--:-- Ryan Knutson: Welcome to The Journal, our show about money, business, and power. I'm Ryan Knutson.
--:-- Richard Dixon: Thank you, Ryan, for having me.
--:-- Ryan Knutson: So my first question is, how much of your current wardrobe is Gap?
--:-- Richard Dixon: Well, I say it is head to toe on a daily basis. It's not just Gap. We have Old Navy, Banana Republic. I even throw in a little athletic there every once in a while.
--:-- Ryan Knutson: But ultimately, you know, brand fan, head to toe all day long. I can't believe how many denim shirts and jeans I have now.
--:-- Richard Dixon: Did you own any denim shirts before you became the CEO of Gap?
--:-- Ryan Knutson: I did, but I never really understood the complexity of how many versions of a denim shirt there really are. And now I really, I can tell you anything you want to know about a denim shirt. Fit, feature, function, philosophy, wash, color, heavy, light.
--:-- Richard Dixon: All right. So we could talk about denim all day, but I want to talk about your job and the challenges that you've been facing and the work that you've been doing as a CEO of Gap.
--:-- Ryan Knutson: So I want to start just when you took over the brand. When you became CEO of Gap Inc. in August of 2023, what did you see as the biggest challenge the company was facing?
--:-- Richard Dixon: It wasn't just one challenge the company was facing. I think, first off, it's important to recognize this is a storied legacy portfolio of brands. What I would say from a challenging perspective was recognizing these are legacy brands that ultimately lost their relevance.
--:-- Ryan Knutson: Why did that happen? Why did they lose their relevance?
--:-- Richard Dixon: Well, the reason why is a multitude of reasons. But most importantly, what I would say is that the company was always strategically well intended. It had great new extensions, great endeavors, accelerated, you know, growth intent, but flawed execution.
--:-- Ryan Knutson: And along the way, you know, this was a portfolio of storytelling brands. I mean, Gap, Banana Republic, Old Navy, Athleta, these are very purpose-driven storytelling brands. And somewhere along the way, we lost the brand narrative and became a retailer that sold stuff.
--:-- Richard Dixon: And that's really a lot of, I believe, where the company went more wrong than right. That being said, it has always maintained a great deal of volume. But ultimately the relevance, if you will, to really start to grow the brands into continuous improvement models was lacking.
--:-- Ryan Knutson: So how would you, how did you set about trying to make Gap more culturally relevant? How do you do that for a brand that used to be cool, but isn't that cool anymore?
--:-- Richard Dixon: Well, you know, it, it isn't just one thing, but what I always start with is what made the brand great to begin with? How did it start? What was its breakthrough? How did it scale? What was happening in the world that became so interesting and relevant for the brand to hit those highs?
--:-- Ryan Knutson: And then where did it go wrong? And so in order to recognize how to fix something, you have to acknowledge what's wrong. And to do that, you had to go back to the origin story.
--:-- Richard Dixon: And that's what I do as a playbook. You go back and you sort of look at what made you great to begin with. What is the purpose of a brand? What is your reason for bringing? Does anybody need another denim shirt?
--:-- Ryan Knutson: Does anybody need another white t-shirt? What's going to make ours unique and different?
--:-- Richard Dixon: And so understanding that and then can help you guide the context of how to create relevance for the future.
--:-- Ryan Knutson: And Gap as a brand started in 1969 in a progressive city in San Francisco, selling denim, records, and tapes. It was about denim and music. It was an all-inclusive brand, all sizes, all races, all sexes.
--:-- Richard Dixon: And in the context of that conversation back then, that was a really innovative approach in the context of retail and consumer.
--:-- Ryan Knutson: So at your last job as the chief operating officer of Mattel, you got a lot of credit for reinvigorating the Barbie brand. Can you draw some comparisons? Were there comparisons that you can draw between what you did at Barbie and Mattel for what you're now doing at Gap?
--:-- Richard Dixon: I would say that the methodology is virtually the same. Running a disciplined business, financial and operational rigor, and ultimately reinvigorating brands.
--:-- Ryan Knutson: And Barbie was no exception. I had a great experience with a fantastic team there working on the revitalization of an iconic brand.
--:-- Richard Dixon: Similar attributes to Gap. Iconic American brand. Going back to the start of that brand, the founder of Barbie, Ruth Handler, invented Barbie inspired by her daughter playing with paper dolls and imagining a world of possibilities beyond what careers were offered at that particular time to women and girls.
