s ouster and
disappointing third-quarter
performance, it had
dropped about 30% for the
year so far.
Peck’s termination
comes after years of strug-
gles at the company. Al-
though the retailer made
several public missteps in re-
cent years — such as making
blazers with armholes too
small for an average woman
and jumping on the regret-
table “normcore”
bandwagon — many of its
problem areas aren’t even
unique in today’s difficult re-
tail environment: relying on
routine 50% discounts and
maintaining a major pres-
ence in declining American
malls.
“It was probably the most
overdue management
change that we’ve seen in a
while,” said Stacey Widlitz,
president of SW Retail Ad-
visors.
After a brief transition,
Peck will exit the president
and CEO role and vacate his
post on the retailer’s board.
Robert Fisher, the compa-
ny’s current nonexecutive
chairman and son of Gap co-
founders Don and Doris, will

step in as president and

CEO on an interim basis.

Peck will get $2.33 million

in severance and a payout of

stock awards worth several

million dollars, filings show.

Years of struggles

Gap, founded in 1969 in

San Francisco, rose to prom-

inence as a denim emporium

selling jeans from Levi

Strauss & Co., another Bay

Area institution. It helped

pioneer the vertical integra-

tion of retail and started pro-

ducing its own branded

goods. By the 1990s, it had

transformed into a fashion

juggernaut as it jumped on

the khaki-pants trend and

built up robust secondary

brands in Banana Republic

and Old Navy.

But struggles started

brewing in the middle of the

next decade, from declining

mall traffic to operational is-

sues. One of the most fa-

mous missteps came in 2010,

when the company unveiled

a new Gap logo. Some shop-

pers complained, so it

ditched the new logo just a

week later.

To try to turn things

around, it turned to new

CEO Glenn Murphy in 2007,

who came from a drugstore

chain. He closed a slew of

U.S. stores, expanded over-

seas and invested in the sup-

ply chain. But the recession

hit shortly after and

thwarted momentum by

turning a generation of

shoppers onto discounters.

Low-priced fast-fashion

chains such as Zara and For-

ever 21 captured the atten-

tion of millennials, pushing

Gap further out of favor.

After a decade at the

company in various roles,

Peck replaced Murphy in

early 2015 as part of a succes-

sion plan.

Peck, a former consult-

ant, tried shaking up leader-

ship and experimenting. But

sales kept falling and the

business declined to the

point that the company de-

cided to spin off Old Navy, its

best-performing division

and the motor for the com-

pany’s sales in recent years.

The company announced

the separation in February,

referring to it as NewCo.

Old Navy, which had an-

chored its parent company

for years, was given to Sonia

Syngal to shepherd. Peck

was left saddled with Ba-

nana Republic, mired in a

sales slump, and the aging

namesake Gap brand. He

tried to position the Athleta

chain — a Lululemon com-

petitor — as the bright spot

within the portfolio he would

run, but that hasn’t been

enough to turn things

around.

The company needs to

find a way to sell more goods

at full price and figure out a

way to capture a new, young-

er consumer base, Dana

Telsey, CEO of Telsey Advis-

ory Group, said on

Bloomberg Television.

“If you don’t have the

right product, you aren’t

able to sell goods at full

price,” Telsey said. “There’s

work to be done on the core

product.”

Old Navy spinoff

Gap said Friday that it’s

moving forward with the

planned spinoff of Old Navy.

“The board continues to

believe in the strategic ra-

tionale for the planned sepa-

ration,” Gap said in an

emailed statement. It said

any “additional perspective”

would be provided in its Nov.

21 earnings call.

The company, and Peck

in particular, had pitched

the move as a way to unlock

value for investors. But now

that Old Navy, which was

once the undisputed shining

star of the clothing giant, is

declining along with the rest

of the firm, analysts are won-

dering whether it’s still

worthwhile.

“You gotta think this is

going to be a hard sell” to in-

vestors, said David Swartz,

an analyst for Morningstar

Investment Service. “Maybe

Old Navy has peaked? If it

was clearly doing better

than Gap and Banana [Re-

public], that makes a lot

more sense.”

Old Navy sees potential

in China. Years ago, man-

agement envisioned push-

ing the brand overseas, but

those efforts flopped.

Holiday season

“Gap is a company that

clearly needed a change.

