Well, good morning, everyone, and welcome to Gap Inc. 2015 Investor Meeting. We're very glad that you could join us today. Our goal is to provide an update on Gap Inc. Priorities as well as our global brand strategies and key initiatives.
Before we begin, I just want to remind everybody that today's presentation and the accompanying press release include forward looking statements. For information on factors that could cause our actual results to differ from the forward looking statements, please refer to today's press release and our most recent annual report on Form 10 ks, both of which are available on gapinc.com. In addition, a description or reconciliation of non GAAP financial measures included in this presentation can also be found in today's press release. This morning, you will hear first from Art Peck, Gap Inc. CEO followed by Jeff Kerwin, Global Brand President of Gap and Sabrina Simmons, Executive Vice President and Chief Financial Officer.
After that, we will have a short break. When we return, you will hear from Global President of Banana Republic, Andy Owen and Old Navy's Global President, Stephane Larson. We will have Q and A after each brand President's remarks. You will also have the opportunity to ask Art and Sabrina questions at the end of the session. Now I'd like to go over a few other details before we get started.
Today's presentations are being webcast and an archive will be available on gapinc.com in the Financial News and Events section. In addition, a key messages summary and Sabrina's full presentation will also be available for download on gapinc.com following today's meeting. We will have a 20 minute break at around 10:15. Refreshments will be served in the lobby. Please take the opportunity to check out the product setups if you have not already done so.
Since time for Q and A is limited and we want to respond to as many of you as possible, we ask that you please limit your questions to 1 per presenter. With that, I'm pleased to introduce Gap Inc. CEO, Art Peck.
Thanks, Jack.
Good morning. It's an honor and a pleasure to be here. I see a lot of familiar faces and some that I don't know. So as we spend the day together, the morning together and get to know some of you, please catch me outside if you have a question or I'm happy to answer questions at the end of as well. So we have a very focused conversation for you today.
And it's a conversation that is going to be distorted towards the work that we're doing to be better and more consistent on product. We are a fashion apparel company and we are a retailer. And today the conversation is going to be distorted towards us as a fashion apparel company because frankly all the rest of it, global growth, digital, everything else that we're doing doesn't matter if we aren't better and more consistent at the product that we put in our stores. And we'll talk through each of the brand stories. They're in very different places.
Old Navy obviously has continued to pull very hard for us. We're very pleased with the performance and I'm particularly pleased with the consistency of the performance. And I want to underline that word consistency. It's a critical issue for us and it's been our Achilles heel as an organization. And we are heads down across all of our businesses focusing on improving the consistency of our performance day after day, week after week, season after season.
Come back to Old Navy, obviously on the other side of the equation is GAAP, which is in the middle of the turnaround. You saw the news yesterday. Jeff will spend more time on that and so will Sabrina. Some of it is macro, but some of it frankly is self inflicted from a turnaround standpoint, which is kind of a good news, bad news story. Good news in that we know what to do to correct it, bad news in that we got ourselves there in the 1st place.
And you have my commitment that we are not going to go there again. Gap is a great brand, a relevant brand, a powerhouse brand around the world and it deserves its rightful place inside this portfolio and for our customers. And we're working very hard to get it back to where it needs to be. Let me spend a minute before I go into the brands deeper, talking about the things that we're not going to talk about today, because I want to make sure they're on your mind and that you know that they're on our mind, but we are not going to spend a lot of time and some things that we've spent time with you on before. So first, global growth.
We've been focused on it for several years. We have a terrific global platform from brands, cross geographies and channels, specialty, digital and outlet. And it's something that we remain committed to. China, the capstone of that, it's a great business for us and continues to be a business where we're putting emphasis. Jeff left running that business to come into the Global Brand President job at Gap and we have an extraordinary leader behind him filling his shoes in China right now.
And it's an area that we're very committed to, but we're not going to talk about it at length today. Digital, omnichannel, mobile, something again that is an asset for the company where we're very intensely focused, but not going to be a big topic of conversation today. We are heads down on continuing to pursue our omnichannel initiatives. They continue to pay for us across our stores in North America. This is something that is really on my mind, which is mobile.
And to me, mobile is really the most profound change in the digital space that maybe any of us will ever see as we work in retail. And why? You've heard me say this before, but I just have to go there for a minute. Why? Because this device is pervasive and persistent.
5 years ago, she wasn't carrying a desktop or a laptop computer into our stores. And so her digital experience was fundamentally separate from her physical experience. Today, the opposite is true. She's bringing those two experiences together and it creates for us the opportunity to allow her to create customer experiences that are different than have ever been there before. This device is profoundly connected to an infinite amount of information and to be able to bring that together with a traditional store experience really has tremendous opportunity for us.
I'd like to tell you where that goes, but I can't. And you know our strategy has been to build capability to allow us to zig and zag with the customer as she discovers what those experiences are as digital and physical bang together. Responsive supply chain and seamless, we talked about those last year. It's not that those aren't important, those are critically important. They've been brought together and really today we're going to hear about them in the context of each of the businesses, which is where they belong.
We have Sonia Singhal leading our product operations, who is working hand in hand with the brands to continue to improve our product capabilities. But today you will hear about our supply chain initiatives in the context of the business benefits that they're yielding. So there's a lot more that we could talk about, but I want to bring you back to product. And let me start on one side with Gap. First, the news yesterday, which I'll let Jeff and Sabrina dig deeper into, but more broadly, what is going on at Gap.
So Wendy and Jeff are here today. I saw when I walked in that they were receiving a lot of attention from you. I'm sure there's a lot of interest there in terms of the work. Number one call out at Gap, which Jeff will also talk about is the team that has come together there. It is, I believe, individual by individual, a world class team.
More importantly than the individuals, I am thrilled with how the team is working together. There was an article last week, I think it was in Fashionista on the team that's come together, noting that it's actually a team that works together. And that's a really critical element to me. What we have gone wrong oftentimes as a company is when we have put the burden of running these brands season after season on the shoulders of an inspired individual. That's not the model to success.
These are businesses global in scale that require a highly collaborative team to be successful. And I would challenge you to name the designer who inhabits the role inside some of our most successful competitors. That's not the model to success. We need great design. We need great creative talent, but we need that talent to be part of a highly collaborative team every season.
And with Jeff and the team that he's pulled together, I see that every day. I saw last week sitting down an amazing team doing style level reviews in the New York office. It was a thing of beauty honestly in terms of the work that they're doing together. 2nd thing at Gap is obviously the announcement here in North America, which was important, hard to do, but necessary to do. So let me just say it to you, I hate closing stores.
I hate the idea of closing stores because I hate the idea of denying our customer the opportunity to shop in their favorite Gap store. I hate the idea of conceding market share. We will do everything we can do to claw back every dollar that we can. But let's be realistic, some of those dollars and some of that wallet is going to go to the competition. Neither of those are satisfying things to do.
But I felt with Jeff and Sabrina as we stared at this, that this frankly was overdue. It was the right thing to do. It positions the remaining fleet to be in the right real estate where Gap brand should be. And importantly for me, it simplifies the job that Jeff and his team have to do. We tighten up that fleet.
We get the fleet more consistent with where we need to be. We can afford to invest in it to keep it to brand standards and we can afford to buy to it and assort to it in a more consistent and simple way. So it's the right thing to do. I won't say there is never any more there because we are always focused on our real estate, always focused on making sure we're opening and closing stores in the right places. But this was obviously a big tranche and probably an overdue tranche of closure and it's good to get it done and get it behind us and give Jeff and the team a more simple platform to work from of the right real estate.
Most importantly, these are stores that largely operate at or above our minimum brand standards. And I know that sounds crazy to say, but I am so focused on making sure that our product shows up in stores that respectfully present that product. And we've had stores out there, many of these stores that were closing that hadn't been touched for years. We couldn't afford to invest in, wouldn't have been the right thing to do, but they did not hear the product in the appropriate way. And so for that reason as well, getting this done and getting behind us was a critical thing to do.
The layoffs at headquarters also were really about simplification. This is a lot of job elimination. My characterization of it is, as we started down the global brand model a few years ago and there was work to be done inside of Gap that was never completed. So I've been encouraging Jeff to get the work done, get it behind us, have in place a team that is fast, nimble, efficient and effective. And with these actions, I believe that's where he will end up and he'll talk to you more about that.
Last thing I would say with Gap is that we have an amazing global platform that this brand sits on. And where we take this brand is well received by our customers globally. Again, I'm very encouraged by the continued results that we have in China, the continued growth in China, and our path towards establishing a very long term, a long term very important business with Gap and then with Old Navy in China as well. Let me switch to the Nano Republic very quickly. Andy is new in the job with a new design team as well.
And so it's a work in process right now. Just as Jeff has brought together a world class team, Andy has as well, starting with her, a gifted leader in the company, somebody who's starting in the company in the field, has worked in merchandising, run multiple brands in the outlet space and now sitting in the President job at Banana Republic. And Andy and I have worked very closely together and I know her very well. Behind her is a team across design and merchandising that again is a terrific team. And you may get the theme here that I'm very focused on people and that's really spent the last several months of being in this role with 2 priorities, people and product.
And so I worked with Jeff on his team, Andy on her team and Stefan's team has largely been in place now for a couple of years. So they are work in process, catch her outside again or during the break and talk about the work that we're doing on product. I am very bullish on the Nano Republic and I am not happy with the performance that I've seen out of this business over the last couple of years, especially in the women's business where we have conceded market share to our competition. And as a theme for the company in total, the theme needs to be that we're going to pivot from conceding market share in our mature markets to winning back market share in our mature markets. We have to get there, that sits on a platform of product and that's the work that we're doing right now inside each of the businesses.
Andy will talk to you more about the work that is taking place there about the brand and about getting back on track and particularly back on track in the women's business.
Let me go to Old Navy.
So you've heard me say this, many of you I've sat down and talked with face to face about this that Old Navy is our proof point on making structural change in our product processes to achieve better product more consistently season after season. 11 out of the last 13 quarters positive comps since 2011, dollars 1,000,000,000 of incremental sales in the brand, that's a market share gain. You've seen our numbers quarter after quarter. They are not an accident. They're on purpose.
And they're on purpose that sits on structural fundamental change that we've made in the way that we bring product to market, proving that it can be done. And this is an important point for all of you to hear from me and then hear from the brand presidents. You've probably heard across the industry and perhaps inside of this company dialogue in the past on shortening the pipeline, on making better product, on strategic vendor relationships. And yet largely this industry continues to do business the old fashioned way and continues to have the inconsistency that has plagued us as a company for the entire time that I've been here. We have our moments of glory, but they don't follow then they're not followed with consistent moments of glory.
And it's that inconsistency that has been again our Achilles' heel that we're working to correct. 11 out of 13 quarters of positive comps, dollars 1,000,000,000 of sales doesn't happen accidentally. It happens through intentional redesign of our product process. And let me just throw a bunch of words at you where each of our brands needs to be. On trend, on brand built for perceptible value and quality with consistent fit.
Easy to say it has proved more elusive to do, but Old Navy is demonstrating that it's possible. It's the work that we're doing inside each of our businesses right now to mimic the work that's going on at Old Navy. And Jeff and Andy will talk to you about that and Stefan will open up the curtains more on what he has done to achieve those results. Value, I should use the word value. Value is a critical component today.
You just look at it across the consumer, across the customers, around the world, value is a critical component. And it's critical in Old Navy, it's critical in our outlet businesses, it's critical in air mix. I told the story yesterday during an interview, but I'll tell it again. I was sitting on a plane next to a woman who was probably between her bag, her shoes and her clothing, it's probably $20,000 or $25,000 sitting in the seat next to me. And we started talking and she allowed us to how one of her favorite stores that I probably never heard of was Intermix.
And we started I mentioned that I actually had heard of Intermix. And I've always never missed a chance to go in on a customer and understand what's working and not working. And one of the things she talked about was obviously the way that we curate designers, etcetera, etcetera, but also about the fact that she appreciated their sales. And Intermix has these loyalty events that are different than perhaps what we have in an Old Navy, where it's spend $3,000 and get $500 back, different than the average price point out there. But that's what she was responding to, which is the fact that as a loyal customer, she participated in that value piece and she felt smart and she felt like she was doing the right thing, even though obviously she was very affluent and had a lot of money and had a very high taste level.
So I think it's a critical component across our businesses and a critical piece where we need to continue to execute effectively. Now value isn't 40 off every day and we have been way too 40 off every day in too many places in this company. Andy will talk about that. I see her nodding her head. I know Jeff will talk about that as well.
And then we'll go to that place or you'll ask me, which is how do you pull the promotion needle out? Such a graphic image, right, pulling the promotion needle out. Well, the simple reality of pulling the promotion needle out, which we have demonstrated before is that you have product that she loves and that she finds out that if she didn't buy it when she went in, it's no longer available. Scarcity is a good thing. The worst place to be in this the second worst place to be in this business is overbought.
The first worst place to be in this business is overbought with product that she's not responding to. And that yields too many 40 offs. And so again, back to product, starting to reduce the promotional expense of this business, the promotional depth and frequency will start with product that we buy tightly that she loves. And I know it's easy to say, elusively hard to do, but it's what we're committed to doing. Okay.