--:-- Ryan Knutson: And so through that process, again, peaks and pits, Barbie had transformed into an iconic, inspiring figure for little girls, but somewhere along the line, lost that narrative, lost that relevance.
--:-- Richard Dixon: And with a team of people and lots of work, we worked to revitalize that brand, change the narrative and create a culturally relevant storytelling methodology around the same figure that inspires girls limitless potential.
--:-- Ryan Knutson: And that was the original premise of the brand fast forward through different executions that ultimately revitalized that brand so arguably the capstone to Barbie's turnaround was the Barbie movie that came out last year which you were the executive producer on.
--:-- Richard Dixon: Now at Gap do we expect to see a Gap movie about i you know a pair of khakis that comes to life perhaps perhaps or or how who lives in those khakis, how well lived a person's life is if you sort of walk their life through their khakis.
--:-- Ryan Knutson: By the way, don't quote me on that one. Don't quote me on that one. But that was instinctual.
--:-- Richard Dixon: Look, I think a brand like Gap is a pop culture brand. It is a canvas for conversation. One of the most beautiful things about our story as a Gap brand is we're not defining your style. We provide you the style and the apparel for you to define your own style.
--:-- Ryan Knutson: This is a brand that's all about originality. It's a brand through its history that was inspired by artists and musicians, inventors.
--:-- Richard Dixon: If you look back at our history of our ad campaigns, it was always rooted in music and entertainment. We talked about our methodology, if you will, being fashion-tainment. The combination of fashion and entertainment is where Gap sits.
--:-- Ryan Knutson: And so you could imagine a lot of interesting ways that Gap as a concept, as a brand, as a platform could express itself in music, in art, in fashion, and in culture.
--:-- Richard Dixon: And I would watch the space as we continue to evolve into, you know, again, an iconic American brand that really shapes culture.
--:-- Ryan Knutson: So do you think that Gap needs to have its own, you know, streaming, music streaming service now to get back to the music roots?
--:-- Richard Dixon: I look, I think it's possible. You know, I think when you look at the roots of the brand and where we've taken the brand over the last couple of years and where the brand has always been, it's been at the epicenter of pop culture.
--:-- Ryan Knutson: Music dating back to Madonna, Missy Elliott, Lenny Kravitz. Today, we work with great musicians.
--:-- Richard Dixon: And over the last year and a half, we've experienced, if you will, what we'll call a renaissance, if you will, getting back to some of the things that made Gap great, but interpreting that for today's consumer, today's artists, today's fashions.
--:-- Ryan Knutson: I wanted to talk with you about your decision to bring in the fashion designer, Zach Posen, who a lot of people talk about having a big influence on the brand. He's Gap's creative director.
--:-- Richard Dixon: So Zach is a cultural curator. He was brought in to create first the statement that this is an organization that is going to evolve into a design-led, more creatively driven organization.
--:-- Ryan Knutson: Fashion, pop culture is identified by creating wants. And that is a creative process. It's a business about art and science.
--:-- Richard Dixon: And Zach is well known, certainly for his design capabilities, but he's also really familiar in the content space and the entertainment space.
--:-- Ryan Knutson: Of course, Project Runway and various other ways that he's expressed his creativity, leveraging his fashion skill sets.
--:-- Richard Dixon: He's brought incredible energy to the portfolio and I believe a great addition as a creative leader in an organization that is going to unlock more and more creativity.
--:-- Ryan Knutson: He a magnet for talent which has been fun bringing in new creative talent into the organization and where he started to have influence whether it on Gap with the recent launch of Gap Studio the PR and the special dresses that we done on the runway.
--:-- Richard Dixon: Old Navy just launched an occasion segment in dresses that's starting to perform really well, or the technical skill sets that he has on fit across our brands and how important fit is to the consumer proposition.
--:-- Ryan Knutson: So all in all, you know, again, I couldn't be more thrilled to have somebody like Zach Posen in the company.
--:-- Richard Dixon: And I believe, you know, the creative energy is just starting.
--:-- Ryan Knutson: One of the things that he's been doing is, you know, he dressed Timothee Chalamet at a red carpet event. He dressed Divine Joy Randolph for the Met Gala.
--:-- Richard Dixon: How important are things like that? This sort of like little collaborations, little partnerships with celebrities to try to make the brand feel cooler and more relevant.
--:-- Ryan Knutson: Yeah. And Hathaway was also in that mix and there'll be many others.
--:-- Richard Dixon: It's an important part of the relevant narrative. It's not necessarily a vital ingredient for the scale of our brand, but it's a really important part of the cultural conversation that our brands can now start to re-engage in.
