Back To Basics

The newest offering from Gap is not a scandalously low-cut miniskirt or a puffy candy-colored vest. Those are relics from the recent past, bold miscues that spun the San Francisco retailer into a three-year financial free fall. The new fashion, to be launched this week, is both simpler and safer: corduroy jeans. Having spotted a budding corduroy fad spawned by niche retailers, Gap will introduce cord jeans in a rainbow of eight colors for women and four for men, in all the traditional jean sizes and cuts. The can't-miss ad campaign stars the material girl herself, Madonna, along with rapper Missy Elliott. To former Disney exec Paul Pressler, who took over as Gap's chief executive in September, cord jeans signify a return to the blueprint that guided the firm during its heyday: selling inexpensive staples that look cool. "This is what the Gap does well," Pressler says. "It interprets fashion trends and finds new ways to present tried-and-true items."

At the risk of assigning too much significance to a pair of easy-fit cords, the strategy puts Gap at the forefront of a "back to basics" movement galloping across corporate America. As firms stand amid the wreckage of the gung-ho '90s boom--including failed empire-building efforts at AOL Time Warner and Vivendi--they've hit upon a head-scratchingly simple strategy: pare down product lines and concentrate on the things that made them successful in the first place. With Gap, it's trendy essential clothes; at McDonald's, the new focus is back on the burgers. At Heinz, attention has turned to, yes, ketchup. A high-school student might dub all this "common sense," but just a few years ago, it wasn't all that common. Hepped up on enthusiasm from a seemingly invincible economy, companies expanded in every direction, and moved away from treasured business fundamentals like researching customer demands, maintaining quality and keeping Wall Street expectations in check. Those days, of course, are over. "The gun is to their head now," says retail consultant Harry Bernard, "and they are all understanding that common sense wins the day."

One of the first signs of this chic corporate craze came three years ago, when Bill Ford took over the company his great-grandfather founded in 1903. During the '90s, the then CEO Jacques Nasser diversified Ford into areas like e-commerce, parts recycling and repair shops, with bad results. Called in to right a listing ship, Bill Ford shed those ancillary businesses, dubbed his turnaround plan "back to basics" and declared a focus on--you'll never guess--automobiles. Other blue chips are now using the same playbook. Procter & Gamble's A. G. Lafley dubbed himself the "back-to-basics CEO." Last year he dropped unprofitable --product lines like Jif peanut butter and Crisco oil, and is focusing on his best-known, most-profitable products: Tide, Crest, Pampers and Pringles.

Wall Street is rewarding signs of the new business wisdom, just as it lauded firms that launched online divisions in the '90s. This month Sears sold its profitable credit-card division to Citigroup for $3 billion, a message to investors that it's trying to fix its main business: selling clothes to Middle America. Sears stock has jumped 15 percent since the news. Investors have also rewarded McDonald's with a 60 percent stock boost since March, when CEO James Cantalupo vowed to improve service and cleanliness--and word spread that he would soon sell McDonald's listless partner chains, Boston Market, Chipotle Mexican Grill and Donatos Pizzeria. "We took our eyes off our fries and lost our focus," Cantalupo told analysts in the spring.

But the back-to-basics thinking is best exemplified by Gap, where management arrogance of the '90s has been transformed into old-school modesty about how to best serve customers. During the final years of the reign of founder Mickey Drexler, Gap only periodically queried customers about what they wanted to buy. "We believed that if you had the right clothes, they would come," says Jenny Ming, head of the Old Navy division. Under Pressler, each chain now is always conducting focus groups and regularly surveys its customers on their tastes. To better the chances that no one leaves stores empty-handed, Gap's three divisions also have started studying their customers to group them into different target audiences, from fashion-obsessed teens to value-conscious --moms. Pressler says Old Navy is the farthest along in his new discipline of researching its customers and, not coincidentally, the farthest along toward recovery: its sales growth has beaten both Gap and upscale Banana Republic.

Pressler is giving Wall Street another lesson in what back-to-basics means: he's trying to keep Wall Street expectations low by refusing to provide earnings estimates for the rest of the year. By not giving analysts the theoretical numbers used to make predictions about short-term movements in the stock price, Pressler and like-minded CEOs are forcing them to look at their firms' longer-term prospects. Coca-Cola, Mattel, Gillette and Home Depot have also recently scaled back the amount of financial guidance they give Wall Street. "They now recognize that setting unrealistic public targets sets you up to fail," says Chris Zook, coauthor of "Profit From the Core."

All this raises an inevitable question: once the economy starts humming again, will CEOs embrace anew the reckless tactics of the '90s to grow at any cost? Some experts say that, at least over the next few years, it's unlikely. The current generation of back-to-basics CEOs like Pressler, Lafley of Procter & Gamble and Cantalupo of McDonald's were chosen for their reputations as conservative, fiscally responsible leaders. They're "the smart CEOs who have learned that the last three to four years have provided a century worth of business lessons," says Scott Davis, managing partner of the brand-consulting firm Prophet. That may not be rocket science, but these days it's enough to make a CEO a hero.


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