Gap's Comeback Strategy: Jeans for Life

Gap (GPS) is going back to its denim roots, with a twist: It wants to put its customers in its jeans from birth until, well, the final fade-out.

Even if it succeeds, though, Gap cannot thrive on denim alone. Its comeback is still far from assured.

Yesterday, Gap announced a new 1969 Premium Denim collection made especially for babyGap. The collection is styled to match the company's adult jeans for those Gap fans who want to dress their kids like themselves (or to dress themselves like kids). The collection even includes five-pocket jeans, something the company considers a baby staple. What infants will carry in that fifth pocket was not revealed.

But at least they will not have to break in their jeans. Gap designers have re-engineered the adult jeans with a more accommodating fit and a softer fabric to keep its tiniest customers comfortable. The retailer plans to launch a new mix each season. And in the fall, Gap will unveil a collection of 1969 Premium Denim for toddlers and children. The goal: to provide "a seamless transition from baby to kids to adult."

The jeans-for-kids strategy was a logical step following the successful launch last year of the 1969 Premium Denim line that helped to boost store traffic and sales. And Gap clearly is getting some traction from 1969 Premium Denim expansion and its work with Stella McCartney. Her second collection, coming in March, will also migrate into babyGap and GapKids.

But Citigroup analyst Kimberly Greenberger, a Gap believer who recently raised the company's share rating to buy, noted that despite denim's strength, sales of basic fashion items are still weak. It is too soon to say that the apparel chain is dressed for success.

But it can be said that Gap is at a turning point, and this time, it might just be a turn for the better. In January, the company reported positive comparable store sales for its major businesses. Gap North America was up two percent versus the same quarter in 2009, when it was down 18 percent. For its part, Banana Republic was up four percent versus down 22 percent in the year-earlier period while Old Navy North America was up 10 percent versus down 34 percent in the 2008 quarter.

This is progress. Still, sales in all divisions in the established stores are well below what they were two years ago.

Fashion is fickle, and being too dependent on denim is risky. Also, the company isn't the leader among trend-setting youth it was in the '80s. Call it the generation gap.