--:-- Ryan Knutson: As I mentioned, part of our objective is to create more relevance for the brands that, if done well, drive revenue.
--:-- Richard Dixon: But I wouldn't say it's the single silver bullet to create relevance. Relevance is a complicated marketing conversation that ultimately drives your media mix model that changes very dramatically, your digital dialogue that changes pretty dramatically, the assets and creative that you create.
--:-- Ryan Knutson: So it's a multifaceted narrative, but certainly one that is topped off, if you will, with celebrity dressing.
--:-- Richard Dixon: How much is Gap benefiting right now from the fact that the 90s are kind of back in style again? Like, how much do you think that this is what you're doing versus just the fact that trends are cyclical?
--:-- Ryan Knutson: Maybe there's some nostalgia for Gap, and therefore it's putting some wind in your sails?
--:-- Richard Dixon: Yeah, perhaps. But what I would suggest is that there are a lot of brands from the 90s that are not feeling this nostalgia and they're not enjoying a resurgence.
--:-- Ryan Knutson: So I think that you've got to be able to recognize consumer trend and how to play into them. And we are doing a good job capturing the interest of nostalgia in a way that connects with this generation.
--:-- Richard Dixon: That is the art behind the business.
--:-- Ryan Knutson: And there are other brands today that are enjoying that with their own version. of renewed relevance, but there are plenty of brands in the 90s, by the way, having lived through them, that have not necessarily seen that kind of energy.
--:-- Richard Dixon: All right, we're going to take a short break. And when we come back, we're going to talk more with Gap Inc. CEO Richard Dixon on how to ensure the momentum doesn't fizzle out and what he sees in the broader economy.
--:-- Ryan Knutson: How do you what gives you confidence that this won't this turnaround won't fizzle out i mean um gap had 15 a little over 15 billion dollars in net sales last year which is an improvement it's more than 2023 but it's still less than where the company was in 2018 so what work do you feel like still needs to be done?
--:-- Richard Dixon: Well, the metrics that we shared in our last quarterly call were not one and done, if you will. We exceeded financial expectations. We grew market share. It's the eighth consecutive quarter that we've grown market share.
--:-- Ryan Knutson: It's a really important metric to understand because the market itself, the apparel industry has been declining for the past two years.
--:-- Richard Dixon: We don't love that, by the way. We want to be part of a growing industry. But the facts are what they are. The apparel industry has declined over the last few years.
--:-- Ryan Knutson: We have grown our market share over the last couple of years. That's an indication that we are breaking through. We are resonating with consumers.
--:-- Richard Dixon: Pricing, promotion, product, value, the orientation of relevance, it's all orchestrated and improving our trajectory going forward.
--:-- Ryan Knutson: There is no doubt that there'll be headwinds. we're dealing with them now, whether they be tariffs or a consumer sentiment, these everybody's dealing with.
--:-- Richard Dixon: But it's our job to create great product at great prices, with great experiences, and execute with excellence.
--:-- Ryan Knutson: And as long as we stay true to that, there is plenty of market share to go after.
--:-- Richard Dixon: Speaking of tariffs and economic uncertainty, one of the big stories this year has been the tariffs the Trump administration is putting on countries around the world.
--:-- Ryan Knutson: Is there anything that concerns you about this business environment and tariffs specifically?
--:-- Richard Dixon: It's all concerning, but I think it's no different than any other year of complexity.
--:-- Ryan Knutson: We can talk about tariffs being the challenge of this year, but there's been challenges every year that companies go through.
--:-- Richard Dixon: And it's how you deal with the challenges at hand. We're working hard, obviously, to mitigate any price increases to consumers.
--:-- Ryan Knutson: We want to maintain that integrity of our price value.
--:-- Richard Dixon: So how are you doing that? Are you importing more products right now, more materials?
--:-- Ryan Knutson: No, no, no, no. We haven't changed. We haven't changed our inventory management methodology or our open to buy methodology.
--:-- Richard Dixon: Currently, as I shared, less than 10 of our product comes from China which has been obviously one of the countries that has been impacted by tariffs.
--:-- Ryan Knutson: As Canada and Mexico have been in the limelight in the context of tariffs less than 1 of our product comes from Canada and Mexico.
--:-- Richard Dixon: By the way, that's combined.
--:-- Ryan Knutson: Where do your products mostly come from?
--:-- Richard Dixon: We have Vietnam, Central America, Bangladesh, other parts of the world that we've been diversifying for the last several years, our manufacturing footprint.
