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CNBC Exclusive: CNBC Excerpts: Gap Inc. CEO Art Peck Speaks with CNBC's Courtney Reagan

WHEN: Today, Tuesday, June 16th

WHERE: CNBC's Business Day programming

Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with GAP Inc. CEO Art Peck and CNBC's Courtney Reagan. Excerpts of the interview will run throughout CNBC's Business Day programming on Tuesday, June 16th beginning in "Squawk Box" (M-F, 6AM-9AM ET).

All references must be sourced to CNBC.

PECK ON HAVING THE RIGHT SIZE FLEET

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A lot of the reason for being decisive on this decision was just to get – really to take complexity out of the work that Jeff and his team were doing on GAP. Job number one there is to get great product that's right for the brand and trend-right back into our stores and by these decisions today I think we streamline the organization and we, frankly, eliminated some of the complexity in the fleet that wasn't getting us very far to get back to a fleet that we're proud of and we can do business in front of our customers. I'm very confident that we're at the right size fleet. Roughly 500 stores in specialty in North America. If you look across the locations, the centers, the street front locations, I feel like we now have stores that have the best real estate in North America and that's where we want to be with a brand like GAP.

PECK ON GROWTH INITIATIVES

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We've been very focused on building out the global footprint of the company. And that's brands in geographies across multiple channels. So the specialty channel, the outlet channel and the online channel. That's a strategy we're committed to and we're pretty far down the path of having really a world class global distribution system. Second piece, which we've been less good at, is gaining market share. And we need to gain market share in our mature businesses – that's the platform that Jeff is building right now, it's what Old Navy's been doing, it's what Banana is stepping up to. And then obviously gaining market share in other geographies by building more stores, growing our digital presence, growing our outlet presence. So if you put our geographic expansion together with gaining market share, there's a big growth opportunity there, just inside the brands that we have right now.

PECK ON REAL ESTATE

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By these decisions today, I think we streamlined the organization and we, frankly, eliminated some of the complexity in the fleet that wasn't getting us very far, to get back to a fleet that we're proud of and we can do business in front of our customers. Now we're always looking at real estate, obviously, every quarter we sweat the entire portfolio. We look for opportunities to open stores and then we're looking at places where we feel like we shouldn't be or where there's been a change in the co-tenancy or the mix of the center or something like that as well.

Courtney Reagan: Are you looking at the current Toys R Us location in Times Square?

Art Peck: We're looking at all good real estate. You know, Times Square is the crossroads of the world. And that's an amazing location.

Courtney Reagan: What do you say to people that look at the GAP in the lens of today's announcement or perhaps the last earnings report and say, "GAP's heyday is over."?

Art Peck: I try actually not to really even engage in the conversation to tell you the truth. If I looked at GAP Inc. and our portfolio – huge asset that's not on our balance sheet, obviously, is our brands. And with GAP number one is our namesake brand, number two with the ubiquitous recognition that it has. And maybe, most importantly, just the love that consumers have for the brand. And so I just don't buy the argument at all. I believe brands are incredible assets. GAP is an incredible brand and I think it's very relevant today.

Courtney Reagan: So Old Navy has begun, as you talked about, a number of times to make their lead time faster, shorter, more responsive, experiment a little bit, order more of what works and less of what doesn't. What took so long to get there?

Art Peck: We've been operating Old Navy with a shorter pipeline. And speed is part of it, but speed is not all of it. It was then what the team did to layer on top of that. Some of our responsive supply chain capabilities, the ability to test and respond, where we're platforming fabrics and we can get back into a style in season. You know those are capabilities that we've been building over time and what you've seen at Old Navy is now three years of great numbers. A billion dollars of incremental sales over that time frame which by any measure is gaining market share. Old Navy is really proof of concept into a new way of operating the business and a new product model that allows us to stay on trend, on brand, consistently.

PECK ON TECH AND FASHION

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I think there is a big opportunity for unexploited innovation in the fiber yarn and fabric level of clothing. And that can be quality benefits, cost benefits, performance benefits or all of the above at the end of the day. Athleta, in our portfolio, is doing that extraordinarily well across a whole range of things. That isn't really the kind of innovation that is largely entered into the ready-to-wear space today. So that's something I'm really excited about. As tech comes into that, surprisingly, maybe, or not, I'm not really a – I'm a bit of a skeptic on technology at the end of the day. Mostly because I think we live in a world where there's a lot of gratuitous technology that gets thrown at things. And at the end of the day, technology is meaningful if it creates real, persistent, lasting benefits for a customer. I personally, I don't know about you – but I'm a runner and everything – but I don't need to take my heart rate from my t-shirt right now. That might be an interesting feature later on. So it's one of those things where it's very early days. We're looking, we're talking, we're experimenting, but it's probably not there yet.

PECK ON THE STORE BEING HERE TO STAY

I don't see stores going away at the end of the day. Just the opposite. I think as stores and digital come together, the opportunity for a store to provide a much richer customer experience by connecting those two things, that opportunity becomes a huge opportunity. So to me it's a really cool time because the technology I think will be disruptive and I like disruption for a company that has this size, the capability, the scale and the knowledge of a company like GAP Inc.

PECK ON OLD NAVY PRICING

Old Navy is a different business. And that wow price is something that's really important for the business. Am I comfortable like in GAP as an example with the amount of promotion we're doing? No, I'm not. And I've said that publicly. Here's the simple reality of how do you reduce your promotional levels. Cute product that she loves, but if she doesn't buy it now, it's not here the next time. Sounds really like magic, doesn't it? And so, if you think about where the worst place to be in this business is, it's when you're overinvested in product that she's not responding to. And that's what's driven a lot of the promotion inside the business. And that's what we're working to fix right now.

PECK ON ATHLEISURE

Active as for teens and tweens is a very important component of their ready-to-wear wardrobe. Obviously women can live their lives in yoga pants if they want to. And so you know, our job is to bring her a great product that's right for the brand. And this is a trend that we think has real legs underneath it.

Courtney Reagan: Does the activewear do just as well at each of the businesses? And at each of the pricing levels?

Arthur Peck: It's a growth business across all of our businesses.

PECK ON DENIM

I really feel pretty bullish right now about the fact that while we've seen kind of a denim hiatus for the last couple of years that she and he are both coming back to denim. And we're seeing it across men's, women's, and in the kid's and baby space, as well.

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