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AGap in Retail Management

BY Murray Forseter

It says something about the state of retail management today that few names of proven executives have emerged as front-runners, or even as part of the field, in the race to become the next head of Gap Inc. Or perhaps it says something about the state of that iconic company that few believe the enterprise that in many ways shaped specialty retailing for the last 40 years is salvageable, at least in its present incarnation.

As I write this in mid-February, no name has zoomed to the fore save that of Millard “Mickey” Drexler. It would be a long shot, indeed, if Drexler were to return to his old stomping grounds, not just because it would require the founding Fisher family to swallow its pride, but also because Drexler has done quite well for himself resurrecting J. Crew and through his investments with Texas Pacific Group. The only way Drexler would return to Gap, some say, is as an owner, part of a consortium that buys out the Fishers. But that’s another story. For now, let’s concentrate on what really matters, the seemingly limited pool of talent at the executive level available to run a company the size of Gap.

Having gone through the unfulfilled promise of the Nardelli-Johnson-Pressler era of CEOs from outside the retail industry, few boards of directors would be courageous, or crazy, enough to chance another seemingly incoherent run for the roses with a leader untested in the retail racetrack. Gap needs someone steeped in merchandising skills, someone with a “feel” for the goods.

One problem facing the Gap board is that there are few truly successful specialty apparel chains, even fewer that run multiple concepts as Gap does. Moreover, it’s difficult to believe that successful executives, like Michael Jeffries of Abercrombie & Fitch, would leave them for Gap. In addition, most apparel chains are less than an eighth the size of Gap, a formidable jump of scale most second-tier executives would find hard to hurdle.

Almost a decade ago I suggested Allen Questrom was the person J.C. Penney needed to hire to turn itself around. Two years later Penney’s board came to the same conclusion. Penney is enjoying a rebirth based on Questrom’s vision and his successor, Myron “Mike” Ullman’s quest to keep the momentum going.

Questrom is available again, but his experience is almost totally with largefootprint stores. Vanessa Castagna recently left Mervyn’s, but she, too, is used to running big-box stores. Paul Charron, the retired head of Liz Claiborne, has been mentioned. He has experience marketing multiple brands and specialty stores. So does Roger N. Farah, the president and COO of Polo Ralph Lauren. At 53, Farah might be more appealing than the 64-year-old Charron.

And then there’s Domenico De Sole, the 62-year-old former president and CEO of Gucci Group NV. As one knowledgeable source told me, De Sole has an important attribute lacking in others—he’s intimately familiar with Gap, having been a director since 2004.

Whoever is chosen will have to make tough decisions. Gap will have to pare down its namesake concept. It needs to revitalize its product offering, not just at Gap but also at Old Navy stores. Banana Republic seems to be fine, but Forth & Towne still requires contemplation.

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FINANCE

Home Depot Projects Lower Profit in 2007

BY CSA STAFF

Atlanta, The Home Depot Inc. said Wednesday it will pump $2.2 billion into improving its business this year even as it expects lower earnings and slim sales growth. Home Depot said that for fiscal 2007 it expects sales growth in the range of flat to an increase of 2%, a decline in comp-store sales in the middle single digit percentages and an earnings per share decline of 4% to 9%.

Including the effect of a 53rd week in its fiscal year, consolidated sales are expected to increase by 1% to 2%, and earnings per share are expected to decline by 3% to 8%, Home Depot said.

CEO Frank Blake told investors at Wednesday’s conference that like last year, “2007 also will be a difficult year.” But he said it will be a year of focus on Home Depot’s priorities and a year with “hopefully less noise.”

The “noise” was apparently a reference to the investor furor over former CEO Bob Nardelli’s hefty compensation in light of the company’s lagging stock price. Nardelli resigned in early January after six years at the helm of the company. He took with him a severance package valued at $210 million.

To improve its business, Home Depot said it will invest $2.2 billion this fiscal year in key priorities, including the opening of 115 stores. The investment includes $1.6 billion in capital spending and $600 million in expense.

Home Depot said it will recruit master trade specialists, simplify its staffing model, use more technology to aid customer service, and redesign employee compensation and reward plans. It also will invest in new merchandise and review its pricing strategies. Additionally, the chain will spend money on customer loyalty programs, direct-ship programs, credit programs and other specialty sales initiatives.

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FINANCE

Federated Plans Name Change

BY CSA STAFF

New York City, Federated Department Stores on Tuesday said it would ask shareholders to approve changing the company’s corporate name to Macy’s Group Inc. A vote to amend the corporation’s charter to accommodate the new name will be held in conjunction with Federated’s annual meeting on May 18. If approved, the company will be known as Macy’s Group Inc., effective June 1. The move comes on the heels of the company changing most of its store nameplates to Macy’s.

“Macy’s Group is the appropriate name for our company, given that about 90% of our sales involve the Macy’s brand. That said, Bloomingdale’s is—and will remain—a very important part of our company,” said Terry J. Lundgren, Federated’s chief executive. Federated Department Stores also said stronger sales at established stores and lower costs drove a 5% rise in fourth-quarter earnings. For the quarter ended Feb. 3, net income rose to $733 million from $699 million the prior-year period. Sales fell 4% to $9.16 billion from $9.57 billion, as the company shuttered 80 “duplicative” store locations. Comp-store sales rose 6.1% in the quarter.

During the quarter, Federated lowered its selling, general and administrative costs 11% to $2.31 billion.

The company also announced a $4 billion increase to its stock buyback program and said it will immediately repurchase 45 million shares for $2 billion under the plan.

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