I'm going to turn it over to Jeff here in a second. The one last thing I want to talk about that we're not going to talk about today is Athleta and Intermix. Nancy is here. She was at the Athleta display outside and the conceptual Yurt. I don't know where that came from, but we set up a conceptual Yurt out there.
We are very bullish on the Athleta business. The Derek Lamb 10 Crosby capsule out there is very cool. I would encourage you to take a look at that. That will be sold in the Derek Lamb 10 Crosby store, which is at 10 Crosby in SoHo and also in Athleta stores and online. It's a great example of the synergies that we're beginning to get also out of the Intermix business.
It would not have happened if we did not have an excellent relationship with Derek Lam and that business and it was really brokered by the people at Intermix coming together with Nancy and putting that collection together. And we're bullish on Intermix for the same reason. Intermix, as you know, it's never going to be the size of Old Navy. That's not why we bought the business. I am particularly bullish on intermix because it connects us to the heart of the fashion industry, to the design talent and the ecosystem that inhabits the designer and the premium contemporary and contemporary space.
And that's a very important connection for us to continue to exploit in this company. So let me stop there. Sabrina and I will come up at the end and we'll have a chance for you to ask questions. You can catch me outside in the break, etcetera. But right now, let me introduce to you, Jeff Kerwin.
Good morning. Hey, I'm excited to be here representing Gap brand. Just as an update, I've been actually with the company now, actually with the brand 180 days and we've been busy, real busy. So I want to share with you a little bit of my initial assessment as I moved into this particular position. And then some of the immediate actions that we've taken, some of the initiatives that we've put in place, some of the progress that we've made and then some of the places that we'll be working on as we move forward.
But first, I want to start talking about the opportunities that I saw. So when I first got into the role, it was really apparent to me that we needed to go very, very quickly on building a world class leadership team. That was the number one priority that I saw in front of me and that was a shared priority with my boss. So we collectively put out a really aggressive timeline on how are we going to go out and find the best talent in the industry and put them together and make sure that we have a team that's really collaborative, decisive, can move super fast, have a proven track record for results and people who can get along and work really well together. So I'm going to dig into the leadership team a little bit later and give you a bit more detail.
But that was for me the number one priority because the only way I saw to improve the business in the way that it needed to be improved was to quickly move on talent. The second is product acceptance. You heard a lot about that from Art and the consistency season over season, year over year. And that's just something that we haven't been able to do recently at Gap is consistently deliver product season over season and year over year. And underneath that, there's really a couple of large opportunities that I saw that we needed to address quickly.
And one is a common understanding of our product aesthetic. And what I mean by that is, what are the decision filters that we use? What are the things that we're going to make sure that when we
make product decisions, whether it's in
design and merchandising and inventory and production, that everybody understands what the outcome needs to be to satisfy the customer. So we've done a lot of work around align So we've done a lot of work around aligning behind one clear product aesthetic and training the teams. I'm going to get more into exactly what we've done there a little bit later in the speech. The third thing or underneath that product acceptance, as Art said, is the product pipeline. The company's got a lot of capability.
So Gap Inc. Has a lot of capability. You see the results in Old Navy and Stepan starting to unlock some of that capability. But quite frankly, in Gap brand, we had a lot of opportunity to move forward very quickly in how we bring product to market. In the speed that we bring it to market and the flexibility in our inventory, the responsiveness to the customer, being able to be more predictive and demand driven.
And so we set out really aggressive action on rebuilding that work to start unlocking that value. And again, I'll get into more detail in a moment. And along with all of that, we had to really put a big focus on creating an assortment architecture framework that we can build on. So truly understanding our business, what we need to test as we start to launch new ideas and new trends, how to really be more commercial around things that are starting to move up the curve or how do we quickly start to get out of product that is no longer relevant to the customer. So we've done a lot of work around building what we're calling our Gap brand assortment architecture and being able to be planful as we go season over season and continue to try to find ways to grow the business.
And then underneath that product piece, one other area of focus was really expanding our trend prediction process. So I think we had a good process where we had a lot of talented designers and they were grabbing a lot of information from a lot of different places. But I thought it was really important for my team to expand our view, really create a larger creative ecosystem from which to pull information and then to systematically push that through what I just mentioned before, which is our own product aesthetic. And that really is what's going to drive in the end what we bring to our customers every season. And all of that work is really focused on getting more product acceptance and more consistent and better and better season over season and year over year.
So clearly, you'll hear common themes obviously with Art and myself, but the 2 major priorities that I wanted to kick off immediately was people and product. But it did become apparent to me when we started really digging into one of the big opportunities for us as a brand. And one of them was that we had to show up to our customer in a really great way. So we had to have an expression of our brand that was consistent across digital, across our physical stores, how we talk socially and through our marketing campaigns. And as we started to dig into our real estate, we just didn't have consistency.
So we've got very powerful real estate globally. Okay. Having been in Asia, we've got some incredible pieces of real estate on the 50 yard line showing up to our customers in a really great way. And we have some
of that in New York and
we have some in Chicago and San Francisco. But we also have real estate that is just not representing our brand the way that we need it to be represented. And I'm going to get into again a little bit more detail later on what were the decision filters that we used when we went through making those really tough decisions. And I know that everybody has heard the announcements yesterday. And I'll just tell you from a personal note, yesterday was a hard day.
It was a really hard day for me. It was a hard day for my team, because as we went and made these very difficult decisions, there are faces associated with them. And there are customers that we're going to vacate in certain areas of the countries, particularly in North America. So I'll just leave it there. It was a tough day.
So I think with all of that, those were some of the bigger opportunities that I identified immediately. And so now I just want to take a bit of your time and get into each one of those individually and share with you some of the progress that we've made and some of the actions that we've taken. So again, when I talk about a leadership team, what I was what we sent out to do with our human resource partners, our research I mean our outside search firms across Gap Inc. And help from some of my peers because we all were trying to work collectively to put this team together really, really fast. And the things that we wanted to make sure that we brought together was a team that not only worked together well, but had a really good proven track record and we could see demonstrated success over the course of their career.
And what's really interesting is a lot of the people that we brought into place have worked for Gap before, so either Gap or Banana Republic or someplace within Gap Inc. And then have gone on to have really great careers. So it's just an interesting note that all of the people that touch product for me now, so whether it's Wendy in design or Steven Sayer, who was just announced last week as our new head merchant or Lex Genesis in charge of all of our inventory and production, they all had done a stint at Gap. And then they went on and had pretty amazing careers. And then in conversations with all three of them, they all wanted to come back.
And they wanted to come back because they heard what we were doing in the brand, they had confidence we could turn it around and they happen to know each other. So it's kind of a gift to me that they could come in and start running because they know who we were when we were great and they've gone out and had some incredible experiences. They like each other and along with the other team that we've assembled, we're now ready to go. So as of last week, it was that last puzzle piece to put back in and make sure that we had a world class team to win. So I'm really excited you're going to hear that from me or from Art, but it's really important that we have that team as a foundation to move forward.
So once we got the team together, the next piece that I wanted to make sure that we accomplished early and quick is alignment. And we just didn't want to as a team be running in different directions. We wanted to be grounded on a very clear alignment as a team. So we focused really on 3 things that we all were galvanized around one clear view of our brand vision and mission. And really that's just centering on who we've always been when we've been great and trying to make sure that as we look out in the next 3 to 5 years that we identify what's going to be important to us as a brand and we all align to it and get really centered around one clear brand mission.
The second is whether it's the leadership team, the people who do our product or our operations teams around the world that we're all aligned around one product aesthetic. And so again, we've done some work around the product aesthetic. I'm going to get into that in detail, but that was really important to me that at the start, the leadership team was aligned around one clear product aesthetic. And then third is that we all clearly understood who we were going after as a target customer, what was important to him and to her and really start to build strategies aligned to acquiring that customer, keeping the customer and then haloing to larger groups of customers as far as geographies and age groups. So the product aesthetic, really what we mean by that is we're talking about it as brand is Wendy along with some other people in our product teams, along with some people in an outside service came in and did a lot of hard work early on to land what we're calling our product aesthetic filters.
And so what they've done is they've kind of gone through here are the questions that we're going to ask on every single piece of product that goes into a GAAP assortment. And if it doesn't get through all of these filters, which are anchored back to who we are as a brand and what our lifestyle is that we want to communicate and the authenticity of who we are as a brand, if they don't get through those filters, they don't show up in the store. And it was really important work and we've done it across our outlet team and specialty teams. So we're all aligned on one view of what our product aesthetic should be. And now we have a process by which we're going to make decisions on which products get through into our customer.
And so we've trained all of our product teams in design and merchandising and production and inventory management in our New York offices. And then we've taken this and made sure that we've gone out beyond the product teams here in San Francisco in our operations teams and we're going globally and making sure that everyone understands what that product aesthetic is because it's not just making the product and getting it to the store, it's how it shows up in the store, how it's communicated to the customer, the product information, the knowledge that we have from our hourly associate to Wendy and Design. So it was important that we landed these so that we could have consistency because where you've seen us go off, particularly in women's, is when we've lost our way in the aesthetic and we're just not going to do that anymore. So we talked about product pipeline. I just want to talk about that a little bit deeper from my vantage point inside of the brand.
So as I mentioned, Sonia and her team in sourcing has created a lot of capabilities. You started to see some of them show up with Stephane and his team in Old Navy. And so we quickly went to Stephane and his team and stole everything that he was doing. And why not? We're all part of 1 big Gap Inc.
Enterprise. And he opened up the brand for me and really showed here is the mechanism that he's using, here is what's working, here is what he still has to do. And I know from hearing Stephane speak, he's going to share with you there's a lot more work to be done even in Old Navy. So we took what he was doing well, identified what further steps that he might be able to take and try to jump ahead of it a little bit, made sure that we continue to look outside of the enterprise for common practices in world class retailers and learn from them. And we put together a really aggressive plan to make this product pipeline more flexible, more predictive, more responsive, fast and be able to take the customer view from the center and react very quickly.
So Sonya and her team worked directly with me. She took a lot of her talent, flew them to New York and we got together as a team, broke the product pipeline down and rebuilt it. So what I mean by rebuilt it is we put multiple lanes in our product pipeline. We've got our seasonal lane, but we now have a really good responsive lane and we have the ability to get back into what's working quicker and get out of what's not working fast. So the foundation is built and now we're just operationalizing it and trying to create more value as time goes on.
And the full power of the product pipeline is going to evolve over time. And I think we'll see it really starting to show up in 2016. Along with that, as I shared with you, we've really expanded our trend prediction process and put that inside of this entire process in building out the product pipeline, because what we see in trend 9 months out and what we learn 4 months out is all really valuable information that needs to be put into this process so that we can bring the best product to life for our customer. And of course, that's all through our product filters that I shared with you. And then rightsizing the fleet.
Again, difficult day yesterday for a lot of reasons, but this was an important decision. So we have trade offs. Obviously, a big trade off is that we're going to be closing certain areas of the country. And we've put a lot of different thought processes into which stores close. So I think where we could have made a mistake is if we just made a financial decision.
And what we did first is we really looked at it from a brand decision, which is which stores represent the brand in the best way across North America and globally. And when we took a look at that, there were certain stores, as Art mentioned, that just didn't pass muster. So if you just think of a store that might have been open for 15 or 20 years that maybe was just making a little bit of money and we never really warranted enough financial investment to really refresh it. And it's in a center that might not be the shiny new center anymore and traffic patterns have shifted and moved. And obviously, we're in a dynamic situation where traffic is shifting into online and into value segments.
And all of that impacts the store that we're looking at and saying, you know what, no longer does that really represent who we want to be as we move forward in the next 3 to 4 years or who we are as a brand. And that's really where we started. Then on top of that, obviously, we looked at financials, we looked at earnings of the store, we looked at the productivity of the building, we looked at the shape and the physical plant that the customer is walking into. And through a really thorough review from our finance teams to our teams on the ground who are close to our customers, to me personally who have visited the stores, we did a lot of really deep work to scrub through and say, these are really the stores that we need to close. And we made the tough decision to do it quickly, because we could have made the decision to take it and run them all over the course of the natural lease expiration.
But being someone who's really close to the field, what I can tell you is that's really hard. That's debt by half 1,000 cuts. That's I don't know what's happening in the next month. And we made the hard decision to take the majority of these stores and just close them very, very quickly. So as you read, we're closing 175 stores, primarily North America.
We've got a limited amount of stores that are closing in Europe. Largely, we're not taking action against our stores in the outlet space. This is primarily a specialty exercise. But I think it's important just to remember that we still in North America have presence across 800 physical plants in the United States and Canada. And globally, we have 1600 stores plus where we have still a very expansive network in our fleet.
Obviously, that tough decision results in loss of revenue. So we're predicting about a $300,000,000 loss in revenue. As Art said, we haven't had a lot of success in the past recapturing all of that revenue. It's very difficult when you leave a trade area. But obviously, we're not going to rest and do nothing about that.
