Gap Meets in Rural Tennessee, Avoids Usual Protesters
May 6, 2000, Tenn. Firm's annual shareholder session was an exercise in rubber-stamping



Gap Meets in Rural Tennessee, Avoids Usual Protesters
Firm's annual shareholder session was an exercise in rubber-stamping
Carol Emert, Chronicle Staff Writer
Saturday, May 6, 2000
©2000 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/05/06/BU52420.DTL

Gallatin, Tenn. -- For the first time in years, Gap Inc.'s annual shareholder's meeting wasn't disrupted by rabble-rousing demonstrators protesting the company's alleged use of sweatshop labor or the logging of redwood forests by its founding family, the Fishers.

Not coincidentally, the meeting was held in rural Tennessee, 23 miles outside of Nashville, in a newly built Gap distribution center. Only a handful of shareholders showed up, and not a single protester.

``If it were (in San Francisco), we would certainly be there, both inside and outside, since we do own shares,'' said Medea Benjamin, founding director of Global Exchange, a San Francisco anti-sweatshop group that has picketed the meeting in years past. She said the trip to Tennessee wasn't worth the effort.

A Gap spokeswoman acknowledged that avoiding protesters was part of the company's rationale for moving the meeting out of the Bay Area for the first time. It also gave Gap President and Chief Executive Officer Mickey Drexler and other high-level officials a chance to tour the new distribution center, a highly automated prototype for future facilities, she said.

In the future, Gap may hold shareholder meetings in other cities, said Frank Smith, vice president of Gap brand distribution. ``We have investors all over the country,'' he said.

At this year's meeting, Drexler uttered nary a word about the company's recent problems, such as a first-quarter shortfall in both sales and earnings, unexpected weakness at its Old Navy chain, the loss of several key executives, above-plan inventory levels and declining comparable-store sales.

``We see lots of growth opportunity'' both in the United States and abroad, he said, noting that the company's Gap, Old Navy and Banana Republic chains already pocket 5 cents out of every U.S. dollar spent on apparel.

While many companies' shareholder meetings tend to be rubber-stamping exercises, Gap's was an extreme example. A preselected company representative responded to all of the motions. Not a hand was raised during a scheduled question-and- answer period. (Reporters were not allowed to ask questions.) The entire presentation, which included a slide show of happy Gap shoppers around the world, took no more than 20 minutes.

Two shareholders in attendance, Nashville residents Margaret and Jim Massey, said they were impressed with the meeting. Jim Massey, who runs an online music shop, said he is aware of Gap's recent troubles, but he thinks the stock is a smart investment in the long term because of its quality merchandise and the strength of its brands.

Margaret Massey said she expects Gap to be one of a few strong brands to survive a looming shakeout among Internet retailers. (Drexler noted during the meeting that the Old Navy site went live on Thursday, the last of the Gap chains to start selling merchandise online.)

Wall Street is less optimistic. Gap stock, which closed at $34.44 yesterday, has declined 6.4 percent since the company announced on Wednesday that its first-quarter earnings may be lower than analysts' expectations. The stock is 36 percent below its 52-week high of $53.75.

Retail analyst Stacy Pak cut her first- and second-quarter earnings estimates by 1 cent each, but she is maintaining her ``strong buy'' recommendation on the stock, which she upgraded from ``accumulate'' last month.

``I think investors want to own stock in companies they believe can take market share, and Gap is clearly that company in this (sector),'' she said.

Gap posted sales of $11.6 billion in fiscal 1999, a 29 percent increase for the year, in while sales per square foot rose to $548 from 1998's $532. The company added 570 stores, bringing its total to more than 3,000 in six countries. Gap's 1999 earnings, meanwhile, jumped to $1.1 billion, a doubling in just two years.

Gap Chief Financial Officer Heidi Kunz said in an interview after the meeting that it is too early to know if first-quarter 2000 weakness resulted from a fundamental shift in consumer preferences or stemmed more from onetime factors like the late Easter and bad weather in the Northeast and Midwest. ``This is a confusing time,'' she said.

Gap will continue to tweak its businesses but is not taking any unusual steps to address the recent sluggishness in sales, Kunz said. ``In any month or quarter, there are lesson learned. This is no different than any other quarter.''

Gap marketers are studying ways to reduce marketing expenses as a percentage of sales by doing more cross-promotions between online, stores and catalog, she said. (Banana Republic is currently the only Gap chain with a catalog.) As a result, marketing expenses in 2000 may come in slightly below last year's level of 4 percent of sales, she said.

Gap intends to open between 600 and 660 new locations in 2000, including the first big rollout of GapBody stores and its first Old Navy outlets, which open next month.

To support that growth, the company plans to spend a record amount --$1.6 billion -- this year on buildings and other infrastructure, including three new distribution centers like the Gallatin prototype. Last year's capital spending totaled $1.2 billion.

The 720,000-square-foot Gallatin facility, which sorts clothing that arrives from factories and then trucks orders to stores, services 200 Gap locations and will process about 1 billion units of clothing annually.

The automated systems cut down on labor and increase the speed and accuracy of filling stores' orders, thus minimizing out- of-stock items, said Smith. He declined to quantify the improvements, but said 95 percent of all the clothing that flows through the facility is tracked solely by machine and does not involve any hand-sorting.

The distribution center's 1,300 employees are paid a starting salary of $9 an hour and receive benefits, including stock options, Smith said.

Signs in the cafeteria provide a peek at how Gap instills employees with its corporate philosophy. ``Do It Better Every Day,'' exhorted one large banner hanging on the wall. ``Take the Smart Risk,'' said another sign.

E-mail Carol Emert at cemert@sfgate.com.

©2000 San Francisco Chronicle  



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