Operations
12 July 2022
CEO Sonia Syngal is the latest executive to leave Gap Inc.
Meanwhile, the CEO of Walmart Canada is stepping in to lead Old Navy.
Sonia Syngal. (Photo via Wikimedia Commons)
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The news: Sonia Syngal will step down as CEO of Gap Inc., the apparel company announced on Monday. Syngal is set to remain only for a brief transition. Meanwhile, board chair and former Walmart International CEO Bob Martin will step into the CEO role on an interim basis. There were no immediate plans announced for the addition of a permanent CEO at Gap Inc., which owns the brands Gap, Old Navy, Banana Republic and Athleta.
New leader at Old Navy: Along with Syngal’s departure, Gap Inc. announced that Horacio “Haio” Barbeito will become CEO of Old Navy, effective August 1. Barbeito comes to Old Navy from Walmart, where he worked for 26 years. Most recently, he served as CEO of Walmart Canada, and previously led the retailer’s Argentina and Chile business. Barbeito succeeds Nancy Green, who left the top role at Old Navy in April.
Key quote: “With an exceptional and industry-leading CEO for Old Navy now appointed, I am thankful to have the board’s support in stepping down, ushering in a new opportunity for fresh perspective and rejuvenated leadership to carry Gap Inc. forward,” Syngal said in the announcement.
The backstory: An 18-year veteran of Gap Inc., Syngal stepped into the CEO role in 2020 after herself leading Old Navy. She was credited with turning around that brand, which is Gap Inc.'s largest, during her time at the helm. But it is struggles at Old Navy that have marked her final months as CEO.
While Gap did not give a reason for the departure, issues at Old Navy were in focus on the company's first quarter earnings call. In the quarter ended April 30, the company reported that revenue was down 13% year-over-year overall, and a loss of $162 million. Online sales were down 17%. As a result, the company cut its outlook for the year. Gap Inc.’s recent challenges are a mix of internal and external factors:
- Inventory mismatch: Due in part to bottlenecks in the global transport system that moves goods, Old Navy ordered items earlier than usual to sync with longer lead times. But by the time many items arrived, they were out of fashion with a public that was trading fleece and activewear for items to return to work and social settings. This left the company with excess inventory, which it then had to steeply discount in order to move. At the time, Syngal outlined a plan to reset inventory for back-to-school and holiday shopping.
- Size inclusivity execution: Old Navy also mismanaged demand in the launch of a size-inclusive initiative called Bodequality, which offered every style of women’s clothing in sizes 0-30. This also resulted in having too much inventory that wasn’t in demand at some stores. Many shoppers bought middle sizes but the smallest and largest sizes remained on shelves. This led to further need to discount and rebalance inventory, even as all sizes remained available online.
- Inflation: The company also found inflation hurting demand in the first quarter, especially among lower-income consumers. While the CEOs on many first quarter earnings calls said they saw demand remain strong, Gap Inc. executives said it observed weakness in consumer spending. Inflation was a big reason that it reduced expectations for top-line growth.
The numbers: Along with the announcement of the personnel change, Gap Inc. laid out several projections Monday for the just-completed second quarter of 2022. As previously detailed, the company said it expects net sales to decrease in the high single-digit range, while incurring $50 million in costs for air freight and inflation. In new projections, the company expects that additional costs for promotion to rebalance inventory will have a negative effect on gross margin, while it now expects adjusted operating margin percentage to be zero to slightly negative. Full results will be reported on August 25.
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Marketing
09 June 2023
'There's a lot of ways to frame value'
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
Photo by Kelly Common on Unsplash
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
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