So we're setting some actions in place to see what we can do to regain some of that loss in revenue, whether it's shifting in channels, moving to a store down the street or potentially even going to a sister brand. But we're going to do our best to figure out what we can do to recapture some of those losses. Sabrina is going to come up in a little bit and talk you through a lot of the financial detail and she'll also be my partner in crime when we have to answer some questions. In the end, we're looking to make sure that this is a healthier fleet from which to reinvest in and keep our teams focused. So for me being able to shed 175 stores and really shift to what the best real estate, the best impressions for the brand are from an operations standpoint where we invest money, capital, time and resources, it's going to allow our team to focus in and really make a bigger difference in the best locations that we have globally.
In the end, it's going to be a healthier fleet. We're going to have productivity improvements, operational synergies across multiple different disciplines and functions, again, the ability to focus the team. And ultimately, our goal is to improve customer experience across all of our touch points and we'll have a healthier base from which to do that work. And then you also heard yesterday about how we changed or how we're reducing some headcount. So when we made the tough decision to close some stores and we changed the way that we're bringing product to market, it was really important that we aligned our teams behind that work from the get go.
So we spent a lot of time really looking into how we do our work. And so when I mentioned the product pipeline and the product to market process, it actually changed the way that all of our cross functional teams work. So to be faster and more nimble, our cross functional teams need to really be sidled up next to each other and working together day in and day out. So we took a deep dive into the organizational structure of the company, aligned our work around the product operating model and our goal was to really reduce inefficiencies and duplicities and become more nimble and quick. So as we did all of that work, we spent a lot of time with our merchant teams and design teams and production teams, getting together and huddling in rooms and trying to figure out what's the best way that we can work to bring the best product to our customer.
In the end, that resulted in 250 layoffs or removal of rolls. And that's a big number. But we were looking to make sure first that we're going to have a team that can bring product to market really successfully. And then second, the end result is that we're going to be quicker, faster, de layered and increased spans of control and be able to have a more focused team who is more accountable. And that's really the end result of it, but it started off with making sure that our teams were aligned behind our product operating model.
In the field, obviously, closing that many stores, there's going to be a lot of impacted employees. And that's going to be a difficult conversation as we have those with those individual stores. But as a company, we're going to do our best to redeploy as many of them into our other Gap stores, potentially into other Gap Inc. Stores across different functions. And if as you guys know in the field, we're constantly hiring.
There's always a need for great talent. So we're hopeful that we can redeploy a lot of our associates, but there is going to be some transition and some hard work to do. But as you can imagine, at Gap, we're always respectful, fair and doing the best that we can for the people who have been loyal to us. Okay. So, I think I'll close with that and just say, I hope today I've been able to share a little bit about the opportunities that I've seen, the immediate difficult actions that we've taken and some of the priorities and key things we're working on to bring this brand back to a place in the leadership position that it should be as one of the best brands in the world.
So thank you.
Thank you, Jeff.
We'll now open the floor up to questions and we have some lightning fast mic runners. So if you could just wait for them to get to you so that the folks on the webcast and in the room can hear you, that would be great. Hi, yes. Matt McClintock from Barclays. Clearly, you're doing a lot of work to improve brand representation for Gap.
And I'm just wondering, as you decide to close full price specialty stores 175, you're shifting the mix of the brand more towards the value channel with outlet and factory. And I just want to understand clearly that's a very profitable channel or it should be. But I just want to understand how you think about the right mix of the value channel versus the specialty channel as you're thinking about the longer term evolution of brand improvement? Thank you. Well, as I mentioned, that's the mix that it's going to be today.
So it's going to be 503100 in North America specifically. The outlet channel growth is going to be primarily international. So I don't see a shifting much more into the mix of outlet versus specialty. So I think for now with the way that our customers are moving a bit towards value and towards the online channel, it feels like the appropriate balance for us today. But we're going to constantly review how the customer is shifting, where they shop and how they shop and who they shop with.
And we'll be evaluating that year over year. But right now, it feels like the right balance.
Hi, Bridget Weishardt, Morningstar. I think some of the challenge of regaining market share is not only getting the product right, but then also getting your core customer back into the store. Could you just talk a little bit about how traffic has been trending versus conversion? And once you get the product correct, how you plan on getting her back into the store?
Well, I think it's we mentioned that it all starts with great product. And I know it sounds a little bit oversimplified, but word-of-mouth is a really powerful thing for us on the downside and on the upside, and momentum is a really powerful thing. So I really I'm going to go back to the answer that product is going to be our primary focus. We also have a lot of work going on in our marketing teams to align back to what our brand mission is and then be able to build campaigns in 2016 that really accurately reflect who we are as a brand and start to pump some excitement externally to get people to come in and try us again. As I mentioned, one of the important things for me was to ground our entire team on who we're going after and what that target customer wants from us.
And by grounding us in that information, it's starting to allow us to build communication plans to go acquire and hold on to that customer as we move forward. And that spans everything from our stores teams to our marketing teams to how we're going to communicate socially, digitally and how we're going to try to figure out the service strategies across all of our channels to be successful in acquiring them and keeping them. So it's kind of a broad range of work that we're going to be doing to make sure that we're bringing them back in and holding them.
I'm wondering if you can share with us a little more detail on who your customer is, Who have you defined as the core GAAP customer, so that we can think about the way you architected the brand filter?
Sure. So we set out about 6 months ago on a pretty aggressive plan globally to not only identify who our target customer is, but learn what's really, really important to them. So we did deep dive research into every area around the world where we have a high concentration of business. So in Tokyo and Shanghai, in London and then in North America, a little bit in Canada, San Francisco, New York, Chicago as primary areas for really deep research with our customers. On top of that, we pulled up all of our consumer insights that we've been continually evolving over time.
And we pulled all of that together and we learned a couple of things about our customers. And what we learned is a lot of what's really important to one segment of the population is actually really important to another part of the population. It's just viewed a little bit differently. So I'll just share an example of what I mean on what we learned. The 25 to 35 year old female customer for Gap is thinks that she's got her style pretty well down.
She feels pretty, she feels feminine, she knows how to shop, but she wants to be taken a little bit more seriously. The 35 year to 45 year old female who wants to participate with our brand when we're at our best, She's already taken serious, but she wants to feel feminine and pretty. So as we started teasing out all of this different learning, we really realized that if we really are great at serving 1 group of this customer segment, that we're going to halo across generations and geographies. So we've landed on the 25 to 35 year old adult customer, both male and female with a slightly above average spend, a lot of interest in looking great and presenting themselves in an interesting way. And we learned across the world that there are 3 or 4 really consistent things that are important to them.
And that's been a bit of a foundation for us to start to build strategies again to acquire them and to keep them. I'll just share 1 or 2 learnings without going through a whole speech on it. But it was just interesting to me that the customers who are in that age group that we want to go after and acquire, they're evolving their own kind of individual styles. They're getting inspiration from everywhere, from friends, socially, digitally, globally now, and they are pulling in all of this inspiration, but what they want to be able to do is express their own individual style. And what we need to do as a brand, so the kind of the result of that is we need to be the trusted source by which they come in and shop with us to help them evolve that own individual style.
So we've got learning after learning that we've got from these customer groups and we're starting to apply strategies and execution tactics against it. But I thought it might be helpful just to share with you how we landed on what we landed and where we learned from our customers, which is a global viewpoint. Oliver Chen from Cowen and Company. Thank you. How do you think you're going to balance the DNA of being such a great key item heritage versus individual style?
And also could you articulate your thoughts on kind of a portfolio approach to products and how you might identify up versus down trending and how that may play out in your execution and infrastructure timing? Sure. So I kind of mentioned that with the assortment architecture framework and what I'd share with you is that's exactly what the process is, which is we're identifying by division and category where we've got product that is has served us well, but it's starting on a decline and what we can either do to rebalance that or start loading in the base again with new ideas and new trends. So without getting into too much detail, what the process is for us is that, again, category by category, division by division, we're looking at what is starting to trend externally and feed that into our process very quickly through testing. And then if it tests well and we feel confident in some of the early results, we're going to invest.
And if it starts to read pretty well, we're going to invest more and move on forward. And we've built this continual process and viewpoint in how we're going to introduce new ideas, new trends, new categories into our overall process and then how we're going to start to get out of some of the decline categories. So it's a pretty comprehensive process that for us takes a lot of cross functional work together. So we're pretty confident that we're going to start to unlock some value by making sure that we're introducing new items and getting testing really quickly. John Morris with BMO Capital.
Jeff, as you and Wendy and team have done your extensive assessment, I'm wondering about initial price points on the product at women's, if you think there's opportunity there to sharpen them and just generally what your assessment is of those initial price points? Listen, I think every season we need to evaluate the competitive landscape. I think we need to evaluate what the product acceptance has been from our consumers, what our discount rate has been and evolve our pricing over time. And it's going to be a piece by piece, item by item exercise for us. I think we've got some really good pricing integrity in certain aspects of what we're selling.
And then with tough product acceptance, I think that's where we've got a little reliance on some of our pricing. So it's going to be an exercise over time, I think is the best way for me to answer that.
Hi, it's Laura Champine with Cantor Fitzgerald. So Jeff, I appreciate the quantification of the potential sales loss of $300,000,000 but would love to know more about the profit impact both of that and of the changes at headquarters.
Well, I think I'll let Sabrina go through some of the financial details. She'll be up here talking through a lot of that shortly and then we'll let her feel that one, I think.
I think we've got time for just
one more question.
Susan Anderson with FBR. As you think about acquiring this core customer that you talked about and then also it sounds like maybe trying to keep prices similar to where they're at, how should we think about quality? Do you think that with improving fit, do you need to add some more quality back into the product? And with that, they kind of keep prices attractive. Do you think you have some efficiencies within the supply chain?
Thanks.
Quality is one of the biggest things that we're working on. And I think that's it's going to be a foundation of the work that we do. And Art mentioned a little bit about quality and fit as the centerpieces of what you're going to hear from all of the brands. For us, the positioning that we want to take is we want to offer a premium product that still be accessible. And that's a lofty goal for us because we're going to need to really find a way for a customer to be able to have quality that they can see and feel in the product and tie that back to an accessible price point.
So a lot of the work that we've been working on most recently is really flipping how we're looking at the production process of our product, which is shipping more to fabric first and then design into fabric so that we can have a more strategic investment in a particular fabric, identify all the ways that that fabric can be treated and washed and detailed and see what type of term, whether it could be a longer term investment, so we can get the cost to where we need it to be, but in the end producing a better quality product at a more accessible price. And that's really been a lot of the work that Wendy and her team have been working on along with production and through Sonya's organization. So in the end, we're looking at much better quality product, but still at a really accessible price.
I think
that was it. Thank you very much, Jeff. Mark, did you want to just add a few comments?
I do. I can't resist.
So you can leave the stage. All right.
I guess. So part of
my I just want to underline some things. And one of the things I love about Jeff is master of understatement, okay? And he is and the team are heads down on doing the work that he described. Part of the reflection that I had to go through in the process of my conversation with the Board as Glenn was coming to decisions around what he wanted to do was this brand and the health and the future of this brand, the namesake brand of the company and obviously an important part of the portfolio. And it really involved reflecting on whether or not I felt like this brand was relevant and
could be turned and turned consistently to continue
to deliver what it should be delivering for the company. Delivering for the company. None of us are happy with the performance now. It's really important for you to note, as I know you know, that this brand was on track under the team that I had in 2011, at the end of 2011, spring of 2012 and through 2013. And much of what Jeff is now doing to fix it is to keep it from going off track again.
As I said, a lot of this turnaround is more self inflicted than I would like it to be. On the questions that you've asked around, will traffic come back? What are we doing? I sat there and watched the business in February of 2012. When we put product into the stores that we were proud of, we ran the women's assortment dry in January.
Some of you remember this. We took fixtures off the floor and it took 8 days and then we had quarters back to back to back to back of positive comps and positive performance top line and bottom line in the business. And so for me to come to here to take this seat, I had to have the conviction that Gap was a relevant brand and Gap could be brought back and brought track and delivering quarter after quarter. I talk to consumers a lot. I spend time in stores a lot.
I talk to our sales associates and it's hard to overstate the consumer affection that exists for this brand. And so I will never be an apologist for the brand. I will be an advocate for the brand because it's a huge and powerful asset for this company. So I know most of you are sitting there thinking, okay, what am I going to get out of fall and what am I going to get out of holiday and is spring really going to happen? The promise that I've made you, which is spring is a no excuses moment, particularly in the women's business.
I can guarantee you that Jeff and Wendy are absolutely focused on that. I've seen where we are on spring product and I'm excited about it, very excited about it. We're hoping to get some juice out of holiday that we haven't seen, but I'm not going to promise that at the end of the day because the line was largely developed and bought before Jeff and the team started on the business. So anyway, I just want you to hear it from me that my deliberation of accepting this role had a lot to do with staring at the health, the relevance and the viability of Gap as a brand. And I'm very bullish on the future of this business.
Let me turn it over to Sabrina.
Okay. Good morning, everyone. And so glad you're here in San Francisco with us. So I'm going to try and cover 3 things this morning. I'm going to begin with a brief review of our performance and financial goals, then I'm going to focus on GAAP actions and try and answer all your questions.
