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Gap CEO Glenn Murphy Announces Retirement, Shares Slip (NYSE: GPS)

the gapGlenn Murphy, chairman and CEO of The Gap announced today he  will step down effective February 1. The news sent shares of The Gap (NYSE: GPS) into a slide with shares dropping 12% to $37.05 in early trading. By mid-day, shares were down even more at 12.16% to $36.84, nearing the low 52-week range of $36.13 to $46.85.

Murphy became CEO of The Gap in 2007 and played a critical role in turning the company. The Gap struggled for several years but in the early part of 2012, things began to improve thanks to strategic marketing and trendier merchandise. With Murphy at the helm, the store began expanding outside the United States.

However, The Gap has struggled in recent months. In particular, the Gap brand struggled although sales in several areas slowed down to include brightly colored jeans.

After resigning, digital leader Art Peck will become the new CEO. Peck first joined The Gap in 2005, during which time he was been heavily involved in a number of operational roles. He also served as the outlet and namesake brand’s North America divisions’ president. Most recently, Peck focused on new innovations developed specifically for shoppers who make smartphone and in-store purchases.

While several outside candidates had been considered, Peck was chosen to join the board of directors after Murphy is gone. Another change is the position of non-executive chairman, which will be filled by Bob Fisher, the son of the retail chain founders.

In a conference call with analysts, Murphy admitted that he was unable to make a long-term commitment and as such, felt that Peck was the right person for the job. He went on to say that this was a good day for The Gap and that the best business is still to come.

Future plans under Peck’s leadership include adding more stores in China over the next three years, with the goal of tripling sales.

The announcement of Murphy’s resignation is just one of many specific to big retail chains. Wal-Mart, which is the largest retailer in the world will also have a new CEO for the US discount division when Greg Foran comes on board in July. Changes are also being made to leadership roles for companies like Target and Home Depot.

Every retailer is facing challenges, primary because of a slow-healing economy. Because of this, shoppers are being more careful with spending. There is also a significant shift pertaining to the increasing number of online customers. To create the perfect balance between the online experience and in-store shopping, The Gap, among other retailers is trying to find viable solutions.

Just last year, Peck began testing a program whereby customers would have the ability to make online merchandise reservations, followed by picking items up at a local store within 24 hours. This strategy will continue, coupled with expansion in global markets. Peck’s point of view is that both online and in-store shopping are important and together, they offer incredible opportunities.

The obstacles that Peck will need to overcome are underscored by The Gap’s monthly sales report showing a total revenue increase of 1% to $1.48 billion. For in-store sales, the numbers remained unchanged while lower revenue was reported for the Gap brand and better than expected results at the Old Navy and Banana Republic divisions of the company. At this time, profit margins are being negatively impacted by weak sales.

In last month’s press release, Murphy stated that The Gap’s challenges were far more than anticipated. In a statement by BMO Capital Markets Group analyst, John Morris, Peck has good oversight and impressive plans but without much direct experience as a CEO, there are concerns. Overall, analysts feel that it could take over a year to get The Gap product back on track.

As a global specialty apparel company, The Gap, Inc. offers apparel, accessories, and personal care products not only for men and women, but also small children and babies. The company operates under a variety of names to include Gap, Old Navy, Banana Republic, Athleta, and Piperlime.

There are two segments of The Gap to include Stores for retail operations and Direct that covers online brands on a domestic and international front. The Gap and its subsidiaries are located in the United States and Canada, as well as Japan, China, France, Ireland, Italy, and the United Kingdom.

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