--:-- Ryan Knutson: So it doesn't make us immune to the situation, but we do have a bit more resiliency and optionality that is obviously resonating well currently with the dynamic that we're all dealing with.
--:-- Richard Dixon: There are reciprocal tariffs that are being talked about being put in place. It's not like this is necessarily targeted on one place.
--:-- Ryan Knutson: So are you thinking about moving your supply chains anywhere? I mean, you have to be preparing for a world where places like Vietnam and Bangladesh do start to see import tariffs.
--:-- Richard Dixon: Yeah. Well, look, I think that the only place that you could assume to be encouraged with a reduction to do business would be in the U.S.
--:-- Ryan Knutson: I think if you spend all your time trying to chase, if you will, where the opportunity is to manufacture goods without the burden of tariffs, you're going to waste time.
--:-- Richard Dixon: So is there any chance that Gap will start making jeans in the United States?
--:-- Ryan Knutson: We do have some manufacturing in the United States. We do t-shirts, we have some denim.
--:-- Richard Dixon: We would love to do more in the United States. And there are different teams working on that as a possibility.
--:-- Ryan Knutson: The size and scale of our business would preclude us from manufacturing everything in the U.S.
--:-- Richard Dixon: But there are some encouraging incentives to think about. as we start to diversify our retail footprint, diversify our manufacturing footprint, and think about ways that we can grow perhaps more manufacturing in the U.S.
--:-- Ryan Knutson: The other thing that's happening in the economy right now is that consumer sentiment has been nosediving over the past few weeks.
--:-- Richard Dixon: It's now the lowest that it's been since 2022.
--:-- Ryan Knutson: Are you seeing any changes in consumer behavior across your brands?
--:-- Richard Dixon: Well we've been growing our business again you know in the context of a market that's declining we're breaking through our brands are growing we stabilize them they're starting to put up scores on the scoreboard in terms of growth we're growing our market share we're very conscious of the consumer we maintained our position with the value consumer with old navy and we grew the income cohort at the higher level your customers sort of move down to the more affordable end?
--:-- Ryan Knutson: Not necessarily. There is a flight to value that exists, but the higher end consumer still wants to be associated with brand relevance, higher quality, brand narratives.
--:-- Richard Dixon: And I do believe because we have upped our game, we become more relevant, we become more stylish, we become more effective in that space, that there is a migration of higher end consumers that might not have thought about our brands like Gap and Old Navy and Banana and Athleta and are now starting to be either introduced or reintroduced.
--:-- Ryan Knutson: So I actually believe our portfolio creates resilience in the context of where consumers are because we have a broad consumer base.
--:-- Richard Dixon: The last question I have for you is one that I'm just genuinely very curious about, which is that Zach Posen, your chief creative officer, said in an interview not too long ago, he was quoting you, So this is a bit of hearsay. Okay. You said, I've been a Willy Wonka at Mattel and I need to find my Willy for Gap.
--:-- Ryan Knutson: What did you mean by that? What does it mean to be the Willy Wonka of Mattel?
--:-- Richard Dixon: Oh, it's a great question. I'm not sure I loved him sharing that.
--:-- Ryan Knutson: But what I would say is, you know, at Mattel, Mattel is a toy company. uh the heart and soul of the company is about fun it's about surprise it's about innovation it's about creativity uh and as a leader in that company that led product design and marketing and new brand development and reinvigorating brands you had a responsibility to be the inspiration as well as um the innovation if you will to unlock innovation to inspire creativity to bring back that element of surprise and delight.
--:-- Richard Dixon: And in my, you know, personal history, Willy Wonka was this sort of character that, you know, you just were excited around what was behind the closed door? What was the innovation that you were going to reveal?
--:-- Ryan Knutson: And so my role at Mattel was very much leading that creative endeavor.
--:-- Richard Dixon: And as I was looking at bringing in creative talent, I referenced Zach as the Willy Wonka of Gaff Inc.
--:-- Ryan Knutson: You do kind of remind me of like a young Gene Wilder a little bit. So I think you can, I think you fit the bill.
--:-- Richard Dixon: I just need a top hat. You just need a top hat, but you got the hair already. You got the big smile.
--:-- Ryan Knutson: I'm holding on. I'm holding on. I'm holding on. you've got the hair I'm holding on alright great well Richard thank you so much for your time it's been a pleasure I appreciate it.
--:-- Richard Dixon: Thank you very much.
--:-- Ryan Knutson: That's all for today. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.
