The Malls Get Decked: The Good News at the Gap

"Bricks-and-clicks" may be a great corporate catchphrase, but it's a lot harder to actually put into practice.

Monday

Why Retailers Fear a Red Christmas

Tuesday

The Winter of Misfit Toys

The Good News at the Gap

Wednesday

Retailers Minding Too Many Stores

Holiday Shopping Bag: Maybe the Web Can Work After All

Just ask Wal-Mart (WMT), which had to shut down its site this fall for another makeover. Or Toys R Us (TOY), which decided after last Christmas' disastrous fulfillment problems that it had best hand that part of things over to Amazon.com (AMZN).

Ask enough people which traditional retailer has made the best transition to the Web, though, and one name keeps coming up: Gap (GPS), which has managed to develop a much-praised e-commerce business without also developing the kind of financial albatross that plagued the likes of Federated(FD). We wanted to find out how the chain did it.

First-Mover

First, Gap has had some time to experiment with its Web strategy. It recognized the potential of the Internet as both a branding tool and a sales channel relatively early, launching a Gap.com site in 1996 and then adding e-commerce in time for holiday 1997. That gave it some time to figure out what works and what doesn't while also establishing an online presence, in contrast to other apparel retailers like Abercrombie & Fitch(ANF) and AnnTaylor(ANN), which took longer to get to the Web. (Many apparel chains, like the Limited(LTD) companies, still don't have e-commerce.) After Gap.com, the company rolled out e-commerce at GapKids.com and BabyGap.com in 1998, and introduced online sales at BananaRepublic.com in 1999. This year, it began selling goods at OldNavy.com.

And the company built on the ubiquity of its 3,000-plus stores. Its online operations weren't set up as a separate business unit like Toysrus.com, Barnesandnoble.com(BNBN) or Nordstrom.com. Instead, its headquarters are tucked in along with its other operations in San Francisco. "We believe this integrated approach is better for our customers because they can expect the same level of service and quality of product across all our distribution channels," says Kellie Leonard, Gap spokeswoman.

The integration has also made it easy to keep marketing and merchandising consistent in both stores and online. "They change their site according to the retail calendar, and it matches what's in their windows," says Cecilia Pagkalinawan, CEO of retail web consulting firm BoutiqueY3K.com. Passersby who notice a new striped sweater in the window will see the same thing when they go to the site. "If it's not the same, there's a disconnect," she says.

Easy Does It

Also prominently featured on the Gap's sites: the fact that customers can buy online and return to stores. By doing that, Gap was literally years ahead of Barnes & Noble(BKS), which spun off its Web operations in affiliation with Bertelsmann. Barnes & Noble and Barnesandnoble.com only recently announced closer ties, including in-store Internet kiosks and the ability to return items bought online to stores.

Not to be overlooked: Gap's products are particularly well-suited to e-commerce. The company's bread and butter are its staples -- things like khakis, jeans and T-shirts that aren't as fun to shop for as, say, a new little black dress. It's easy to see why replenishing your pocket-T supply online might be an attractive proposition. A lot of Gap's merchandise comes in standardized S/M/L sizes, making ordering easier, and because so many people are already familiar with the stores, they know their sizes on things like pants and can order with the confidence that they won't have to return the item.

And Gap has used the Web to do what it can't do in stores, like offering extended sizes in pants along with other items that don't necessarily justify square footage in every store, like maternity clothing.

Joshua Chernoff, a vice-president at A.T. Kearney, which has consulted for Gap, gives the bulk of the credit to Gap's management. Despite the fashion misses the company's divisions have had this year, Gap CEO Mickey Drexler is still a highly respected merchant, with a rarely erring eye for what customers want.

And its board "demands rational thinking," says Chernoff. Board members include Charles Schwab, who saw enough potential in the Internet to take his brokerage online long before its rivals, and Apple (AAPL) co-founder Steve Jobs. According to Chernoff, Jobs immediately asked why the company wasn't making money on its Web site. (Gap's Leonard says, "As a valued board member, Mr. Jobs offers advice on all areas of our business, including our online business.")

Hanging In

Gap hasn't disclosed how much it has spent on its online business, or when it expects to make money if it isn't already doing so, but it hasn't mentioned Internet spending as a source of any of the financial woes it has suffered this year. Chernoff expects Gap's Web operations to be a bright spot amid a generally tough holiday season for it and other retailers.

Really, what the Gap has done is fairly simple: It realized early on that to get the most customers, it has got to be where customers are, whether that's in the mall or on the Web. The catchphrase for that is bricks-and-clicks. For the Gap, it's just good business.

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