NEW YORK - Gap (GPS) said late Wednesday that Glenn Murphy will resign as its chairman and chief executive on Feb. 1, and the retailer will promote its digital leader Art Peck to CEO.
The San Francisco company, which operates Gap, Old Navy and Banana Republic, said Wednesday that Murphy's resignation coincides with the end of its current fiscal year. He has been Gap's chairman and CEO since July 2007 and oversaw a turnaround that has lost steam in recent months.
Since joining Gap in 2005, Peck has been involved in a variety of operational roles and served as the president of Gap's outlet division and the namesake brand's North America division. But his most recent role has been overseeing new innovations that cater to shoppers jumping back and forth from their smartphone to the store.
Gap Inc. shares dropped 12 percent, or $4.86, to $37.05 in late-morning trading.
During a conference call with analysts following the announcement, Murphy said he made a personal decision to retire because he couldn't commit to be at the helm for the next several years. He believes that Peck is the right successor.
"I think this is a good day at Gap. The best of this business is ahead of it," Murphy said. "This is a future CEO who knows our culture."
Peck, the president of its growth, innovation and digital division, will also join the board of directors. The company said that the board looked at number of outside candidates but Peck quickly rose to the top of the list.
Bob Fisher, whose parents founded the retail chain, will become non-executive chairman.
After several years of losing its way, Gap started a turnaround in early 2012 by stepping up its marketing and offering trendier merchandise. Under Murphy's stewardship, Gap has been expanding outside the U.S., and said earlier this year it wants to triple its sales in China in three years as it opens more stores there. But in recent months, the company's business, particularly the Gap brand, has seen sales slow down as some of the hot trends like brightly colored jeans have lost their fizzle.
Gap's announcement of new leadership is the latest in a string of changes at the C-suite at a number of big retailers. Wal-Mart Stores Inc., the world largest retailer, named Greg Foran as its new CEO of its U.S. discount division in July. He started his new job in early August. Walmart's new CEO of its overall business Doug McMillon succeeded Mike Duke in February. There also have been recent changes in leadership at Home Depot and Target Corp., to name a few.
The changes come as retailers are wrestling with broader issues, namely a still slowly-recovering economy that is making shoppers remain frugal. But retailers are also grappling with the dramatic shift among consumers to online. As a result, Gap and others are trying to meld their online business with physical stores as shoppers' purchases are influenced by the Web and mobile devices.
Under Peck, Gap started testing a program last year that lets customers reserve merchandise online and then pick it up at the store within 24 hours. During the conference call, he said he would continue strategies including expanding the company's business globally that his predecessor has put in place. But he declined to talk about what his own imprint will be.
"I steadfastly believe in stores. I steadfastly believe in digital," Peck said. But when the two come together, they create big opportunities, he added.
Gap's monthly sales report underscores the challenges Peck faces. Gap's total revenue rose 1 percent to $1.48 billion. Sales at stores open at least a year were unchanged, as the company reported lower revenue for the Gap brand and better results at its Banana Republic and Old Navy divisions. It said that weak sales are hurting its profit margins.
In a press release, Murphy said the month was "more challenging than we expected."
Sales at stores open at least a year are considered an important measurement of retailer health because they leave out results from stores that have opened or closed within the last year.
John Morris, analyst at BMO Capital Markets Group, praised Peck in a note to clients on Wednesday, but he did voice concern about Peck's lack of direct CEO experience. "Bottom line, we believe it may take some time to get the product back on track at the core Gap brand, perhaps more than a year."