And if I fail to answer them, I'm going to hang out at break and you can ask me even more. And then I'm going to end with a discussion on our capital structure and in particular, our continued commitment to driving value through shareholder distributions. So over the last 5 years, we faced many challenges, including cotton price inflation in 2011 and significant foreign exchange headwinds that actually began in 2013. Despite these challenges, we're pleased that over the last 5 years, we've grown sales by over $2,000,000,000 We've delivered a 13% compound annual growth rate in earnings per share and we generated nearly $6,000,000,000 of free cash flow. Over the same period, we've increased our dividend per share by 120 percent and distributed over $8,500,000,000 through dividends and share repurchases.
Our resulting total shareholder return of about 140% clearly illustrates that despite macro factors and other challenges, we are absolutely committed to delivering shareholder value. Ideally, our goal is to deliver value in line with the following financial model. Drive revenue growth through 4 levers: positive comps on our large comp base of nearly $15,000,000,000 grow newer brands like Athleta focus on faster growing channels like online especially and expand internationally with focus on Asia, as you heard Art talk a lot about China. The growth should be delivered with healthy expanding merchandise margins that result from consistently delivering great products, coupled with disciplined inventory management. Positive comps, as you know, enable us to leverage our expenses and expand our operating margin with an ultimate goal being delivering double digit earnings per share growth.
When viewed over the last 5 years, we're pleased we've delivered on this bottom line goal. Now in the current year, there are 3 main factors that may impede our ability to deliver against parts of our financial model. The first is the impact of the West Coast ports, the second is foreign exchange and the third is the product acceptance issues at Gap Brands. As you all know, we expect performance in the first half to be negatively impacted by the port situation. While this is an issue unique to 2015, foreign exchange has impacted us for several years.
The depreciation of the yen, Canadian dollar and other currencies against the U. S. Dollar negatively impacted our reported operating income by about $90,000,000 on average in both 2013 2014. And as you know, we expect significant impact in 2015 as well. This headwind decreases our average earnings per share growth meaningfully, therefore making our double digit EPS CAGR an especially respectable achievement.
Now foreign exchange notwithstanding, international growth will continue to be an important element of our long term strategy, particularly in markets like China with its expanding middle class and high single digit GDP growth. We're very pleased that sales in China have reached nearly $500,000,000 in just over 4 years, and we expect Gap China to turn a profit on a management basis in 2015, quite a milestone. Offsetting the strong growth of Gap brand in China are the issues we face in Gap North America. With the actions announced, however, we are taking a big step forward in addressing those challenges. As Jeff just discussed, we determined we can simplify the organization as well as right size the fleet.
Regarding the fleet, our closures are primarily pointed to North America that will have some limited international actions mostly in Europe. As you've read, our actions will take the North America specialty fleet from about 685 stores to about 500 over the course of just a few years, as we continue to focus on growing our higher return online and outlet channels. As a reminder, we've grown our outlet fleet to nearly 300 stores in North America. So even with the specialty store reduction, the total Gap North America fleet will remain at about 800. Additionally, since 2010, GAAP's online channel has grown at a compound annual rate of 15%.
So as customers increasingly move to online and to value, we believe the smaller specialty fleet is appropriate. By rightsizing the fleet, our sales per square foot and our store contribution rate for North America specialty should improve meaningfully. Of the 175 North America store closures, we're targeting about 140 to close this year. The vast majority of those closures are natural expirations. We estimate one time cost of $140,000,000 to $160,000,000 associated primarily with Gap Brands.
We expect to take the majority of the charge in the second quarter, about $55,000,000 to $75,000,000 of the charge is estimated to be non cash. To be helpful on the breakdown of the charges, about $40,000,000 is related to lease buyouts, dollars 50,000,000 to $70,000,000 for asset impairments particularly or primarily related to the gas lease, about $25,000,000 for inventory and fabric write offs and about $25,000,000 for employee costs associated with the organizational changes Jeff took you through. Annualized savings from these actions are estimated to be $25,000,000 This equates to about a 6 year payback taking into account the this doesn't even take into account the fact that we'll even have greater benefits that Jeff described that are less quantitative. So a 6 year payback with a $25,000,000 annualized savings. Excluding these charges, we've reaffirmed our full year earnings per share guidance of $2.75 to 2.80 dollars While Gap Brands turnaround progresses, we continue to focus on managing the levers we can control, including expense and inventory management.
Further, we have a strong track record of generating healthy cash flow. Over the past 5 years, we generated an annual average of $1,800,000,000 in operating cash flow and $1,100,000,000 in free cash flow. Our priorities for use of cash remain unchanged. Our first priority is to invest in our business to the degree we believe we can deliver strong returns. Excess cash is available for shareholder distribution.
And over the past 10 years, we repurchased over $1,000,000,000 annually, buying back over 600,000,000 shares at an average price below $22 per share. We've also built a strong track record regarding our dividend. Since 2010, our dividend has gone from $0.40 to $0.92 per share this year, representing close to $1,500,000,000 of cash to shareholders in dividends alone. Our capital structure objective is to minimize the weighted average cost of capital while preserving sufficient access to low cost funding. And though, of course, we periodically review and make adjustments, we believe our current capital structure strikes the right balance between these two objectives.
As you all know, lease obligations are a form of debt. Therefore, while our balance sheet reflects $1,400,000,000 of debt, our lease adjusted debt is about $8,000,000,000 even when calculated using a 5 times multiple. On this basis, our debt to total cap is about 35% and our leverage is quite healthy relative to our peer set. We're currently rated investment grade, providing a flexibility and reliable access to funding. Our capital allocation decisions will continue to be disciplined balancing investments in our business with our demonstrated commitment to return cash to shareholders.
In closing, we're committed to taking the necessary steps to get Gap Brands back on track to achieve more consistent operating results across our portfolio of brands and importantly, delivering sector leading shareholder returns. Thank you so much. And now I'll turn it back over to Jack, and I'll be around for questions later.
Thank you, Sabrina. That concludes our first session. We'll now take a 20 minute break. There are refreshments available in the lobby and we'd like everyone back here at 10:30 please. Thank you.
Ladies and gentlemen, if you can begin taking your seats, our program will begin in about 5 minutes. Our presentation will begin in 5 minutes. Go ahead. Please take your seats. Thank you.
Ladies and gentlemen, if you could take your seats, our presentations are about to begin. Please take your seat. Thank you. Ladies and gentlemen, please welcome back Jack Calandra. Welcome back everyone.
I hope you had a chance to refresh and recaffeinate. We're now going to move on to the second part of our session and we're going to start with our Global President of Banana Republic, Andy Yellen.
Good morning, everyone. I am really excited to be here today for the first time at an Analyst Conference. So it is nice to meet some of you at the product vignettes earlier this morning and I look forward to chatting with many more of you in the future. But I thought before I dive in today, I would just take a little bit of time and talk about my background and a little bit about my history with Gap Inc. So I have been at Gap Inc.
For 24 years and I have held a variety of roles within Gap, Banana Republic and Old Navy, both in our North American businesses as well as our international businesses. I have run the flagship store division in Banana, as well as the factory store division in Gap and I have also been involved in the online channel at Old Navy. So I think around the block today and before all that, it was about 5 years with Bloomingdale before I came to Gap Bank. So having said all that, I've spent the majority of my career at Banana Republic. So I feel that I have a really good understanding of the essence of the brand and what we need to do to move forward.
So it's clear to me now and has always been clear to me that Banana Republic is a very, very strong brand with great potential. We have loyal customers, we have impressive real estate, we have a strong established channel and our online business continues to grow most recently with our introduction of Banana Republic Factory Stores online last year and the customer response to that channel has been really positive so far. So having said all of that, our current performance, particularly in our women's business, has not been what I think is up to snap or it's not realizing our full potential. So to me, there are 2 things that I think we need to do to realize our potential today. Number 1 is renew our strength in product and number 2 is reinvigorate our customer experience.
So I've been on job for 6 months now, really long time, but I spent my 1st 2 months really evaluating my leadership team as Jeff spoke to and as Art spoke to. And for me, it was important to me to assemble a team of leaders that had strengths in the areas that I continue to work on. And I'm happy to say that now I have a team of leaders that have a long track record and experience in product strength and customer experience. So we are working diligently to put the disciplines and processes in place to help us move forward quickly at Banana Republic. So let me start with products.
I'm giving a little bit of my assessment on our current state of products. So when Marissa joined the brand about a year ago, she rightly decided with the team that was there, that it was time to move Banana Republic from a one dimensional, workwear point of view to a more versatile aesthetic that could be worn across many occasions. And I believe that that strategy was and is absolutely correct. Unfortunately, I think that we didn't execute it particularly well thus far. So I think we made a huge push forward in our brand aesthetic, a huge push forward in our styling and also in our store environment.
However, there were a few key things that we haven't done exceptionally well. So number 1, we haven't updated the key categories that Banana Republic is known for. We also haven't invested enough in our new ideas to offset the drain of some of our A and L larger key categories. And last, while we dialed up our new casual point of view into our new creative direction, we really lost sight of a more tailored and polished piece of our assortment. So all of these changes have really confused our customer, particularly our women right now.
So when she comes into stores, she's having a really hard time outfitting to the occasions that she's used to shopping us for. She becomes in looking for something to make her feel dressed, looking for something that's more polished, looking for something where she can feel confident and yet feminine. And she can't necessarily pull those outfits together today. We lack color, we lack print, we relied much too heavily on black and white. Our silhouettes, particularly our fashion silhouettes are oversized and boxy and our bottoms offering has been one note.
So if you didn't want a skinny pants, you were kind of out of black for the last year or so. And finally, our quality has declined. So given the situation, there are a few things that I think we need to do in order to rectify it and move the business forward so that we can offer commercially viable assortment with consistency. So the first thing is we have to prioritize our focus and our investment behind our key categories from design all the way through to the end of the pipeline. We have to be more disciplined in how we identify and execute the appropriate trends for the brand.
We have to create a more disciplined and refined assortment architecture. We have to build a collaborative product creation process and we have to improve our quality where needed. So let me talk to you this in a bit more detail. So first, we're focusing on the categories that Banana Republic is known for and that our customers have told us she expects from us. So when you close your eyes and you think of Banana Republic, we hope you see modern tailors sitting in sportswear, sweaters, pants and outerwear.
So these categories are the things that our customer expects. She's told us private time again they're integral to who we are. And when we do them well, she loves us. She comes back time and time again to buy them. It creates loyalty and customer satisfaction and engagement with the brand.
So these categories will be the foundation of our assortment going forward, pants, sweaters, modern tailored fitting and outerwear. The second, we're getting much more disciplined in how we select and execute trends. So similar to Jeff, we still have as you know, Stephane is doing. Thank you, Stephane, for leading the way. But the first part of that is trend.
So every season, our team starts the season with inspiration. And they're thinking about the world, they're thinking about how we're living our lives, what's impacting what we do every day, as well as looking at the key fashion trends in men's and women's and non apparel. They're putting that all together to figure out how our season is going to head. And then they're coming back and they're looking at systematically all of these cultural and marketplace trends and rubbing them up against their brand filters and asking ourselves which one is right for the brand and which one isn't right for the brand. We believe this process has and will help us determine where these current trends can be incorporated not only into our short term fashion buys, which we've done pretty well, but also into our longer term key pillow buys that live for much, much longer.
And that's where we've really dropped the ball so far. So we hope that as we keep our key categories fresh and relevant, it will not only keep her excited about the fashion that she can understand and easily wardrobe, but it will help us update the longer leading categories much easier. It will also help us do one more thing, which is, it is not a bad trend that's not right for the brand. So crop tops have been a very hot trend for the last year and we saw that trend and good for us, we bought it and we bought it with conviction. Unfortunately, looking back on that now, I would say the team would probably say crop tops in the Dana Republic from a brand filter standpoint, not a match made in heaven.
So we've learned from that. So hoping this trend process in the future will keep us from making mistakes like that and consistency in the future. So trend and assortment architecture. We're really refining our approach to assortment architecture. Again, we'll be much more disciplined in how we evaluate each style's particular place and role in the assortment.
So we'll be clear about what every part of the trend curve each style is either in or heading towards. So is it a new idea? Is it an idea that's ready to be explored and grow? Is it an idea that's at its peak that maybe has one more season left? Or is it something that's really ready to be reinvented and potentially exited from the assortment?
This will help us make better investment decisions and also know when it's time to cut our losses and move away from certain items or programs. So let's use Lumix Piazza as an example. In the past, we found a winner and we invested in it aggressively season after season and for a while it performed very well for us. But over time, what happens is that the customer sees it over and over again, it becomes less and less relevant to her and then we end up going to deeper and deeper promotion. So looking ahead, we're designing to arrange the silhouettes informed by our churn process as we will see it into the assortment with regularity and consistency.
In essence, we hope we'll create a profitable, balanced assortment as well. So we'll always have new ideas coming in as the appropriate investment test amount. We'll have new ideas that have grown into larger investment ideas that have potential in the future. We'll have those ideas that are at the peak of their assortment and then we'll have the ones that are within past their prime. And we'll know what role each one of those players is playing in our assortment at every time and how we want to invest or move forward with them.