Peck wasn’t moving the nee-

dle, except moving it

backwards,” said Craig

Johnson, president of retail

research firm Customer

Growth Partners. “It’s still a

company that has great

brand equity, but its residual

brand equity that needs to

be updated.”

Still, although sales have

been poor, the market didn’t

see his departure coming —

at least not this close to the

crucial holiday shopping

season.

Peck was well estab-

lished as the face of Gap. In

September, he and Old Navy

chief Syngal hosted an event

for analysts about the

planned spinoff and their vi-

sion for the companies’ fu-

ture. Peck spoke at length

about how Gap had to

broaden its appeal, includ-

ing with larger sizes and

more diversity.

Despite the holidays be-

ing a make-or-break time in

retail, Peck’s departure

might actually be a good

turning point for the com-

pany, SW Retail Advisors’

Widlitz said, adding that

merchandise and products

have already been decided

for this season.

“It leaves the door open

for ‘no matter how bad De-

cember is, let’s think about

the future,’ ” she said.

Townsend and Holman

write for Bloomberg.

Gap CEO fired after years of struggle

Art Peck’s ouster

follows attempts to

save the retail giant

from fashion stumbles

and fading brands.

By Matt Townsend and
Jordyn Holman

GAP, WHICHterminated Art Peck as chief executive Thursday, has seen its stock fall about 30% for the year

so far. But the retail giant is still planning to separate Old Navy as a way to unlock value for investors.

Drew AngererGetty Images

President Trump on Fri-
day dismissed a Chinese offi-
cial’s assertion that his ad-
ministration has agreed to
roll back some of the higher
tariffs it’s imposed on Chi-
nese goods.
The Chinese official said
Thursday that the two sides
had agreed to a phased can-
cellation of their tariff hikes
as part of an emerging
agreement.
Trump’s pushback sug-
gested that talks haven’t
progressed as far as hoped
as the world’s two biggest
economies struggle to nego-
tiate an end to their trade
war, which has hurt both
sides.
“They’d like to have a roll-

back,” Trump told reporters

at the White House, refer-

ring to the Chinese. “I

haven’t agreed to anything.”

The two sides have been

working on an initial Phase 1

deal that was announced

Oct. 12 but that still isn’t fi-

nal.

U.S. and global financial

markets rallied Thursday at

the prospect of an agree-

ment to wind down the U.S.-

China trade fight, but then

wavered Friday after

Trump’s comments.

Trump repeated his

claims that China wants a

deal more than the United

States and that the U.S. ben-

efits from extra tariff reve-

nue.

The president says the

tariffs are paid by China, but

studies conducted since

the duties were imposed

find that U.S. businesses

and consumers are paying

them.

“Frankly, they want to

make a deal a lot more

than I do,” Trump said. “I’m

very happy right now.

We’re taking in billions of

dollars.”

A private sector source

with knowledge of the talks

said Thursday that the

United States has agreed to

suspend the duties Trump

threatened to impose Dec. 15

on about $160 billion of Chi-

nese imports as part of the

agreement.

But there is dissension in

the White House about

whether and by how much to

roll back 15% duties imposed

Sept. 1 on an additional $112

billion in goods.

Larry Kudlow also told

Bloomberg News on Thurs-

day that if a deal was

reached, it would include re-

duced tariffs.

“The White House never

speaks with one voice,” Mary

Lovely, a trade economist at

the Peterson Institute for In-

ternational Economics, said

Thursday.

Despite Trump’s com-

ments, analysts say the ad-

ministration has plenty of

incentives to reach a deal

soon. Trump said last

month that the Phase 1 pact

would include the purchase

of tens of billions of dollars of

U.S. farm products by China,

which would benefit farm

states, many of which sup-

ported Trump in 2016.

The tariffs imposed in

September covered clothes,

toys, and shoes, raising

prices for many widely used

consumer goods.

And the Dec. 15 tariffs

would mostly hit popular

consumer products such

as smartphones and lap-

tops. Not only would that

raise consumer costs but

those tariffs would also af-

fect many products de-

signed by U.S. companies,

for which China gets rela-

tively little of the economic

benefit.

“The December tariff

round would largely hit

products designed and mar-

keted by multinational

firms, mostly with compo-

nents from the United

States and its allies, and as-

sembled in non-Chinese-

owned factories,” Lovely

wrote on the Peterson Insti-

tute’s website.

