Old Navy, Inc.

Address:
1 Harrison Street
San Francisco, California 94105
U.S.A.

Telephone: (650) 952-4400
Toll Free: 800-333-7899
Fax: (415) 427-2553
http://www.oldnavy.com

Statistics:
Wholly Owned Subsidiary of The Gap, Inc.
Incorporated: 1994
Employees: 7,000 (est.)
Sales: $6.5 billion (2004)
NAIC: 448140 Family Clothing Stores


Company Perspectives:
Old Navy's mission is to offer affordable, fashionable clothing and accessories for adults, kids, baby, and Moms-to-be. All of our merchandise is sold under the Old Navy name and only in our stores or on our website.


Key Dates:
1994: The first Old Navy opens in Colma, California.
1997: Old Navy becomes the first retail chain to reach $1 billion in sales in less than four years.
2000: The chain suffers from distribution problems.
2001: Old Navy opens 12 stores in Ontario, Canada, its first units outside the United States.
2004: Old Navy celebrates its tenth year of business.


Company History:

Old Navy, Inc., a subsidiary of The Gap, Inc., operates a chain of approximately 850 clothing stores, marketing itself as a low-priced provider of apparel to women, men, children, and infants. The chain operates throughout the United States and in Canada, home to more than 30 stores. Old Navy accounts for approximately 40 percent of The Gap, Inc.'s $15.8 billion in sales.

Origins

The Gap, Inc. represented one of the most impressive success stories in the history of the U.S. retail business. The clothing chain was founded by Donald G. Fisher, whose frustration at finding a pair of jeans that fit led him to open his own clothing store in 1969. Fisher, a successful real estate developer, was 40 years old when he opened the first Gap store near San Francisco State University and attracted crowds of customers a generation his junior. Featuring a broad selection of low-priced blue jeans and records, Fisher's store was the first of what would become a massive chain of stores. After fine-tuning his concept, Fisher expanded remarkably quickly, creating a $100 million, 200-store chain spread across more than 20 states by the mid-1970s. By the end of the decade, the publicly traded chain, which was growing by as many as 80 stores each year, was generating more than $300 million in sales.

The Gap's stunning success during its first decade of existence was eclipsed by its achievements during the 1980s. The company recorded another decade of phenomenal growth, with much of the success credited to Fisher's successor, Millard Drexler, who was appointed president in 1983. A Bronx native, Drexler joined The Gap after serving as president of apparel retailer AnnTaylor. Under Drexler's guidance, The Gap revamped its image, honed its merchandising strategy, and expanded internationally. The company also diversified its interests by either acquiring or starting other retail chains. Drexler achieved mixed results when he branched out, but the successes by far outweighed the failures. In 1983, the company acquired a two-store retailer named Banana Republic, which it tailored as an upscale version of The Gap. In 1986, Drexler started opening a chain of GapKids stores, followed by the establishment of the babyGap chain in 1990. All three, Banana Republic in particular, proved to be highly successful. Failures included Hemisphere, an upscale sportswear chain created in 1987 that was sold two years later, and Pottery Barn, a furnishings retailer that struggled under The Gap's ownership, but flourished under the stewardship of Williams-Sonoma, Inc., which bought the company in 1986 after Drexler and his team cut their losses and liquidated the chain.

After Drexler spent a decade experimenting with different retail concepts, Old Navy became his next creation. The idea for the chain came from Drexler, and his inspiration was drawn from an article in a trade publication. In the early 1990s, Drexler learned that Dayton Hudson Corp., the operator of the Target and Mervyn's retail chains, was planning to introduce a new chain of stores, describing its new entry, Everyday Hero, as a cheaper version of Gap. "I thought, they must know something that we don't," Drexler remembered in a February 29, 2004 interview with the San Francisco Chronicle. Drexler sprang to action, ordering assistants to fan out and purchase merchandise in the $10 range at other retail chains. The buyers returned with an assortment of apparel from retailers such as J.C. Penney, Target, and Wal-Mart, and Drexler directed that the clothes be put on a boardroom table at company headquarters. Drexler assembled about a dozen of his advisors and the group surveyed the sampling, trying to assess if The Gap could produce a markdown version of itself. Calls were made to see if overseas garment factories could produce a lower-priced line using less expensive fabrics and finishes. The decision was made to press forward with the concept, and in August 1993, the company converted some of its Gap outlets into the new format, which initially operated under the banner "Gap Warehouse."

The idea was immediately successful. The sales recorded during the first few weeks convinced Drexler and fellow executives that the lower-priced concept deserved its own identity and a format designed specifically for catering to the new demographic. After dismissing suggestions such as "Forklift," Drexler chose the name "Old Navy," having seen an identically named bar while taking a walk in Paris. The first store designed specifically to be an Old Navy store opened in 1994 in a shopping center in Colma, California. At the grand opening, actress/model Cindy Crawford was on hand to sign autographs amid a flurry of media interviews and merchandise giveaways.

With the enormous financial resources of The Gap supporting its growth, Old Navy expanded at a feverish pace. By the end of its first year in business, the chain had 59 stores opened, generating $120 million in sales. In 1995, when the company opened its flagship store in Manhattan, it more than doubled its store count, ending the year with 131 stores and $420 million in sales. The success of the chain surprised even its most optimistic supporters, attracting a broader, more upscale clientele than its creators had targeted. A study conducted by NPD Group at the end of the decade found that more than 70 percent of Old Navy's sales was to households earning at least $50,000 a year. "I don't think any of us in the company ever thought Old Navy would be what it was, and what it became," Drexler said in his February 29, 2004 interview with the San Francisco Chronicle. "That's the truth," he added.

