Friday, July 27, 2007

GAP's Choice: Looks Good

Let's just ignore that GAP (GPS) said when the board committee first launched its search it said that it intended to find an apparel merchant with "deep" experience in retail and merchandising.

GAPS new CEO comes from Canada, where much of his two decades of business experience is in grocery stores and book retailing. Glenn Murphy, 45 was unanimously chosen after a "rigorous process," according to Gap's recent statement. Murphy's last job was a six-year stint as chairman and chief executive of Shoppers Drug Mart, Canada's largest drugstore chain were he credited with leading the company through an unprecedented period of growth and shareholder returns. Before that, he spent time selling groceries and books. When he joined Shoppers Drug Mart, it was a mature retailer that was generating lots of cash from 800 stores. When he left, there were more than 1,000 stores and sales and productivity were dramatically improved as they turned in 22 straight quarters of increasing revenues and per-share profits. So, we know the guy can get results. But, can a grocery store guy sell clothes?

In a word, yes.

The problem with GAP as I have claimed several times before is not it's merchandise but it's operations. Too many stores with the same merchandise competing against each other (GAP and Old Navy) for dollars and not enough investment in the brand that has the most value and growth in it, Bannana Republic.

GAP does not need someone who can come up with the latest style to lead them what they need is someone who can allocate capital smartly to get the most out of what GAP already has. In my first GAP post in March I detailed how minor changes could produce good return for shareholders almost immediately. I also like that he is going to pony up $2.5 million of his own cash to buy shares this week.

Murphy has a track record of succeeding in this area. "Murphy implemented several innovative changes including altering interior layouts, converting the in-store cosmetics area to a destination, and elevating product mix to include luxury labels," Citigroup (C) said on Murphy's performance at his previous role in upgrading the retailer to a "buy"

What to do? Based on his past record a gambler should buy shares. Those will a little less risk tolerance may want to wait and here what he has to say on the subject..

All in all, I think this will end up being a good move for GAP.

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