Banana Republic Inc.

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Banana Republic Inc.

1 Harrison Street
San Francisco, California 94105-1602
U.S.A.
(415) 777-0250
Fax: (415) 896-0322

Wholly Owned Subsidiary of The Gap, Inc.
Incorporated: 1978 as Banana Republic Travel and Safari Clothing Company
Employees: 3,800
Sales: $282 million (1997 est.)
SICs: 5651 Family Clothing Stores

A subsidiary of The Gap, Inc. since 1983, Banana Republic Inc. “has long been to khaki what Levi’s was to denim,” according to Mel Ziegler, who, along with his wife, Patricia, founded the company in 1978. Part of a growing wave of national retailers, Banana Republic has, in recent years, branched out to sell housewares, personal care items, footwear and dressy as well as casual clothes and is one of The Gap’s most successful ventures in the specialty fashion market. Banana Republic’s niche is with high-income, over-25, white-collar professionals, 32 percent of whom have an annual household income of more than $100,000. Another 22 percent of the company’s customers earn at least $75,000, and yet another 19 percent are in the $50,000 to $75,000 range.

The Early Years: Selling a Concept As Well As Clothing

The company owes it origins to Mel Ziegler’s search for a replacement for his well-worn military surplus jacket. Ziegler finally purchased a British Burma jacket in a Sydney “disposal” store, which his wife altered to downplay the garment’s military look and “play up its sensibility as a comfortable, utilitarian, everyday garment,” as stated in Banana Republic’s historical documents. Family and friends admired the jacket’s look, prompting the couple to create and open the Banana Republic Travel and Safari Clothing Company in Mill Valley, San Francisco.

From the start, Banana Republic sold a concept as well as clothing; the look was unique, and trade dress identity strong. The company’s original catalogues stood out for their ink and watercolor drawings of flight jackets, photo-journalist’s vests, paratrooper briefcases, and gurkha shorts—all of which were accompanied by travelogue-type copy highlighting the theme of travel and adventure. All items were constructed of natural fibers. As the premier outfitters of travel and safari wear from 1978–1983, Banana Republic was a forerunner in the specialty fashion market which appealed to the 25–44 year old crowd of young professionals.

Acquired By The Gap in the 1980s

By late 1983, when The Gap—under president Millard S. Drexler and chairman Donald G. Fisher—acquired Banana Republic, there were five Banana Republic stores in California, and the company’s annual sales had grown to $10 million. The new subsidiary was an immediate boon to the then-floundering Gap, which was struggling to broaden its market beyond a well-established teenage customer base. Banana Republic experienced meteoric sales growth and rapid expansion for the next three years, with sales per square foot peaking in 1986 at about $750, compared to an industry average of about $235. New stores were opened whose interiors were designed to recreate the adventurous setting of the outback. Bush planes hung from ceilings; thatched-roofed huts, jeeps and ersatz wild animals were arranged on the display floor. Catalogue publications increased. The Zieglers stayed on as president and vice president of the new Banana Republic subsidiary, with creative autonomy to run the company.

But beginning in 1986, amid a period of apparel industry slump, Banana Republic’s safari and khaki concept began to lose its appeal. In-store sales, which had been at 15 percent of The Gap totals and 20 percent of its profits, shrank as the product line rapidly lost popularity. Gap stock sold at a “liar’s discount,” with a price-earnings ratio more than 10 percent below the industry’s. Trips, a travel magazine intended to promote the Banana Republic line, was launched and discontinued after its first issue and the resignation of two associate editors. The Gap gave the management at Banana Republic most of 1987 to make adjustments, but sales continued to slide. Only 15 new stores were opened in 1987, instead of the planned 25.

Banana Republic, which had been the hottest retail concept around, was eating away at its parent company’s profits, showing a loss for 1988 despite the opening of many new stores. Sales totaled only between 10 and 15 percent of The Gap’s totals in 1987 and 1988. In an attempt to shift the company from a purveyor of safari wear to traditional travel and casual wear, Drexler took on the additional role of CEO of Banana Republic, succeeding Fisher—who remained chairman and chief executive of The Gap. The Gap’s management decided to get away from Banana Republic’s basics look, and tried out new items in new colors, but the unpopularity of the new merchandise, coupled with inadequate inventories, continued to hobble Banana Republic. In April of 1988, Mel and Patricia Ziegler resigned, citing “fundamental creative and cultural differences with the management of The Gap,” according to an April 1988 article which appeared in the Daily News Record.

