May 27, 2024

(Bloomberg) — Struggling fashion and apparel retailers are turning to outsiders with strong track records reviving once-flailing brands in order to end their own slumps.

Gap Inc.’s announcement this week that it chose Mattel Inc.’s Richard Dickson as its next chief executive officer was the most recent in a series of executive appointments in fashion retail from outside the industry. Last year saw record turnover of apparel and footwear executives, according to Cathy Logue, managing director at executive-search firm Stanton Chase. Their replacements have come from worlds as varied as tech, tires and travel. 

“The common theme is that all of those businesses have historically struggled,” Logue said. Companies are looking for CEOs that “have either been successful in executing turnarounds or refreshing the brands.”

At Gap the appeal of someone like Dickson isn’t the stints he did at Bloomingdale’s and Nine West. It’s the most recent success he had reviving an iconic brand from cultural obscurity and financial distress. Dickson, who was Mattel’s chief operating officer, helped Barbie go from a retrograde relic to a billion dollar annual revenue stream and the face of a $472 million box office hit at the center of the zeitgeist. 

“Dickson’s creative focus is a strategic asset to Gap as the company looks to reinvigorate its portfolio of brands,” Goldman Sachs analysts led by Brooke Roach said in a note. Gap, like Barbie, was once an iconic American brand, synonymous with denim and crisp white t-shirts. But its stock price peaked in 1999, and all four of its brands — Gap, Old Navy, Banana Republic and Athleta — have struggled to maintain sales growth. 

Apparel companies, especially those that historically relied on suburban malls for sales, have struggled over the last decade to stay relevant as e-commerce and social media increasingly control how Americans shop. 

Read more: Apparel Factories Fret at Signs of Looming Plunge in US Sales

“The industry’s changing so rapidly,” said Morningstar senior equity analyst David Swartz. Not that long ago, he said, brick-and-mortar stalwarts thought people would never give up the in-store experience. About 14% of US clothing and general merchandise shopping happens online, compared with 7% in 2018, according to the latest data from the Commerce Department.

Insiders at many big brands haven’t successfully weathered this changing landscape. Gap’s previous CEO — a company veteran and former head of Old Navy — stepped down a year ago after missteps including a clumsy implementation of expanded women’s sizes at Old Navy and bloated inventories. 

Pandemic-related supply-chain issues and demand swings kicked retailer chief oustings into high gear. “Covid was likely a necessary catalyst for companies to look inward and decide what status quo was worth keeping and what status quo was worth changing,” said Simeon Siegel, senior analyst at BMO Capital Markets.

Many of the replacements come with fresh perspectives. 

North Face and Vans owner VF Corp. chose Bracken Darrell, former CEO of computer accessories company Logitech International, as its new leader in June. Under Armour, meanwhile, tapped Stephanie Linnartz, a former Marriott International Inc. president, to pull the sportswear company out of a multiyear lull.

Other similar appointments over the last year have included the RealReal Inc. CEO John Koryl, who came from Canadian Tire; Footlocker Inc. CEO Mary Dillon, who came from Ulta Beauty; and Vera Bradley Inc. CEO Jackie Ardrey, who came from Grandin Road, a home goods e-commerce retailer. 

Analysts and investors have largely cheered the appointments, noting that apparel retailers’ historical tendency to choose executives from the fashion industry largely hasn’t been successful over the last decade. Gap, for example, plucked three of its last four CEOs from inside the company without ever finding a real growth trajectory. 

‘It’s Impossible’

That said, retailers might not have had much of a choice in looking outside the industry for new chiefs: The job might not appeal to those who know the difficult task ahead. “A lot of people have wanted to exit the industry because there’s a lot of pressure at the moment,” said Neil Saunders, managing director at GlobalData. “It has become more difficult to find people internally or from within retail to occupy certain positions. It’s impossible.”

At Gap, Dickson will “face serious challenges, including recent underperformance at Old Navy and Athleta, and the chronic search for relevance at Gap Global and Banana Republic,” Swartz said. “Realistically, Gap has struggled to find consistency since former CEO Mickey Drexler was fired more than 20 years ago.”

Each of the newest apparel CEOs will need time to bring back aging or unprofitable brands. But investors are often quick to judge, seeking short-term performance over long-term growth.

At Foot Locker, for example, Dillon set out to revive the chain by strengthening ties with Nike Inc., its largest supplier, and opening stores away from struggling malls. But shares have fallen 30% since Dillon started in September, most significantly after an earnings report that showed negative sales and a weak full-year outlook. 

Gap might be subject to that same treatment if Dickson can’t show improvement in sales metrics quickly. 

“As history has shown, Gap’s major investors can be resistant to adaptation, and exert too much control over the direction of the company,” Saunders said. “In our view, there is no point bringing in good people if you don’t allow them the scope to shake things up.”

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