OCTOBER 18, 1999 

'Clicks and Mortar' at Gap.com
The clothing chain's stores and Web site work together to push up sales at both

Back in July, Diane Young had a yen to buy a three-quarter-sleeve black shirt from Gap. But the $19 item was nowhere to be found in her local store. So Young went back to her office, logged on to Gap Inc.'s (GPS) Web site and bought it there instead. With just a few clicks, Young was assured it was on its way. Ever since, shopping at gap.com has become a habit for the 28-year-old Manhattan Web-advertising producer. Twice a month, Gap sends her tailored e-mails promoting its latest specials. And thanks to the site's sharp graphics and easy-to-use format, Young figures she is spending 10% to 15% more at Gap these days.

That's sweet music for Gap executives. The chain retailer started selling merchandise online in late 1997, an early convert to the then-revolutionary idea of apparel retailing on the Web. Now, that gamble is starting to pay off. Gap's online sales have tripled over the past year, according to Jeanne Jackson, the chief executive of Gap's Banana Republic store who's also overseeing Gap Inc. Direct, the online unit. She won't disclose specific sales, but analysts estimate that 1999 sales will range anywhere from $50 million to $100 million. That would be up from about $20 million in 1998, according to Paul T. Cook, a Gap investor and portfolio manager for Munder Capital Management.

Online still brings in just a tiny fraction of Gap's $9 billion in annual sales. But the growth prospects are huge. As consumers shed their reticence to shop for clothes on the Web--and retailers shed their fears of cannibalizing their own stores--online apparel sales should reach about $1.4 billion in 1999. That's up from just $460 million in 1998, according to Boston Consulting Group Inc.

So Jackson, who became a star at Gap after her successful turnaround of Banana Republic, figures Gap must go all-out on the Net. At the core of her strategy is the conviction that the retailer's network of 2,600 outlets can be turned into an advantage in an online revolution that so far seems to give the edge to cyber-startups. By aggressively marketing both the stores and the Web site--and allowing each to leverage the strengths of the other--Jackson figures both will prosper. ''This is about being clicks and mortar--letting customers access the Gap brands, whether in the store or online,'' says Jackson.

Early indications suggest she's right. David Pecaut, a Boston Consulting senior vice-president, says his research into e-shopping shows that over 50% of consumers who buy online and in stores spend more than when they shopped only at stores. The rest spend about the same as before. And in a recent survey of 1,135 households by the National Retail Federation trade group, households reported spending an average of $375 at gap.com over the past year. That's 26% more than second-ranked Eddie Bauer Inc.

What's Gap's secret? The same sort of compelling marketing and customer focus that has brought it success in the off-line world. The Web site is promoted at every cash register and, recently, in window displays with the slogan ''surf.shop.ship.'' Clerks are trained to refer shoppers to Gap's Web site. And in eight high-traffic Gap and GapKids stores, the retailer has recently installed ''Web lounges'' that lure buyers with comfortable couches and sleek gray computer terminals hooked up to gap.com. Meanwhile, online customers can return items purchased on the Net the old-fashioned way, by walking into any neighborhood Gap. Together, the moves ''persuade consumers to think, 'Hey, it's the online version of what I see on the street,''' says Pecaut.

FRENZY. Of course, leveraging a retail operation in hopes of outgunning Net-only marketers is the name of the game among chains from Nordstrom (JWN) to Williams-Sonoma. Retailers are ever mindful of what happened to barnesandnoble.com. Slow off the mark, its sales are a mere 11.5% of those at rival upstart Amazon.com Inc. (AMZN)

That's where Gap's retail network really helps. With more outlets than rivals J. Crew Group Inc. or Eddie Bauer, Gap's better-known brand gives it an edge. Meanwhile, apparel giant J.C. Penney Co. hasn't been nearly as aggressive as Gap on the Web. And Gap is extending its online push with the launch of Web sites for its fast-growing Banana Republic and Old Navy units. ''You see gap.com splattered everywhere,'' says Alan Mak, an analyst at Argus Research.

Yet despite Gap's growing online clout, its Net strategy is hardly a sure bet. Competition is rising from chains ranging from discounter Wal-Mart Stores Inc. (WMT) to clothing rival Abercrombie & Fitch Co. (ANF), whose ultrahip site has proven a huge hit among teenagers. And while it got wired early, Gap's cyberstrategy has been slow to shift into high gear. It was a full year after the site was launched before it began offering apparel for sale.

To make up for lost time, Gap is turning to some tried-and-true methods to convert walk-in shoppers to cybershoppers. In July, Gap held an in-store drive to get customers to submit their e-mail addresses. To spur shoppers to sign up, Gap offered 10% off and free shipping on their first online purchase. That effort doubled the size of Gap's e-mail database, now a key way for the retail giant to directly reach its customers. Gap's weekly e-mails plug specific merchandise and include links directly to apparel on Gap's Web site.

''EASIER AND EASIER.'' Once online, Gap customers have access to virtually everything available in Gap stores--and then some. Items range from a tank top for $10 to a leather pea coat for $250. The site even carries extra-large pants sizes not available in stores. And to help customers choose their blue jeans, Gap has installed a feature that lets shoppers contrast eight different cuts and styles, including such looks as ''low rise,'' ''boot cut,'' and ''1969.'' Jackson says goods bought online get returned at about the same rate as store purchases because most online shoppers have a good idea of how Gap clothes fit.

That's the experience of Bonnie F. Harris, a 37-year-old public-relations consultant in Sausalito, Calif. Harris has bought from Gap's online store half a dozen times since last Christmas. Each time, ''it has been getting easier and easier to use,'' says Harris, who plans to spend $400 to $500 online at Gap this holiday season. Harris' most recent splurge: a sweater and skirt for about $100, displayed together on one page.

With money like that floating around in cyberspace, Jackson has been scouring the virtual landscape for more ways to promote gap.com. Many more Web lounges are likely to be rolled out at busy stores across the country. And her latest scheme is a partnership with online music seller CDnow Inc. (CDNW) to cross-promote Web sites. That idea was hatched after a flood of e-mails from gap.com customers asking how they could buy a recording of the music played in Gap TV commercials. From swing music to easy-fit jeans, all in a few clicks, the Gap is aiming to make the most of the online revolution.

By Louise Lee in San Mateo, Calif.

MARKETING

Seamless Fit


By coordinating online efforts closely with its 2,600 retail outlets, Gap hopes to avoid cannibalization and build sales overall. Here's how:

-- If you can't find your size at the store, walk over to the ''Web lounge'' or log on at home. There's greater selection and more sizes online.

-- Bought some khakis on the Web that don't fit? You can return them to any store. It's convenient and gets shoppers into stores.

-- Shoppers and users of in-store computers are encouraged to register for the site. That allows Gap to send weekly e-mails announcing sales, new styles, and even birthday reminders.

Among apparel chains, Gap holds the online lead

WEB SITE                 ESTIMATED SALES
                          (millions*)

GAP.COM                    $80-100

JCPENNEY.COM               $60-80

EDDIEBAUER.COM             $55-75

JCREW.COM                  $40-60

VICTORIASSECRET.COM        $25-40

* For the year ended on Sept. 1, 1999

DATA: NATIONAL RETAIL FEDERATION