The Turn of the Decade and A New Corporate Identity

The search for a solid corporate identity began to take shape in 1988, when The Gap brought in a new management team, including Tasha Polizzi, formerly of Ruff Hewn and Polo/Ralph Lauren, as vice-president and director of design and product at Banana Republic. Although Polizzi stayed in the post for only a year, citing creative differences in updating the direction of the chain’s merchandise, the new team made some successful moves, including a decisive shift away from the safari motif. In an effort to maintain traffic in the chain’s then-100 stores, it knocked down prices substantially to clear out old merchandise and to develop and test new merchandise. The new lines, which included brighter-colored casual wear and cruise line apparel, were moved to the front of the stores, while the more traditional khaki and safari apparel were placed in the back. Stores were refurbished to reflect a more sophisticated, modern sensibility. In 1989, the catalogue was discontinued.

The early nineties saw a positive turn-around for Banana Republic, under the direction of Richard L. McNally, its executive vice-president and top official. Menswear sales were much improved with the first comparable-sales increase in five quarters occurring in the first quarter of 1990. The chain generated same-store sales growth in line with The Gap’s total of 5 percent beginning in 1991, a time during which yearly sales at Banana Republic were estimated at about $300 million. Banana Republic’s operating income was higher in 1992 than the previous year, and the chain expanded to include 162 stores nationwide. The company began further efforts at diversifying its product lines, and innerwear, sleepwear and accessories were added to the men’s and women’s lines as well as a variety of looks suitable for the office. Advertising campaigns were adopted to sell the company’s new relaxed, urban lifestyle image. Two received notoriety for their exceptional quality, including one which specifically targeted the gay community.

Continuing Growth in the 1990s

By 1994, Banana Republic was racking up the biggest gains of any subsidiary at The Gap, and formulated plans to open 20 new stores a year for the next several years. In 1995, it opened its first store outside the U.S. in Alberta, Canada, and rolled out its Body Care collection. In 1996, it introduced separate gender-specific concept stores, Banana Republic Men and Banana Republic Women. The women’s mix had by then grown to include career suiting, casual wear, shoes, belts, handbags, lingerie, and luggage. In keeping with its story line, all items in the body care collection were perfumed with a scent called “Classic.”

By 1996, there were more than 200 Banana Republic stores in the U.S., as well as five in Canada; they had a total estimated sales volume of more than $500 million. Menswear still accounted for 50 percent of all sales, and stores had begun to offer free alterations and personal shopping assistants. Home merchandise items were introduced into a handful of stores during the holiday season, such as formally dressed tables and beds in fabrics popular from the men’s and women’s clothing collections. Some negative press was garnered when Banana Republic ran an ad campaign featuring Senator Ben Nighthorse Campbell at a time when Fisher had legislative business before the Senate, and again when several articles appeared citing the fact that Banana Republic employed maquiladora workers to produce some of their goods. But the company took both criticisms in stride, without compromising its positive trend. In 1997, “BR Athletic” was introduced, adding athletic clothing and footwear, a move mirrored by mall favorites and competitors such as Eddie Bauer, L.L. Bean and J. Crew. Donald Fisher was named National Retail Federation’s Gold Medal winner, and Jeanne Jackson moved into the position of chief executive officer mid-year, while at the same time announcing the company’s intent to open 30 stores a year to add to the 226 then in existence.

Company Perspectives:

Banana Republic reflects an American sensibility with a positive and optimistic viewpoint. The timeless style captures a modern interpretation of classic fashion and its relaxed attitude expresses a comfortable and confident quality. The adventurous spirit of the line is built from its heritage in travel and living a life full of passion that is open to discovery.

By early 1998, that number had grown to 40, according to Jackson, who said that the company was planning 20 percent growth a year. Among these new stores, there were plans for a new type of store, the flagship, first introduced in San Francisco, Chicago and Waikiki in 1997. Flagship stores were larger than previous Banana Republic retail locations, averaging 25,000 to 35,00 square feet and featuring all of the company’s merchandise lines under one roof. Their interior design reflected the look and feel of their distinctive communities, while incorporating the chain’s signature features—super-sleek fixtures, lots of polished metal, neoclassical arches, and an overall spare design. The Chicago store, for example, incorporated the glass and steel staircase from the original Michigan Avenue store, had a facade whose vertical lines pay tribute to the city’s modern architecture, and showcased art from local artists. In San Francisco, the unit was designed to replicate an upscale home, with separate rooms used to display the different styles of clothing.

Additional flagships were planned for New York, Boston and Philadelphia in 1998, while some of the smaller retail locations were slated to grow in size from around 10,000 square feet to units that were twice as large or larger. The number of stores was projected to break the three hundred mark, and there were plans to reintroduce the company’s catalogue. As the end of the century approached, Banana Republic was poised to remain a strong presence in the chain store apparel market, an innovator in the area of specialty merchandise, and the marketer of a lifestyle.