So 4th, we're building more collaborative product creation process. So right now, when we think about our spring and holiday seasons, every product function that's involved in creating product is involved in the pipeline from beginning to end. So design, merchandising, digital, production, tech, R and D, name them, they're all involved from beginning to end. We believe this collaborative approach will help us in a variety of ways. The one, if you look at what we did in the past, we operated very much like a rebate rate.
So my function concluded my elevator very well and then we handed off to the next function to do their part and so on and so on. And quite frankly, this process works very, very well for us for a very long time. But with the speed at which the world is moving today, when I started in this business, it would take years for a trend to move across the globe. And now what used to take 2 years takes 2 months. So we don't have time right now to wait for handoffs.
So we believe that upside collaboration will provide us with better speed, better efficiency and ultimately a more innovative and creative line. So that's the collaborative process. And finally, on product, we're improving quality, details, fit such as construction and fabrication. So to do this, we develop quality standards and attributes for every item. So these are quality standards that mean something to us and also mean something that our customer has told us is important to them.
So it could be many things and it varies across size. And so in a pants, it could be the recovery and stretch of the fabric for women. In a men's jacket, it might be the internal details of the way it's constructed. In a sweater, it might be the stitch of the sweater or whether or not the iron pill is in multiple wearings. So we're asking our teams to think about these things and we're asking them also to think about fits differently.
So men and women want to know that a pant fits well and that it's flattering and then it wears well. We all want that. We also want comfort. So as men's pants have gotten slimmer and slimmer, we'll continue to add the more appropriate amount of stretch so that those pants remain comfortable for them. We're protecting a variety of fabrics on different fit models and different body types, so we can see how they perform.
So if you're a size 6 or size 32 and you come into Banana to buy your Men Under cotton pant in the summer, and you come back and fall on holiday to buy a wool pant, we want to have consistency across those sizes regardless of season and regardless of silhouette. We also need to evolve and update our raw materials. We have to spend a lot more time in CyberCar and D. We have to find cost effective and innovative fabrications and lines and fibers that will help us innovate and bring our assortment and our products forward. So if you look at me looking at yarns, looking at construction to improve things like hand feel and texture and durability.
We're also bringing our vendors and mills along with our design team and our merchandising teams together at the source. So going to our factories and going to our mills every season to talk about fabrics, to talk about design intent and to talk about construction. There are a number of things we think we can get by doing this. Number 1, it's quick problem solving. Number 2 is we'll be able to really capitalize on the innovations and the ideas that are rendered in Millcap that we wouldn't normally get if we weren't sitting there face to face.
We think all of these things will ultimately help us to sort of safeguard the quality in every garment and get there faster than we have in the past. And along with the mill competition, we're also working as much more prestigious mills and vendors than we have in the past. So for example, on holidays, you'll see that we did a partnership with Harris Tweed for an assortment of blazers. We're also using Todd and Duncan for all of our cashmere going forward back towards the holiday. We have J.
C. Running from Scotland. We're using our Shetland for our sweaters. And we're also using a variety of yarns from Filcouchi in Italy. So all of these vendors and mills are renowned leaders in the industry and we're very excited to be working with them.
Ultimately, all of this work, so focusing on our key categories, creating a disciplined process around trend and assortment architecture, creating a collaborative and upfront process with our teams and also with our vendors and mills, all of those we believe will translate into product that will allow us to regain our price authority and ultimately deliver better long term results. So that's product. So let me move on to what we're doing to create better emotional connections with our brand and reinvigorate our customer experience and also our brand perception. So the first thing we're doing is shifting our marketing mix to lead with digital, and I'll talk more about that in a minute. And we're telling stories now that are anchored more in products and less in promotions.
We're elevating our mobile and online experiences and finally recruiting unique store experiences that we hope will help us transform our mass brand image into one that feels more local lives. So let me start with shifting our marketing mix to lead with digital. Our customers are living their lives on their devices. We're all living our lives on their devices. It's where we go for inspiration.
It's how we connect with our friends and family. It's how we connect with our brands. It's how we get our information. So to us, shifting our marketing mix into digital isn't a choice. It's really more of an imperative.
We have to use the venue to talk to our customers that is the most accessible, the most meaningful and the most immediate. So that's why we're making that shift. And I sort of think digital first mindset is really more to us than about marketing. So when we start to think digital first, we think about that throughout the entire product creation process. So in the past, our design team thought about the physical store and they created stories and product things that went for 3 environments in the physical environment.
So if I'm a designer, I'm thinking about telling free stories this season. Now, we just start the product creation process and we're thinking about the possibilities of digital stories. There's so many more stories you can tell, so much more frequently and it's so much more detail. So really it's allowed us to take a seamless story that was probably maxed out at 6 and tell 30 plus stories, which is super exciting because there's a lot of variety that we can then show to our customer that she probably and he probably hasn't seen before. The good thing about this is it's not really causing us to create a lot more product.
What it's really doing is, is letting us focus on the variety of products that we need to tell the story effectively. It's really changed the way our design team is thinking. It's changed the way our merchants are thinking and it's changed the way our marketing team is thinking, all for the good. What's also exciting to us right now is creating marketing messages that are built around products and not just promotion, because I'm sure many of you noticed, we've been very promotional lately. I think one of you was telling me we were 40 off the store every day when we were chatting outside.
So we know as we continue to evolve our product offering, we're going to have a lot to talk about with the customer and we're going to have a lot of information to share. So we want to make sure that when we talk to the customer, we're sharing the information that's most relevant. So we've asked Pam and we've asked her, what do you want to hear about? And what they want to hear about is quality and details, versatility and style and design. So let me show you guys a few examples of what our messaging might look like in the future.
So this is a linen blazer message that we've sent out this summer. This was actually one of our best selling items and there's really nothing about price in this message. It's all about quality and details. So it talks about the construction of the blazer, it talks about the 3 button cuffs, it talks about the reinforced stitching, the pop of color and the melting at the back. This was one of Bono's highly clipped through and highly converted eating out and ones that we've spent in other divisions have been similar.
So we're very excited to see that the customer is really engaging in our messaging about quality and that it's meaningful to him and to her. 2nd kind of message we'll talk about with the customer is versatility. So we know she's looking for pieces that work across many occasions. She's told us the lines between her work life and her personal life are very blurred right now and she needs outfits that can take her from a variety of occasions throughout the day. But she sometimes struggles with how to put those things together.
So she's an avid Pinterest user, our customer. She goes to Pinterest as often as she goes to retail apparel sites for inspiration. So we ran this ad on Pinterest and Lilly just showed our sort of idea of an iconic trench coat and 3 ways to wear it throughout the summer. And last but not least, I wanted to buy messaging. So our customers are very fashion involved and we know that they want to be in the know and want to know what's happening with their favorite brands.
So earlier this year, we showed that New York Fashion Week for the first time, which was very exciting, and we decided to amplify that debut in different marketing channels than we have done in the past. So we decided to look at our social channels and really push out our message that way. So we invited fashion staff, but in addition, we invited fashion influencers and bloggers and a whole another crowd of people to experience the show with us. And what happened throughout the night is that all of those people were tweeting and posting our show to their Instagram feeds, Facebook accounts, to the Twitter accounts and the people that were following them were able to experience that show in real time live. And we got a lot of amazing and tremendous response and feedback from our customers and from generally the people that saw those feeds.
So we'll continue to do that because we think giving our customers sort of a front row seat of what's happening and having them feel involved makes them feel like a fashion insider and an insider to the brand and we know that she loves that. So in addition to more digitally led marketing and more product led messaging, also enhancing our mobile experience and Art touched on that a little bit earlier. But today, we know that more than 50% of our customers start their shopping experience with us on their mobile device. Last year, that number was only about 20%. So we anticipate next year, our store traffic will equal our mobile traffic.
So for us, if that's where she's starting our journey, we need to make it the most captivating and inspiring and effortless experience that he or she has. So there's a few things that we're doing around that. First of all, we've made the look of our online and mobile site much more elevated, just like we're doing for our product. So we started elevating our photography on our site last spring so that we could better show our fabric, better show the movement of our fabric, better show the personality of our models. We're also looking at things like the background, so the textures that we're using in the background, the flooring that we're using as well to not only enhance the visual aesthetic of the site, but also really convey the aesthetic of Banana Republic as a brand.
We've done a few other things. The effortless piece is why we've done these. So, I often wonder when I'm sitting at night doing my homework with my son and he asked me a question and I whip out my phone and Google it, what do parents do before they have iPhones to Google to answer homework questions. But we all expect instant gratification now, right? We expect to get the answer.
It's right here. I don't want to have to wait. I think the biggest complaint I hear about flights now is the Wi Fi wasn't working, like you're flying, you're worried about the Wi Fi. But anyway, instant gratification, effortless is what we're looking for. So we really upgraded our site so that it can be faster and easier for people to not only get inspiration and get ideas from their iPhones and their iPads, but also effortlessly transact.
So we found that our customers' journey right now online is organic and spontaneous. So most of our purchases, in fact 80% of our purchases come from the shopping bags. So what that tells us is the customer is hunting and gathering throughout the day, throughout the week, adding bags, coming back, adding to bags, coming back maybe on that same device, maybe on a different device and then transacting later. So what we've done is to support continuity across devices, we've made it so that once you sign into the site, no matter what device you then pick up later, all your information and all your shopping bag items are there. We've also added things like you can see on the bottom here, outputting suggestions that are at a click rather than scrolling through pages.
And we've made it easier for you to tap to apply any credit card benefits or points that you might have. All in all, generally making everything a click away or a glance away versus scrolling and making it much more difficult on your mobile. So I'm happy to say, I think we've also done, which has made it easier for us to pin styles or anyone to pin styles from our site on to Pinterest, which has been fantastic. So with all the additions, whether it's marketing, visual navigation to the site, everything we've done with online, we have definitely seen an increase in conversion, we've seen an increase in online revenue and we've seen an increase in online orders. So we're super excited about that.
So with that, let me just turn briefly to stores because our physical stores are still incredibly important to us and an important part of our brand experience. So we want our customers to walk into our stores and have a special and unique experience that feels like there's a bit of discovery every time. So this starts with how our stores are sorted and how they're presented. I was having a conversation, I think it might have been with Kimberly earlier about the difference between the Dallas store in Virginia and the Tyson store and how some of our smaller stores have often not had the breadth of our assortment, but often look like they were more basic. And our larger stores were much more inspiring.
So we're working very hard to tailor that assortment so that the best representation of the brand will be at our smaller stores all the way through to our larger flagship assortment. We're also giving more flexibility to our stores and how they present our product. So we used to say, here's your visual book and we want your store to look exactly like everybody else's store, pricing our deviate, do this presentation as we say it. We changed our perspective on that. We want our stores to have an amazing vibe and a great neighborhood feel, but we also want them to feel unique.
So what we're providing for our stores instead is sort of an assortment of a toolkit, if you will, visual ideas for the windows, they can pick what they want, story ideas for in their stores, so they can tailor their stores' presentation to the customer preferences, the assortment that they have and also their inventory levels. So we're also testing ways for ice stores to feel more and more local by adding 3rd party craftsman. So local craftsman, in the past we've done partnerships with larger brands. We're looking now to include craftsman from San Francisco or New York or Chicago. Perfect example of this would be when we opened our Flatiron store in New York.
So we not only had one of a kind number of designs that our design team had done for that store opening, but we also carried jewelry from Odette and candles from Baxter. So just a variety of things and we've just some ideas of the collections that we've done so far and we'll continue to test that. Also asking our employees that are creative to think about how they can add to the environment of the store. So whether that's additions to windows or visual art of stores in the interior of the stores, All of these things add local flavor. All of these things add personality to the brand as well as personalities of our employees and the communities in which we do business.
So I'm very confident about where we're headed. I'm optimistic about the brand. I feel confident in our leadership team. We're focused on delivering memorable products. We're focused on an engaging brand experience that will deliver better long term results in the end.
And we're implementing a lot of changes now. So many of the changes that I spoke to you about specifically the mobile and digital changes, we all will see right away. Some of the product changes will be a little bit more longer term. You'll see some in holidays and then more to come in spring of 2016, our new exclusive season. So with that, I'm happy to take questions.
Or am I not happy to take? I am happy to take questions. I was going
to say you're happy to take questions.
Thank you. Marie Hutchinson from BofA. Can you talk about the fleet at Banana Republic? How comfortable you are with both the size and the aesthetic of the fleet? Do we need a closure program or an update program of the existing stores to be aligned with your vision?
It does review sort of the state and the age of the fleet. I mean, we're actually in a pretty good state from the state and age of the fleet. And I feel good about our size and location. We do a very consistent review of how we're doing, how profitable our locations are. And in North America, we feel fine.
I think the issue for us around stores is really more about size and what the story of the future will hold for us. So I envision smaller stores that are more digitally enabled, and we will continue to look at that down the line versus actually the existing number of stores.
Thank you for the comprehensive overview. I was curious if you can give us a sense of with all these changes, the quality standards increasing, how should we think about pricing? And will you make any changes in the SKU count in the stores?
