Tuesday, September 25, 2007

Gap Keeps Looking Better

With all the talk about lately, Gap (GPS) made a hire that may eventually transform the listless retailer.

The designer Todd Oldham, whose products revitalized retailers like Target and La-Z-Boy was hired to hopefully do the same for Old Navy. He has agreed to oversee clothing design and eventually create a line of merchandise for the chain sold under his name, which currently appears on items from flower arrangements at FTD to a fashion show on MTV.

Old Navy it seems has finally realized it target market and said that Mr. Oldham would focus on shoppers in their 20s, after years of the chain "trying to be all things to all people," said Dawn Robertson, the president of Old Navy.

How important is this for Old Navy? Consider Old Navy whose had sales of nearly $7 billion last year, is bigger than both Gap and Banana Republic. Ms. Robertson said Mr. Oldham’s clothing for Old Navy would be "modern and relevant," adding that "it will be an important part of our turnaround."

This is big for Gap. In an environment in which we may be seeing a slowdown, people will need a reason to go to Old Navy. Mr. Oldham, with his name recognition, will give the much coveted young shopped that very reason and given his past successes, thee is no reason to expect anything but that here. Should we rush out and buy Gap shares now? Not yet. CEO Glen Murphy has not really given us his "vision" of where he wants to take the company so for that reason, I would hold off. Gap still has too much cash on hand, too many stores, and needs to buy back more shares. Until we know what will happen there, anything is guesswork. But, and this is a big but, if this is indicative of what he plans to do on the retail front, it is a very promising development.

Gap shares are becoming extremely enticing but I just cannot pull the trigger yet with the unanswered questions I have. Just need more answers...

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