Gap's CEO Pick Surprises - TheStreet

Gap's CEO Pick Surprises

After a long search, the struggling chain taps a drugstore exec with no apparel experience.
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Updated from 4:45 p.m. EDT

Gap

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surprised Wall Street Thursday by naming a Canadian drugstore executive as its new CEO.

The San Francisco-based retailer tapped Glenn Murphy, chairman and chief executive of Shoppers Drug Mart, after an intense six-month search.

Murphy will replace Bob Fisher, the son of Gap's founders, who had been serving as CEO on an interim basis since the January departure of Paul Pressler.

The news, which came after the market closed, caught analysts off guard. Fisher had emphasized from the get-go that Gap was looking to hire a CEO with deep merchandising experience, in contrast to Pressler, who came from

Disney

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.

Many observers had assumed the company would recruit someone from the apparel sector, especially given Gap's long string of fashion missteps. Besides its namesake, the company also operates Old Navy and Banana Republic.

"One of their key criteria was apparel experience and (Murphy) doesn't seem to have that," says Mark Montagna, vice president of specialty retail for C.L. King & Associates.

"He's walking into a really tough job because here's the biggest fish in specialty apparel, and he's got to turn around all three divisions," Montagna says.

Murphy, 45, has served as CEO of Shoppers Drug Mart for six years, leading it through 22 consecutive quarters of year-over-year revenue growth -- an appealing record to Gap, which has been battling a 2 1/2-year sales slide.

With more than 20 years of retail experience, Murphy has been credited for reinvigorating retail brands in food, health and beauty, and books. He has held several positions at Loblaw, a leading retail and wholesale food company in Canada. He also served as president and CEO of Chapters, a major Canadian book retailer.

At Shoppers Drug Mart, Murphy grew the company's market capitalization from about C$3 billion to over C$10 billion. Gap has a market capitalization of $13.8 billion.

"Glenn is known for being a decisive leader with great retail instincts who understands his customers," Fisher said in a statement. "He has revitalized major retail brands by offering new products and significantly improving the store experience. He's well qualified to return Gap Inc. to the level of sustained performance we all expect."

Murphy is expected to come on board next week pending receipt of his U.S. work authorization. Fisher will remain on Gap's board of directors.

"I'm thrilled with this opportunity to lead Gap Inc. given the company's iconic stature and heritage of innovation and creativity," Murphy said in a statement. "Alongside some of the most talented people in the apparel industry, we'll work to reestablish each brand's leadership position and set the company along a path of sustained earnings performance."

Howard Davidowitz, a longtime industry veteran who is chairman of Davidowitz & Associates, a New York-based retail consulting and investment banking firm, says he is puzzled by Gap's choice of leadership.

"The people who drive companies are fashion geniuses -- the people who fall on their face are people who are not," Davidowitz says.

The company's three division leaders all come with plenty of apparel experience under their belts, including Marka Hansen, president of the Gap division; Dawn Robertson, president of Old Navy; and Jack Calhoun, interim president of Banana Republic. But Davidowitz wonders how far that will go.

"The heads of the businesses now are losing market share, and the people there now have been there for years," he says, noting the exception of Robertson, who was hired last year.

Montagna says that recruiting a CEO with apparel experience is no easy task. Most are unwilling to give up their top positions, especially to come to a company with so many woes.

Nonetheless, Montagna says Gap may benefit from Murphy's experience working with mature retailers. When he first stepped in as CEO for Shoppers Drug Mart, the company already had 800 stores.

"I think the fact that he's worked for mature retailers is a big help because certainly Gap is mature," Montagna says. "He has a track record of success so hopefully he can do the same again."