No, we'll take the SKU count down and inventory levels will go down. As we adjust to a less promotional model, we'll obviously carry less inventory in less units. And as far as pricing, we feel good about our pricing. We're obviously always evaluating our pricing from the competitive marketplace as well as from the content and the quality that we add into the garments. But I don't anticipate that we'll change that very much at all.
I do anticipate that as we eliminate discount, we will see a higher AUR in our business for sure.
Oliver Chen, Cowen and Company. On the classifications that you're famous for, do you see the mix changing a lot in terms of where you want to be with those classifications? Also, regarding your candid opinions about the product execution opportunities, which problems are easier to solve a little bit sooner versus more challenging problems?
I do see our mix changing, probably a lot more out of new tenants and into our more structured woven businesses. These are the ones that even when business has been tough, they've performed very, very well because as I said, they're integral to who we are as a brand. So we will mix more into those categories. And then as far as easier to change and not easier to change, I look at the product issues that we have and the execution issues that we've had and I quite frankly think they're all easy to change. I think it's really about being clear on what you need to do and what we want to accomplish and getting the right team in place.
I think we can do it. The speed at which we do some of those things, when I came on with my team, fall was down on holiday was almost put to that as well. So we will roughly announce that some of the supply chain initiatives that we've already put in place to be able to react and change some of that. But I anticipate that we'll be able to make an impact for sure in spring of 2016.
Thank you. Dorothy Wachner, Topeka. When you think about spring 2016 and the change that you're making, how are you thinking about the competitive landscape and how that may have changed? Just who where is the customer going? If they're not going to you, probably not going to J.
Crew either, where have they been going and how do you get them back?
They've been going to Nordstrom's and Macy's a lot. When I took this job, I thought maybe I would see other names of other specialty retailers that would pop to the top. And surprisingly, I saw less of that and more department stores. So I think that actually is good for us, because I think we can stand out. These categories that I mentioned, I think we can own these categories in a very unique environment but in a public sort of way.
So I think that gives us a competitive advantage. I think also the experience that you have in the store with the specialty store is quite different than the experience you have in a department store. And I think that if we can really reinvigorate the customer experience, I think that will also be a competitive edge for us.
Good question over here.
As you think about the product assortment, active is taking place in so many of the different brands. Is there an active component of Banana Republic? And how do you see the assortment by category working out? I don't know. We've had conversations about what our next growth opportunities are, and we think there are a few.
And then active is one we've certainly talked about. I don't know if it's one we're going to pursue right away. I feel like in some ways we sort of have to get our core act together and then get it on the road, but it's one of those things that we have to consider as time goes through. But I definitely think what you'll see is active elements kind of pull through our assortment. So I don't know if you noticed in our product, but yet outside, but that sort of men's jogger pant that we're doing in an interesting world.
So I think it's the details of the active that we're kind of bringing into our assortment versus as old maybe we're doing active collection. We look at it a little bit differently than that.
Maybe we have time for one more question. Have we got one over here please?
Andy, you mentioned something about taking down SKU counts. Could you
go into a little bit
more detail on that subject?
I think we have to be a little bit more clear and careful about the role that each product is playing in the stores. And I think in some stores, we are a little over assorted right now. So I don't think it's dramatic reduction, but I think if you look at certain levels in our store offerings, I think there are areas that we can take down. It looks to medium sized stores. I think it can be more clear with our products' point of view and less credit and do much better.
I think it's very hard sometimes when you're shopping in our stores right now to actually see what our point of view is because there's some excuse. Great.
Thank you, Andy. And I'm now pleased to introduce our Global President of Old Navy, Stephane Larson.
Hello, good morning. Somehow, I always end up with the last slot. It's my 3rd year. But this is before launch. So it's an improvement versus last year.
So I'm super excited to
be here again.
And several reasons. First, I want to start by thanking those of you who joined us, most of you actually who joined us last night in the store. So it's exciting to have the chance to go through and speak about the business we are building live in a store. We had small groups. And in one of the group setting I participated, we stood in the we were in the women's department and the store was open.
So there was a customer that really wanted a certain dress. Basically, we like moved the whole group over because she wanted that dress. And that's always great to see that because that tells me that it's a product that she really wants and she cares for. I was excited already 3 years ago to come into this role because I saw a lot of untapped potential in the Old Navy brand. I had for several years looked at the brand.
And already back in 'ninety four to 'ninety eight, dollars 2,000,000,000 in sales in just 4 years. Old Navy created a unique place in the market. And I wanted to go back and see what the story behind the story was back then. That made Old Navy iconic. And then I wanted to take that back to now and to the future and make it relevant.
So I'm excited to share a little bit about the progress we have made over the last years. I've asked myself a question way before I took this role several years. And that is why would value customers want less? And some of us spoke about that last night because I'm a big believer in that the customer is really smart and the value customer might even be smarter. So I've always looked at the value industry and wondered why are most companies and brands in the value space given the customer something less.
Because if you look at how the fashion pyramid historically has been built up, the high end brands have always had great attention to detail, great quality on the products, great shopping experience. And then you trickle down the fashion pyramid and not so much. And growing up and buying clothes in the value space, it's always irritated me. And it's something that plays into the democratization of fashion that we see happening. So what we what you see here is how the fashion industry used to be built up.
Then something interesting happened. So what used to be an industry where there was a few editors in New York that went to the Paris runways and then if you were lucky as a value customers, as a value customer 2 to 5 years later, the trends trickled down to you. But I remember growing up in a small town in Scandinavia I was 2 years behind the trend. And I went to the closest big city and walked around. I knew I was 2 years behind the trend.
They knew I was 2 years behind trend and we were perfectly fine. But not so much anymore because art is often coming back to this, the mobile phone. So Pinterest, Instagram, social media in general is changing everything. So what makes me really excited is that suddenly the value customer is more on trend than any of the brands out there. I have an 8 year old daughter that is more on trend than anybody that runs a big fashion apparel brand just because she's on Pinterest every day.
And that means that a blogger outside Chicago today has more followers than some of the fashion editors. And it also means that aspirational trends and the whole concept of trend is changing. So you see aspirational trends becoming aspirational much, much faster. So let me give you an example that Google brought up in their research that they just published in terms of how people search. So this is the jogger pant.
And the jogger pant came up internally through our trend work. And I was that looks a little bit difficult. I wonder if that's aspirational. And we had that conversation in August 2014. So here is how Google maps out where people in North America search for the jogger pants.
So New York, East Coast. So at the same time, I got my first jogger pants. And I just got them. It was on a Saturday morning. I was going to premiere them.
My wife, 3 kids out having breakfast, took on my jogger pants, felt really confident, walked out. And you know when you get a look from your better half that what are you wearing? And remember, I'm based when there's nobody searching for jogger pants August 2014. So and you try to keep your confident look, but then you walk in and you change. So I was ahead of the trend.
But I kept the pants and I'm really excited that I kept the pants because already let's see here. Already 3 months later, this is what happened. So when I wore my jogger pants in December 2014, I didn't get that look anymore. And it just took 3 months. And this is a trend that took 2 to 3 years before and some of these trends never reached the mass market.
And suddenly in 3 months they become aspirational. And it ties into bigger changes we see with the customer. So what we see the customer is now demanding on trend and current products. They want to be more inspired than ever before. They want a more convenient experience because they you don't compete only with product, you compete with their time.
They want to do other things with their time than to try to find the right product. They want things to be more authentic than ever before. So you see Etsy, you see the whole DIY movement growing. So the whole concept of ripping off high end trends is dying. So the customer is saying better products, more inspiration, more convenience.
I want it to be authentic. And by the way, I want it at a better value than ever before. And all of this really excites us at Old Navy because we saw this coming 3 years ago. So we set out our vision based on this. And based on that, we have always stood for coming back to 1994 when Old Navy started off.
We have always stood for democratization of style. We have always believed that something that's usually aspirational and exclusive should be made aspirational. So we set out to become the 1st aspirational American brand in the value space. And I remember when we introduced the idea and the concept, we got a lot of pushback in saying, but aspirational and value don't fit together. And we said, yes, it does.
It does. If you look at the customer, if you look at what the customer wants, she wants something aspirational and she wants it at the big saving and she wants a great price out the door. So we decided 3 years ago to start to merge these two concepts. And that's the underlying driving force of the 3 years of consecutive profitable sales growth that we have been driving and Bart mentioned. And we believe it's only the beginning, because our strategy to deliver the vision is very simple.
It ties into 3 components. The first one is aspirational products. Second one is incredible value. Third one is a more inspirational and convenient shopping experience. And when we deliver on all those 3, then we see that the profitable sales growth takes off and we take market share and the customer gets really delighted.
Let me show you a couple
of example of how this looks for this summer. So if you look at these products, they are all part of a trend story called Palm Beach. It's for the whole family and it looks really aspirational. And what makes it masspirational is that it's an incredible value to these products. So it's a graphic tank for $4 It's swim for the kids at $5 It's authentic design, on trend, high quality at this value.
Another example is our men's product. And our men's product this summer looks really, really good, also an aspirational point of view. And then we make it aspirational by having shorts for 8% and shorts for 15%. So what you could some time ago just access high end pay a lot for and be screened at the door, you can suddenly get at Old Navy for 8 and 15 and you get a really pleasant experience and you can bring your kids and you feel good both before and after the shopping you can bring your kids and you feel good both before and after the shopping trip. Final example is some of our products is in the design story called Global Village and that's something you will see in July.
And it's a really, really good design story, and it covers the whole family as well. And we make it aspirational by offering skirts at 8 and dresses at 10. So, aspirational products at an incredible value. Let's see here. So our focus here and now and going forward is to continue to deliver on this strategy, to continue to build out the vision, to continue to drive profitable sales growth.
And we do that through keeping the same strategy and increasing our focus on executing on more and more aspirational products and better and better value proposition combined with those aspirational products. These are three examples of how we do that. It's always about an on trend product. So you see to the left, you see the soft pants, huge success for us. And the soft pants at $19 and then an updated fashion tank for $6 and then it's the same for every family member.
So every month, every week, every day of the year, you should, as a customer, know that you can get aspirational on trend products at an incredible value for your whole family and shop it in an inspirational and convenient way. So that's the strategy delivered. We have 5 growth accelerators. So when we take the strategies that are the 3 components, we have 5 growth accelerators within that. The first one is online.
Our customers love to shop us online. She loves the experience of browsing products going on and off our site and finding the aspirational trends and then buying us from us. So we are building out the product experience and the product and value stories and she responds really well to it. 2nd one is active. And for those of you who were in the store with us yesterday, you saw that our main campaign customer facing right now is active and active.
We are growing active really fast and our customers love it. And we can offer a comparable product to the most aspirational brands at an Old Navy value and for the whole family. You have it even for toddler and it performs really, really well. And coming back to my kids, I have an 11 year old son. When he dresses himself to like go out on a Saturday night with us to a friend's house and have dinner and he thinks he's like dressing up, he comes out inactive.
And his 8 year old sisters on Pinterest all the time have to like step in and support it. Men's. Men's has a really big potential because what's happening with Pinterest and Instagram and social media is also striking right into the men's segment. So men's is much more on trend and care much more about current products. And there is a sweet spot between being current and aspirational and incredible value.
So when we deliver that, then we deliver growth in men's. And that's why men's is our 3rd growth accelerator. Kids. We're really strong in kids, but we believe we just tapped our toe into the water in kids because there is white space. There is nowhere but Old Navy that you can shop and access aspirational products for your kids at Old Navy value.
And it ties back to the Pinterest and Instagram that the kids and parents now know what's on trend. So they have the same expectations for their kids that they have for themselves. The 5th one is international. So we have just started our international journey. We started fully owned stores in China and Japan, and we are about to start up in Mexico.
And we're really pleased with the development. This last weekend, we just opened our first store in Beijing in a center called U Town, and we had a really great response. And what the customers love there, I've been in China and Japan every 3, 4 months. And I speak with customers and I speak with our store teams and I ask them what are the customers here in your country? What do they love?
Oh, they love the on trend products, big savings, wow prices for the whole family. So we have a concept that is globally competitive, and we have 95% of our run rate still left. We also have franchise that we are pleased with in the Philippines and in the Middle East as of now. Just a few words on how we strengthen our shopping experience. And our shopping experience, we look at from an omnichannel perspective because we know that the new windows are how we show up on her phone.
And then the store windows are also important, but she starts her shopping journey online from often in our case from her phone and then drives it to the physical stores. So when it comes to the physical stores, one thing that we have worked really hard on over the last couple of years is to improve the storytelling, the presentation of the products. And I spoke with some of you that some of you flagged that at the walk through yesterday and said, you guys tell better stories now. And I was happy to hear that because we work really hard to tell her aspirational stories and then connect the value proposition. Because still when we do customer research, we are really close to our customers and sometimes we ask them to film their shopping journey.
