Pressler, Gap Union Ends

NEW YORK – The long wait for Paul Pressler’s departure from Gap Inc. is over.

Gap Inc. said late Monday that Pressler, through mutual agreement, has relinquished the posts of president, chief executive officer and a director of the San Francisco-based specialty store giant. Robert Fisher, non-executive chairman, will succeed him as president and CEO on an interim basis as the company searches for a successor.

Gap’s search committee will be led by director Adrian Bellamy, chairman of The Body Shop International plc, and also will include Donald Fisher, founder and chairman emeritus of Gap; Domenico De Sole, former president and CEO of Gucci Group NV; and Bob Martin, lead independent director and former president and CEO of Wal-Mart International.

 Robert Fisher

The company said the search for a successor will focus on “recruiting a chief executive officer who has deep retailing and merchandising experience in apparel, understands the creative process and can effectively execute strategies in large, complex environments while maintaining strong financial discipline.”

Robert Fisher commented, “During this important transition period for our company, the board of directors and I are committed to working with our employees to enhance our focus on what has been at the heart of the company’s past success, reinvigorating our brands and charting a new course for the future that will deliver strong returns for our shareholders.”

Fisher is the son of Donald Fisher and a longtime Gap executive who has led Banana Republic and Gap brand and served on the board since 1990.

Initially viewed as a wunderkind following the departure of CEO Millard Drexler, Pressler’s tenure at Gap has been marked by more than two years of declining same-store sales, centered at the Gap and Old Navy nameplates. Since May 2004, corporate same-store sales have risen only in two months. After they fell 8% in December, Gap reduced its fourth-quarter earnings projections for the second time in as many months and are now expected to be $200 million lower than first forecast. That’s on top of an 11% drop in third-quarter profits.

While Gap remains the largest U.S.-based apparel specialty chain, it has been shedding market share with stirring rapidity. Corporate revenues peaked at $16.27 billion in 2004 and fell to $16 billion last year. Through the first three quarters of 2006, they were off 1.7%, to $11 billion.

Goldman, Sachs & Co., which has been retained to help the troubled retailer explore strategic alternatives, had previously done a study of market share losses by a number of major retailers. The study estimated dollars lost based on decreases in market share and put those figures for Gap at $457 million in 2004 and $1.08 billion in 2005. The estimate for fiscal 2006 is $1 billion; for 2007 and 2008, the numbers are placed at $372 million and $1.36 billion, respectively.

Reports of Pressler’s imminent departure had been swirling through the market since the summer, and this winter it was preceded by a long list of other executive exits at both the corporate and divisional levels, covering disciplines from marketing and advertising to merchandising and product development. There also has been speculation about a possible sale, either to private-equity interests or perhaps a larger competitor, such as Sears, or possibly a break-up or asset sale.

Pressler’s employment contract, signed in 2002, calls for him to receive severance of “up to approximately $14 million,” assuming a stock price of $20 per share. The majority of this amount, about $9.5 million, would be in stock option acceleration. However, he also is entitled to salary of up to $1.5 million a year and bonuses up to a total of $1.5 million over a two-year period, subject to reduction or elimination if he accepts employment elsewhere.

Gap shares closed at $19.90, down 10 cents, in New York Stock Exchange trading Monday just prior to the announcement of Pressler’s exit.

When Pressler, a veteran of Walt Disney’s retail and amusement park business, joined Gap in September 2002, many questioned whether he had the fashion expertise and organizational skills to manage such a large organization and populate it with the right merchandise and market it appropriately. While he may have failed by these criteria, he is credited with helping to reinvigorate the company’s financial condition. In Monday’s announcement, Robert Fisher noted, “Under [Pressler’s] leadership, the company has meaningfully improved its operations, strengthened its balance sheet, greatly enhanced its online presence across the brand portfolio and improved its standing as a global corporate citizen. We appreciate all of his efforts and wish Paul every success in the future.”

Gap is scheduled to release its fourth-quarter and full-year financial results on March 1.