Customers flocked to the ever-expanding number of Old Navy stores, creating a retail phenomenon that rivaled The Gap's storied success in the 1970s and 1980s. Inside Old Navy units, which were roughly twice the size of The Gap units, customers could buy $22 jeans ($12 cheaper than a pair from The Gap) and $7 T-shirts in a setting designed to look "industrial chic," with exposed pipes, cement floors, and chrome fixtures. Drexler added to the excitement surrounding the chain by launching the first of a series of quirky television advertisements in 1997, when celebrities from past decades such as Morgan Fairchild and the Smothers Brothers (referred to as "retro-celebrities" by some members of the press) began hawking hugely popular lines of Old Navy apparel. The public's embrace of the Old Navy concept enabled the chain to make business history in 1997 when it became the first retail brand to reach $1 billion in sales in less than four years. The company ended the year with 282 stores and $1.3 billion in sales, a sales volume that represented nearly 20 percent of The Gap's total revenue.

Ming Taking Command in 1999

Old Navy represented the driving force behind The Gap during the late 1990s. More than 100 stores were opened each year in 1998 and 1999, giving the company a total of 513 stores by the decade's end. The company intended to continue expanding at more than 100 units a year for the next several years, a pace mandated by the chain's new president. Jenny Ming was appointed Old Navy's president in April 1999, but she was no newcomer to the company. Ming was there from the start, one of the dozen executives Drexler gathered around the boardroom table to assess the viability of the chain. It was Ming who made the calls to overseas garment factories to determine whether a less expensive line of clothing could be made. A native of a Portuguese colony near Hong Kong named Macao, Ming moved to San Francisco at age nine. After earning a degree from San Jose State University, Ming was working as a buyer in linens and junior wear at Mervyn's when Drexler recruited her in 1986.

Under Ming's stewardship, Old Navy continued to expand, with its success playing an increasingly important role in the health of The Gap. Old Navy accounted for 16 percent of the total number of stores operated by its parent company, but accounted for nearly 30 percent of its sales volume, a ratio that placed enormous pressure on Ming. To strengthen Old Navy's position as The Gap's growth vehicle, Ming intended to expand aggressively, relying on her widely praised ability to predict emerging apparel trends and greatly widen their appeal by filling Old Navy units with hip-looking merchandise. "She gets very excited about the merchandise," a colleague explained in a November 8, 1999 interview with Business Week. "She's definitely a toucher and feeler. When she sees something she likes, she winks, claps her hands, and says, 'I love that'."

Ming's tenure began strongly and then faltered, resulting in Old Navy's first setback. Within months of her appointment, speculation circulated throughout the apparel industry that Old Navy was plotting its first international expansion. The Gap's chief financial officer confirmed analysts' theories, announcing in August 1999 that Old Navy was close to establishing its first foreign store, a move that was going to be made in either Japan, the United Kingdom, or Canada. While senior executives mulled over their decision, Ming presided over the opening of the largest Old Navy store in the five-year history of the company. In November 1999, a massive, four-level store was opened in San Francisco, the fourth flagship store opened by the company (New York, Chicago, and Seattle were home to the other three flagships).

Old Navy stumbled for the first meaningful time in 2000, and the timing could not have been worse for The Gap. The sprawling retailer began recording declining sales, guilty, according to critics, of pursuing fickle teenage customers and alienating its over-30 customers. By October 2000, the company had posted five consecutive months of same-store sales declines, while its stock value plummeted 57 percent. The downward spiral dragged on, culminating in a $7.7 million loss in 2001--two years after the company had recorded $1.1 billion in net income. Old Navy, which for several years had helped to compensate for The Gap's miscues, offered little help. Plans for the company's international expansion were derailed by distribution problems that bogged the chain with excess inventory. "Right now," an analyst commented to the San Francisco Chronicle in August 11, 2000, "Old Navy is driving in reverse."

International Debut in 2001

Although The Gap continued to suffer during the beginning of the new century, Old Navy managed to recover from its choked-up distribution system. In 2001, the chain made its international debut, compensating for the delay with a forceful entry into Canada. In April 2001, Old Navy opened 12 stores in the province of Ontario, orchestrating the maneuver on the same day early in the month, the first multiple store openings executed by the company on the same day. "We really wanted to be able to have a strong presence from the start," Old Navy's director of public relations explained to the San Francisco Chronicle on April 10, 2001.

As Old Navy closed in on its tenth anniversary, its pace of adding at least 100 new stores annually began to slow. By the end of 2002, the chain consisted of 842 stores, having added 44 units during the year. In 2003, the company increased its store count by only one store. The same was true of 2004, as Old Navy ended the year with 844 stores. The majority of the expansion during these years took place in Canada, where Old Navy operated 33 stores in 2004.

Despite the negligible expansion achieved in the years leading up to its tenth anniversary, Old Navy represented a powerful retailing force. After only a decade, the chain accounted for approximately 40 percent of The Gap's nearly $16 billion in revenue, figuring as an incredibly important business to its parent company. As Old Navy prepared for its second decade of business, the chain promised to remain the lifeblood of The Gap and a popular choice among bargain hunters for years to come.

Principal Subsidiaries: Old Navy (Apparel), LLC; Old Navy (Canada) Inc.; Old Navy (East) L.P.; Old Navy (Holdings), LLC; Old Navy (ITM) Inc.; Old Navy (Puerto Rico) Inc.; Old Navy, LLC.

Principal Competitors: Wal-Mart Stores, Inc.; Target Corporation; J.C. Penney Corporation, Inc.