It never stops surprising me that she spends 5 minutes, most of our customers, in the car filming herself going through the savings and say, Oh, I shopped this at Old Navy today and I save this and I save that and I save this for my son and for my daughter and for my husband and for so it's that combination of inspirational shopping experience, incredible value and making it convenient for her to shop for her whole family. We're also updating our store design. So you saw a little bit of that in the vignette outside. We believe that it's important that the store experience creates a backdrop to the products in a way that it elevates the product. And we are going to do this new store design starting to roll out in the spring of 2016.
Just to wrap it up, the vision is to become the 1st aspirational American brand in the value space. The strategy is more and more aspirational product. I push the team all the time. You probably heard it from some of my great team members yesterday in terms of that. I challenged them and say, if every single product we put in the line aspirational on trend.
If it's not, it has nothing to do in our line. So we are raising the bar in terms of we only put aspirational on trend products. Incredible value is absolute a must have. We love our customers. We know she loves the aspirational with the deal.
And then we continuously improve the shopping experience. And that continues like amplified with the 5 growth drivers, builds out the vision. So I want to wrap up the first part about Old Navy by coming back to that question, why would a valued customer matter less? And our answer to that is they value more. We value the valued customer more.
They are more important. They're more savvy. It takes more to place them. And there is no reason why you as a value when you shop on a budget, why you shouldn't get the best product and combine that with big savings and wow prices out the door and have a really good experience. So we are passionate about what we do.
I hope that shines through. We are optimistic. We are very disciplined in how we drive continuous improvements, staying focused on the vision and the strategy that has worked for 3 years and driven 3 years of consecutive growth. I want to pivot and switch gears a little bit to Product 3.0 because Art asked me to share some of what that work means because the Product 3.0 work is cross brand work. It's a company wide work that ties to the change in customer expectation, changing in terms of that now the customer is in charge.
So being on trend and competing with great products is absolutely key to succeed. So Product 3.0 for us is to build a competitive advantage around how we create and deliver product. And it's a work that we have started in Old Navy and we are working really close with Jeff and Andy to build out across the Gap Inc. France. The objectives are to just repeat what Aart shared earlier, brand rights, on trend, high quality and high value product.
And that might seem simple and but it's in a way it's simple, in its way it's elusive. I'll share why we are confident that we are building a model to increase our hit rate and decrease the fluctuations. The way we do it, 3 simple components. First one that Jeff and Andy spend a lot of time on is the vision in terms of each brand has to have their own vision and that vision has to deliver a unique space in the market. 2nd part is to work to have a systematic repeatable way of how you create and deliver products to the market.
3rd part is with that systematic repeatable way is to combine that with the best talent and best collaboration in the industry. And again, Jeff and Andrew spend a lot of time speaking about the importance of talent. I couldn't agree more. Talent is extremely important and especially having the talent collaborate in a different way. So the way we build product now is that from design idea to impact in store, we have cross functional collaboration.
So I'll share a little bit of what that means. So let's build out the systematic and repeatable approach and try to share what that means tangibly. Trend funnel. So the old school way of designing was to send somebody over to Europe, a designer, and have them buy samples, high end, again, remember the fashion pyramid, come back and then a year, year and a half later, you would see it in your stores. That's just completely obsolete.
It doesn't work anymore. So what we do is that no one creates trends. So no one in our brands believe that they are trend creators. So what we have designed to do is to work in a very systematic way to funnel down all the trends. And based on what your brand vision is, you funnel down the trends that are relevant to your customer.
And then once you have funneled down the trends, you apply unique design. But it's a systematic way of always making sure we are on trend. And then again, depending on how good the talent, design talent is, is how good the outcome eventually is. But being on trend is a systematic repeatable discipline process that if you met Sarah Holm, our Head of Women's Designer, she's really passionate about this. And it's a systematic disciplined process, but she's also very talented.
But she's using that talent. She wants to have a really high hit rate. And the only way for her to have a really high hit rate on her unique designed products is to funnel down the trends that are out there. Then we combine that with something both Angie and Jeff mentioned, which is to continuously test and read on the response of the consumer and the demand. So we have real time testing.
So we funnel down the trends that are aspirational right for each of our brands. Then we test products that we don't have in the assortment. Then we see how those products build and then we buy into them. And the cross functional collaboration comes in, in many different ways. So one is aspirational products.
Do you have to invest more to get aspirational products? And my viewpoint is no, you don't. But you have to work smarter. So you have now we have design and sourcing working from design ideas. So as soon as Sarah and her team in Old Navy women's team sees an aspirational trend, they pull in sourcing and say, Guys, we see a pant trending.
And there is a fabric that we need in order to get the really great fit that's a two way stretch. That's usually $100 pant. We need it to be a $25 pant. What can you do about it? And then they start to source fabric, develop fabric, platform fabric in a way that we can offer amazing fabric at an incredible price.
And then the next sourcing component is that you platform the fabric and you're ready with the fabric. So when you get a read on the sales, you buy more. So you separate the planning and the buying process. So you plan and create the products. You take low risk because you buy low quantities initially and test it out.
And then you see the products that take off. You buy into those and you have sourcing and merchandising and design and inventory management as a pod working together. So one of the changes I did early on with my team is that I pulled all my leaders out of their rooms and put us together around one table. Because I said, guys, there is no way given where the trends are going, given what we have set out to do, there is no way we're going to succeed with this challenge working in silos. So at Old Navy, we moved all the leaders out of their rooms and created cross functional pods.
And these cross functional pods that are customer focused, they know the brand vision, they share common goals, they collaborate from idea to impact and then they work in a systematic repeatable way. Because the benefits of working in a systematic repeatable way is that you when you read the performance, which you continuously do, then you can go back and you can adjust and you learn. So you build continuous improvements that way. And by working in this way and combining it with really strong talent, then we can build stronger and stronger and stronger products. So you can get to a flow of product, a continuous flow of on trend products that you introduce at the low risk and then you build them up based on the demand.
And then you scale out of them when the demand goes down and you switch into the pipeline of products that you have. So we used to speak about in this business fashion apparel about art and science. It's more of having the underlying support engines to the best creative teams you can find out there. And that combination of really strong creativity with a systematic repeatable way will drive stronger and stronger products. And just before we open for Q and A is the pixie pad.
And it was one
of those areas in the store as well yesterday that when we had the investor meeting in the store and the store was open, we had I saw several customers coming in for the pixie pad. And it's a really good example of how it works when we create products with product 3.0 methodology, which is the team spotted the trend. They flagged it. Sourcing went on board immediately to say this is a two way stretch, a great fabric, but let's find out a cost effective way of getting to that fabric. Let's platform it.
Let's buy it. Let's see if it takes off. Let's put marketing on it and let's grow it. And the customer, if you check on our website now, I think we have over 2,000 reviews from customers. It's a 5 star product.
And customer loves it. And the way we then apply the trend funnel again and again on this product is that we say, okay, it's a tropical trend this summer. So we paint this pant with a tropical trend and she loves it because the customer loves when she recognizes the product, she knows that it fits her, she appreciates the quality, but we continuously renew it. And it's the pod of designers, inventory management, merchandisers. They drive a number of these products all the time in each category that we have.
Okay. So that's product 3.0. And it's as I said, it's something that I work really closely with Jeff, with Andy, with Nancy in Athleta. And it's something that this underlying engine can and should be used in every brand, given that we are experiencing the same customer needs. And then we adjust it based on what each brand stands for.
Okay. Thank you, Stephane.
I think now we'll open up the floor for questions.
We've got one there, please.
Thanks. Dorothy Lachner from Topeka. Could you just give us a little bit more color on the new store prototype? What the thought process there was? There was one a number of years ago that really made some dramatic changes, but what were you thinking about this time around?
Yes. So that's a great question. We what we it's the P1 you referred to, which is the store design that we have currently, and it's really working well. So we have we did a number through P1, we did a number of functionality improvements in terms of creating a customer flow that expose the customer to as many parts of the store as possible. So we are taking all those functionality gains and keeping and further refining those.
So we're building on the success of P1 and then we're updating the design to make it feel more fresh and current and aspirational. John
Morris with BMO. Stephane, we're talking a little bit about this last night, but I'm wondering if you can elaborate a little bit more. Clearly, Old Navy in the last year or 2 has done such a great job as you were talking about with the trend forecasting and just getting better and better on that. What's changed? What's different?
How is it that you guys are doing a better and better job on that? I'm wondering if it's some of it entails the aspect of being able to get the feedback from the customer through the customer view process and in a real time fashion working that way working that into the design process? And just generally, how you guys what's changed in terms of your ability to be on trend so quickly?
I would say it's 2 things, John. The first one is having a team geared around the same common goal, which is aspirational product at an incredible value. Nothing else is good enough to get into our store. So that's a mind shift change that is really important for the success that we have been driving. 2nd is to combine spotting trends with reading real time performance and acting faster on that.
So there is a combination of those 2.
It's Laura Champine from Cantor. Stephane, you talked about driving more aspirational product in the stores. And I know that fabric platforming is something that Old Navy is working on. But can you use common fabrics with any other brand? Is it possible that a good fabric for Gap could be a better or best fabric for Old Navy?
Again, it's an interesting question. I believe that each brand has to develop their products and their fabrics based on their product and value proposition. And there are learnings that we can take from each other when it comes to how to get to really good fabric. Today, it's important though that each brand is delivering to their product and value proposition and that's different. But what I can say right now is that we are sharing a lot of learnings to how do we design into value.
If that's extreme value as Old Navy or Gap or Banana or so it's more of a sharing of learning of best practice of how to get sourcing upfront and how to create flexibility back to John's question on how you can read and react to products. It's more about that than using the same fabric.
Hi, it's Marni from The Tracker. I feel like you have a messiah out there. I'd like to turn a lens, a digital lens to Old Navy. And I'd actually this is really kind of for all of the brands, if Andy and Jeff wouldn't mind answering as well for their brands, if that's okay with you guys. I guess the first thing is, if I think about the brands digitally and the growth digitally, do you think your store size is, not necessarily the size of the chain, but the store size is the right size?
Or go forward, should they be smaller? And should you have digital capabilities in your stores better than what you have today? And along that same digital or any, along that same digital line, Gap and Banana, is there a better way to execute on reserve in store than there is today? And then the final one, sorry, it's all about digital though. Do you feel like all 3 of you and Gap Inc, do you feel like you've built out a strong enough digital product team versus product product team?
And I know that's a lot and I could refresh your memory on it, but you're talking about it.
I'll try to address as many as I remember on those questions. So digital is absolutely important to us. And as Art mentioned, it's digital first, the way we create. We align the teams to digital first, the windows. The first windows the customers see right now is online.
And as the customers see right now is online and in Old Navy's case mobile. So there we are continuously tracking what the customer wants and then we are developing how we tell store is according to what she wants. So when it comes to how we show off, she wants to there is a dreaming and a hunting phase in her shopping behavior. So we at Old Navy wants to cater to both. So we want to provide aspirational product storytelling and then we want to be there with and here are the savings and here are the Wow prices and here are the Wonder Wonders that can move you into the hunting.
And when it comes to omnichannel, I'm really excited about the capabilities that we have and we're continuously building those out. And we are going to move on those based on what the customer wants. But when it comes to store size, just to round up the answer, we are pleased with our store size. Sabrina would tell that we have done some massive downsizing of the Old Navy fleet over the last couple of years. We are really pleased.
But again, as we see that traffic, mobile digital goes up, traffic to stores generally for fashion apparel goes down. So we're continuously tweaking that. But we feel great with where the fleet is right now.
What about the digital in store?
Digital in store is something that we are testing and trying out and ready to roll out when the customer is telling us that she wants it and needs it.
Okay. And now I'd like to welcome back Hart Pack, who's going to make some closing comments. So I hope you got a product message. I hope you saw with Stephane no lack of passion on his vision for the brand and his commitment to really pushing our product processes forward. So let me just tie a bow around what you heard today.
We've been very busy over the last several years building digital capabilities, building a global platform for growth. But we have not been as consistent as we have needed to be in monetizing that through our product engine. And so we view product as both an imperative and a tremendous opportunity. It's easy to talk through some of the things and Stephane did a nice job, I think, laying out the overview of what we call Product 3.0. We invented 1.0.
We've got competitors out there who are executing more consistently, which I term 2.0 and we're shooting and pushing hard for 3.0. And it's easy to talk about it. But a lot of these changes are hard. They are against the traditions of the industry in many respects. And they require, as Stephane, I think very eloquently pointed out, pretty radically different ways of working together.
We have proof of concept on this. And again, we don't we view this as an opportunity, but an imperative to thrive in this next chapter of change that specialty apparel retailing is going through today. If you step back and reflect on the growth opportunity for us, the reality of our portfolio has been that as we have gained market share in our new geographies, we have with the exception of Old Navy over the last few years, progressively lost the market share in our mature geographies. And that is not a winning dynamic. It's not a winning dynamic for our customers and it's not a winning dynamic financially.
And so we are heads down focused on creating product capabilities that are the best in the industry, so we can consistently win everywhere we are. What's different? What's different? What's different number 1 is I hope you saw a senior team today 100% lined up behind both this vision, this opportunity and the imperative to do this. What's different is that we are creating a common product operating model across the company.