The trade war stems

from the Trump administra-

tion’s complaints that China

is seeking to unfairly boost

its high-tech industries by

stealing U.S. technology or

forcing American compa-

nies to share it as a condition

of doing business there.

Most business groups and

China trade experts agree

that China has violated

trade rules and have largely

supported the administra-

tion’s tougher line.

Still, the tariffs have hurt

both countries’ economies.

China’s growth slowed to an

annual rate of 6% last

month, a healthy pace for

more advanced economies

but China’s slowest in three

decades.

In the United States,

businesses are dealing with

the tariffs’ higher costs and

are uncertain about their in-

ternational supply chains.

They have responded by cut-

ting their investment spend-

ing in new plants and equip-

ment for two straight quar-

ters.

That’s lowered U.S. econ-

omic growth to 1.9% at an an-

nual rate in the July-Sep-

tember quarter from 3.1% in

the first three months of this

year.

A report released

Wednesday by a trade group

opposed to the duties found

that Americans paid $7.1 bil-

lion in tariffs in September, a

record high for a single

month.

Once a Phase 1 deal is

reached, the sides will still

need to decide where the two

leaders — Trump and Chi-

na’s Xi Jinping — will sign

the pact.

Trump said Friday that

they could hold a summit in

Iowa or elsewhere in U.S.

“farm country.”

Trump says U.S. hasn’t agreed to roll back tariffs

President’s comments

suggest talks to end

trade war with China

haven’t advanced as

far as some hoped.

bloomberg

PRESIDENT TRUMP, addressing reporters Friday,

says he’s happy with the U.S.-China trade dynamic.

Nicholas KammAFP via Getty Images

Facebook Inc. employees
repeatedly chafed at what
they viewed as anti-com-
petitive or unethical prac-
tices by the company, inter-
nal chats show. But their
concerns, voiced in 2012 and
2013, were overruled by sen-
ior managers including
Chief Executive Mark
Zuckerberg, who argued
that the survival of the social
network was more impor-
tant.
The messages come from
a roughly 7,000-page trove of
leaked documents that were
part of a years-old lawsuit in
the Bay Area’s San Mateo
County. The interactions are
likely to be scrutinized fur-
ther as Facebook faces on-
going antitrust investiga-
tions.
In multiple discussions

found in the documents, em-

ployees, including some top

executives, argued against

policies that would cut off

competitors’ ability to ad-

vertise on the platform and

access Facebook’s audience

and user information, which

it provided to noncompeting

companies.

Zuckerberg, in a Novem-

ber 2012 email, justified the

decision to not provide serv-

ices to competitors. Face-

book software that helped

app developers increase

sharing “may be good for the

world but it’s not good for us

unless people also share

back to Facebook and that

content increases the value

of our network,” Zuckerberg

wrote. In later messages,

Zuckerberg also argued

against giving competing

companies access to other

Facebook services.

Some employees bristled

at the decisions. In Decem-

ber 2012, one staffer wrote:

“That feels unethical some-

how. ... It just makes me feel

like a bad person.”

In another interaction,

Zuckerberg responded to a

Facebook advertising exe-

cutive who said the com-

pany should be “secure

enough in the quality of our

products” to allow compet-

ing social and messaging

services to advertise on

Facebook. “Those compa-

nies are trying to build social

networks and replace us,”

Zuckerberg wrote. “The rev-

enue is immaterial to us

compared to any risk.”

A Facebook spokesman

said that the messages paint

a misleading portrait of the

company. “These old docu-

ments have been taken out

of context by someone with

an agenda against Face-

book, and have been distrib-

uted publicly with a total dis-

regard for U.S. law,” he said.

The documents, pub-

lished in full by NBC News on

Wednesday, show a variety

of conversations about ac-

tions taken to limit some

companies’ use of the plat-

form’s data and services.

The messages are surfacing

as Facebook faces antitrust

investigations from the U.S.

Department of Justice, the

Federal Trade Commission

and 47 state attorneys gen-

eral.

Facebook rebuffed staffers’ ethics concerns

bloomberg

FACEBOOK CEO Mark Zuckerberg justified the

decision to not provide services to competitors.

Drew AngererGetty Images