Gap Insists Financial Woes Won’t Affect Product RED
Coming on the heels of Gap, Inc. CEO Paul Pressler resigning in January due to several poor financial quarters, the retailer insists there will be no wavering of support for Product RED, its celebrity-backed brand that funnels a percentage of product sales to The Global Fund to Fight AIDS, Tuberculosis and Malaria (January PROMO).
“It’s business as usual,” said Gap spokesperson Erica Archambault. “This won’t affect RED in any way. We’re still very dedicated to it.”
That’s partly because the company is only five months into a five-year license for RED, set to expire in 2011, and has already developed products through fall 2007.
Gap’s RED campaign received a second wind last month, with displays of new clothes and accessories pegged to Valentine’s Day. Print and outdoor ads sported the tagline “Can you send love to someone you don’t even know?” supported by e-mail to RED subscribers and heavy merchandising in Gap stores.
Gap also pushed RED backstage at the Grammys, making over the Green Room into the RED Room with T-shirts, bracelets and pins for performers and presenters. “It was just a fun promotional event to help create more RED ambassadors [among musicians],” Archambault said. (Project RED was co-founded by U2 leader Bono, with activist Bobby Shriver.)
Among the five U.S. RED licensees, Gap put the biggest marketing push behind the launch, with an estimated $40 million ad campaign and heavy PR push for the holidays.
Gap already has more RED goods in the pipeline for summer and fall, and it’s working on holiday 2007 items now.
But Gap’s latest financial report, announced Feb. 8, didn’t do anything to dispel speculation that the company’s is in a desperate need of a turnaround. Gap reported $4.8 billion in total fourth-quarter sales, with same-store sales down 7% from the year before. Sales for flagship Gap were down 8%, after falling 7% the year before.
Gap won’t break out RED sales, but Archambault said Gap sold enough RED goods to fund medicine for 20,000 people. That translates to about $103 million in RED sales for Gap, with 50% of its profits donated to The Global Fund. Product RED’s total holiday sales, across all licensees in the U.S. and U.K., were an estimated $125 million, triggering about $10 million in donations.
Meanwhile, observers are speculating that the company could go on the block. Analysts conjecture that the company might sell as a whole or in pieces, with Gap, Banana Republic and Old Navy each going to new owners.
To shore up its executive ranks at least in the interim, the company promoted Marka Hansen, a 20-year Gap Inc. veteran, who took charge on Feb. 2 as president of Gap North America, and is continuing its search for a new CEO. The ideal candidate would have “deep retailing and merchandising experience, ideally in apparel,” said Banc of America Securities analyst Dana Cohen.
“We continue to believe that 2007 is going to be mostly a write-off year, as it will be difficult to impact much of the product,” Cohen commented.