And by doing that, it allows us to leverage what is one of the few structural advantages that we have as a multi brand global apparel competitor, which is size and scale. There have not traditionally in this industry been a lot of structural advantages that have allowed people to earn differential returns, but our size and scale is one of them and we have not fully exploited that. We have not fully exploited that. A common product operating model gives us the ability to do that much more aggressively. What's different this time?
A commitment to a high degree of collaboration inside our businesses and a high degree of cross business and cross functional collaboration to rapidly learn and exploit proven best practices wherever they exist in the company and transplant them into other parts of the company. You've heard that today, you've heard from Stephane, you've heard it from Jeff, you've heard it from Andy. We are actually working on this and that's a very different approach again to how we've worked historically. The last thing I would say is different right now is there are a few things yet that we're not talking about that
are critically important. One of
the big ones on my mind is innovation. Stephane referred to it a little bit, Andy talked about it a little bit, but innovation at the fiber, yarn and fabric level to the benefit of quality, cost and performance. Again, if you come back to the fact that we are bigger than most of our competitors, multi brand, we have the potential to proactively drive customer relevant innovation, working in partnership with our vendors. And it's something that Sonia and her team are heads down focused on in terms of making happen, working with our vendors, working with our mills to drive innovation at that level. It's not in our products right now.
Nancy has embraced it aggressively inside of Athleta, where she's producing performance product. Stephane has it in his active line and Gap has it in GapFit. But this isn't something that we have systematically done as an organization and it's another opportunity waiting to happen.
So I am in my reflections to
get here, very confident about the opportunity in front of this company. We're $16,000,000,000 in revenue. We have a global footprint. We have size and scale rivaled by very few in the industry. We have a senior team committed to achieving what we need to achieve in product.
We have a world class digital platform that we're resting upon and we play in a $1,500,000,000,000 to $2,000,000,000,000 space. So from the standpoint of a market share opportunity, there's really endless runway in front of us. Sabrina, can I invite you up and we'll take a few questions? Thank you. That's out of Banana Republic's current collection, correct?
You know what, I wanted to start because it was brought to my attention that when I answered Laura's question about the stores were closing in North America, it wasn't able to be heard by many of the people listening. So what I said earlier was that if you take the store closures we're doing as a group, they're sort of contribution neutral. So they're neither accretive nor dilutive, They're contribution neutral. Okay?
Yes. Questions?
Thanks. I know you don't give segment margins, but just curious a lot of concern about Old Navy as they have to face tough compares on a multiyear basis. Can you maybe give us an idea of where Old Navy might be relative to its historical margins, productivity, AUR and same thing for the GAAP division? Thanks very much.
Yes. I'll start with that.
I would say that 2 things. I would say there's still plenty of opportunity with regard to Gap Inc. Margins overall, broadly speaking. With regard to Old Navy, I think they're as we've been telling you guys month after month and quarter after quarter, they've been delivering their comp in a very healthy manner, which means we're very happy they're hitting the financial model that we want to hit, which is growing revenue with healthy expanding merchandise margins. I don't think it's actually necessary to only think about it in terms of our history, given what Stephane explained is a very different way of approaching our business and how we're developing product and how we're selling product.
So I understand your question and hopefully I answered it, Brian, but I would encourage us to also think about there's broader opportunity beyond our history and our historical peaks if we think about the new way we're working in the future.
Hi, yes. Just on your closing remarks, Art, you talked about innovation. And I was wondering if you could focus a little bit more on that. We've seen some of the larger players in the industry start to create innovation centers and spend more and more money on R and D, traditional apparel companies, not your athletic companies. And I was just wondering if you could talk about that in terms of the partnership between you and the mills and the partnership between you and the factories, who's driving that innovation?
How does that innovation occur? And should we see an acceleration in money devoted to this as it becomes more and more competitive advantage? Yes, the thing I see here is that the first step is that we are significantly under exploiting the opportunity to work hand in hand with our vendors and help and particularly our mill partners and to help them direct innovation to customer relevant benefits. We had a supplier conference here, maybe a couple of months ago and we heard then from some of our key mill partners really a plea almost for helping them direct the R and D that they're spending upstream to the point where they can use that to help us create fabric advantage and again, cost, value and performance. And so that's probably step number 1 and we're very much focused on that right now just in terms of directing those dollars.
Oftentimes that will manifest itself as in a moment or for a period of time also a proprietary fabric that is ours alone to use, even if they then take it out to commercially exploit it. The secondary piece is for us to think about what do we need to do here from an innovation standpoint. And this is very prominently on my mind right now. And I've been going around the industry inside and outside the industry, talking to CEOs and other people on what are the models for building an innovation capability in house. I could go out and get a warehouse in Emeryville and put a bunch of people in it and put it in the press and I'm not sure we'd get out of it what we need.
So it's something that we're being pretty deliberate about. But again, not standing still, we're working with our mill partners, about. But again, not standing still. We're working with our mill partners right now to start pushing that forward. And Nancy has a great window in her business to some of the most innovative fabric suppliers that are out there today.
So it's a stay tuned and watch, but it's not something that we're going to So it's a stay tuned and watch, but it's not something that we're going to leave lying on the table. Just on the other side of that, because we talked about Athleta, I want to come back and tie 2 things together. So I'm going to answer a question that I hope one of you might have asked but didn't, which was in a mix. So if you think about Stefan's description of trend funnel and the disciplined trend process, there was in a mix up here. Think about the window that they give us in market every season with designers, with premium contemporary lines in the showrooms, the window that that gives us in terms of what's the trend that's coming right at us right now.
And so again, we are taking multiple inputs from different places and bringing them together and distilling them. But Intermix has many values, not the least of which is, is a really high fidelity window into the trend of what's happening in the designer and premium contemporary women's ready to wear space. Todd Dubich with Wells Fargo. Your next solver. I had a quick question for you, Sabrina, on your capital allocation policy, kind of big picture and you've talked a little bit about it.
I guess, the first thing with respect to capital spending, it seems like the last couple of years, you've had probably an outsized capital allocation towards omnichannel, probably less so on the storefront. And so, I guess, going forward, do you see that continuing at the current level? Or do you see that kind of tapering off at some point? Then with respect to kind of the dividend, you've really increased the dividend over the last several years. Do you see that leveling out at a certain dividend payout ratio?
And then finally, with respect to the share buybacks, is that kind of the natural byproduct of the first two, the capital spending and then the dividend?
Great. Okay. I think I can remember all of those.
So with regard to capital spending, I would say we invest there's 2 big principles around our investment. 1 is earning it. So we hindsight all of our investments and we make sure that we are comfortable that we built the track record with the division, with the team, with the projects to feel comfortable to invest behind it. In addition to looking at earning it, we look at investing behind our strategy, right? So where the investment has come up and it hasn't come up dramatically.
It sort of has floated up from, let's call it around $600,000,000 to around $800,000,000 Where a lot of the investment is going is, you're right, some in omni channel, but actually a lot has gone toward supply chain. So we think there's a lot of important initiatives and this is where the worlds collide because a lot of the work we're doing, and when I say supply chain is really a combination of omni channel and supply chain because a lot of the investment is going for example to creating distribution centers that can begin to bring our inventory together holistically. And so that's really where the increases come from. With regard to the future on capital expenditures, I'd say we're pretty happy with the level we're at. I wouldn't anticipate we guide to that one with each year.
But I would say we're very comfortable with the level we're at and wouldn't expect us to make any dramatic increases or cuts. With regard to the dividend, it's very important to us that we have a dividend payout level that is very competitive. So we look at that every year and that's why when we increase earnings, you can very likely count on us to increase the dividend because we like to stay competitive with the benchmarks and also have a payout that's at least holding or increasing slightly. And then cash share repurchases has been where the lion's share of the cash distribution has gone. And the reason for that is we're big believers in opportunistic share repurchases.
And we like to come in and take advantage of either dips in the market or periods of time where we feel like we're undervalued by the market. And we've done well with that, back to the 600,000,000 shares at under $22 on average. So you can count on us to continue with that practice certainly.
Oliver, you had a question? Hi, Oliver Chenkie on the company. This is a product and strategy kind of question. In terms of the democratization of style and classification of aspiration, when you kind of juxtapose that with the brand filters, how does that execute across your different banners? And is that equally relevant across the non Old Navy concepts?
Also in your market research of Activewear, are you considering this like a 5 year trend from what you've identified as the customer reception of this trend and how it interplays through your portfolio at large? Only two questions. Usually it's 3 or 4 or 5 that are strung together here. Okay. Let me talk about the democratization of style.
And I think there was a different there was a slight twist to that also, which Stephane shared, which is his chart on how fast trend moves these days, comparative that all of our brands are contemporary in their trend. And so obviously the brands operate at very different very different price points inside the industry with Old Navy and outlet down in the value space, Gap in the middle of the market, banana above that and then intermix at the top. But for them to embrace trend, current trend and to express it across all of our banners, to me is a very relevant thing and it's an imperative for us to actually do that. And I tell this story that I saw Intermix and will maybe playing in the same trend successfully during holiday. And that was a thing of beauty and it wasn't something that you would have seen even 2 or 3 years ago, but that's the customer's expectation today.
And again, with our brand filters, there might be a trend that Old Navy embraces or banana embraces that Gap says isn't right for casual optimistic American in the position that Gap has. But to bring trend rapidly through those brand filters across all of our businesses is I think an equal opportunity for each
of the businesses. And then what was the second question?
Yes, the activewear. So that's a really good one because what we don't want to do is what can often happen in the industry, which is everybody runs for the activewear to the activewear side of the ship and then all of a sudden activewear isn't there anymore and it's a trend that's over. And so we are building it responsibly, aggressively obviously inside of Old Navy. That's just really come into it for the whole family. We're very, very confident about the runway in front of the Athleta business because that's a lifestyle business and how she leads her life and the way she's engaged that brand.
We have
a bit inside of Gap, as
you know, Andy's comment on banana. I can't tell you what it is. I mean, we're watching Oliver to see is this starting to taper off and we see no signs of it quite honestly. We see like feel like it's really a trend that has legs and it really has become not just active, but part of her ready to wear wardrobe that she goes to for certain dressing occasions. So again, we're not going to get breathless about it and overdo it, but we are going to feed it pretty aggressively and light it as much as we can.
We've got time for one more question. Susan, right here.
So one quick clarification from Sabrina. On the $25,000,000 I assume that starts immediately, but $16,000,000 is the full year. And then is that included in the guidance for this year? And then for Art, how do you ensure all these processes such as product 3.0, actually how do you ensure success and changes throughout the organization? Because I think, for example, fabric platforming or maybe done a very good job, but Gap has struggled to actually implement that.
So with such a large organization, how do you ensure success there?
Yes. Sabrina?
So I'll start with a clarification. The $25,000,000 is an annualized number. We should get some savings this year, probably less than half of that given where we are in the year and how the decisions will feather in.
Yes, the $64,000 question. It's a really important one because it's one thing to articulate the vision which we have today to start showing the proof points of what's going on in Old Navy. It is something else to obviously systematically build this into the way we operate across all the businesses. And so here's an illustration of how I'm thinking about it and how we're picking this one up as a team is, 1st of all, unify us as senior leaders on clarity of vision in terms of where we need to go and then the substance underneath that in terms of the sequence and steps for making this happen. And that is work that we have done.
And again, with Old Navy pulling the cart and Gap and Banana following right now, but rapidly transforming those, transplanting those practices across brands, There's a huge change management piece to this. And so right as we sit right now, we are beginning to bring up a much more explicit and intentional and formal change management process. And it ties into all the normal things, which aren't necessarily sexy to talk about, but incentives and role definition. Stefan and Andy both and Andy didn't talk about it, but she's doing it also, how people sit together and work together and how our workspaces are designed, communication tools and all those kinds of things. And I'm a really maybe because of my background or whatever, I'm a really strong believer in intentional aggressive change management to wire these practices into the organization structure and the operating structure.
So that's underway right now as well. The last thing I will say, which has been interpreted as a threat at times, but it's not intended that way is I am very committed to leading this team to get there. And I've been very clear with everybody on the team and now in front of the organization that we are not going to let individuals or groups stand in the way of this. This is extremely important for the continued success of this company, for us delivering shareholder returns and for us to perform in front of our customers the way we want to everywhere we are around the world. And so I'm a big accountability person and part of the accountability that the team has accepted and now we are pushing down into the organization is the accountability for driving this change and making it stick.
Last thing I'll say is there's a phrase burn the ships. There's going to be a moment when we need to burn the ships behind us. Organizations in my experience are very, very plastic. You can stretch them out of shape, but unless you hold them there long enough and it ultimately makes sure that you break the practices that they're moving away from, they will revert back to best to previous practices at the end of the day. And so as Jeff is doing this inside of his business right now, he just basically said, we're not doing it this way and those practices are going away.
And therefore, this is the only platform that you can operate on. And that's going to be critical also. And lastly, it's just wiring metrics and incentives into getting there. That's an important part of it. So I want to thank all of you very much.
We'll be around here afterwards if you want to grab us for another quick question. Really appreciate your time and attention today and really appreciate your support. Thank you.
Thank you. Thank you.
And just to note, there's lunch available outside in the lobby and there's