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Two days before Black Friday, that late-November day when all hell breaks loose in the holiday-obsessed American retail industry, Gap Inc. chief executive Glenn Murphy was calmly walking analysts through the company's good-news, bad-news third quarter. Murphy, a veteran Canadian merchant, was recruited last summer by the struggling San Francisco-based retail giant, and this session marked his first full reporting period as the new boss.

Though he hails from the considerably less stampede-prone world of big-box pharmacies—Murphy had been the CEO of Shoppers Drug Mart since 2001, presiding over a spectacularly successful run—he gamely talked about 5 a.m. store openings as if they were old hat. Murphy let on that he planned to drop by an Orlando store for a midnight madness event. He'd show the flag and suss out consumer reaction to the chain's holiday lines, which featured a return from trend-driven styles to Gap's more traditional casual look, accented with discreet splashes of reds, oranges and blues. "The Gap brand [this season] is all about colour," he said, adding, matter of factly, "I'm wearing a 'crazy stripe' sweater as we speak."

Modelling apparel on a conference call: That's about as much of a fashion statement as anyone's going to get out of the 45-year-old Murphy, a famously low-profile figure who, that sweater aside, shows no sign of changing his stripes now that he's in the flashy world of clothing retail. Here's a guy who doesn't do industry events, doesn't do interviews and gets his professional kicks by trudging through the hundreds of stores under his command. He has no intention of becoming Gap's new pitchman, à la Galen Weston Jr. Nor is he going to position himself as a stylish éminence grise in the mould of Harry Rosen. With Murphy, it's not about him.

Which is false modesty, of course. It is about Murphy, the man tapped to extricate Gap, together with its sister chains Old Navy and Banana Republic, from a protracted funk.

While Banana Republic, by most accounts, remains reasonably healthy, the Old Navy brand had a rocket rise followed by a return to Earth as it lost market share to Target and other so-called cheap-and-cheerful discounters like H&M.

Gap, meanwhile, seemed hell-bent on diluting the value of its own cachet, first by overexpanding and then by digressing into trendy fashion. Murphy's two predecessors—veteran insider Mickey Drexler, who presided over Gap's huge expansion in the 1990s, and then Paul Pressler, a well-regarded Disney marketing whiz who took over in 2002—created the dishevelled state of affairs that Murphy encountered when he arrived last summer.

Those who know Murphy's track record regard him as a merchant's merchant. Investors, moreover, have responded positively to his appointment. But he hasn't proven himself yet. Indeed, the big question is, can a guy who's spent almost all of his career in the workaday world of supermarket and drugstore aisles perform his magic in the flighty milieu of clothing?

For years, I've been a quintessential Gap customer—the impatient male consumer whose most fervent wish is for a short and pain-free shopping experience. On most days, I am wearing Gap khakis or jeans, and possibly a Gap shirt. In fact, they've made about three-quarters of my wardrobe. This is what I've come to know about the Gap: The clothes fit; they're made of solid fabric; the prices are reasonable, the bargains frequent; and the stores are perfectly suited for surgical-strike shopping missions. You can buy the first thing you try on—perfect.

I also counted myself as a big fan of those spare, funky TV spots with Gapsters bopping around in front of a crisp white backdrop. I noticed all their elegant black-and-white outdoor ads featuring celebrities like Sam Shepard. It was a brand with major mojo.

But the Gap's cool stance, and the style it heralded, were eclipsed at the company in recent years by a fashion-conscious pose that alienated core Gap buyers. Last summer, when I went to the Gap looking for jeans, I found myself puzzling over shelves piled high with a faux-retro line (dubbed 1969) that was all about odd-looking drawstrings and bell-bottom cuts I haven't worn in three decades, and unconvincing bleach jobs. Classic? Not a chance.

The Gap is a huge chain. Therefore, it makes huge mistakes. There are almost 3,200 stores among the three brands (mainly in North America), and its 2006 net sales were $15.9 billion (U.S.). But Gap has endured a lousy decade. Pressler hired several Disney colleagues, and they attempted to impose Disney's strict financial management ethic on a company that had seen its sales grow 10-fold between 1989 and 2001. It didn't work. All the top-line numbers have been falling in recent years: net sales, earnings per share, return on equity, average sales per square foot. Year-to-year performance at stores open for more than 12 months—the sacred "comp" (comparable) indicator—dropped 7% in fiscal 2006, which Gap described as "a difficult year."

There's little to suggest a dramatic improvement for 2007, although the company has begun to post earnings-per-share increases. The slumping U.S. economy hasn't helped matters; indeed, most apparel retailers were hurting last year. The third quarter looked marginally better from a profit-and-loss perspective—because the 150,000-employee company is shedding staff, closing the fledgling Forth & Towne chain for women and slashing its outlay on TV advertising. "We have to make sure we're perpetually trying to get costs out of the business," Murphy told analysts. But the reality is that there has been no revenue growth compared to 2006, and comparable-store sales figures continue to fall slightly.

It's a vast change from Murphy's previous gig at Shoppers, one of Canada's largest and most successful retail chains. The company has almost a thousand stores, recorded nearly $8 billion in revenues and returned a respectable $1.97 in earnings per share to investors for 2006.

Prior to Murphy's arrival at Shoppers in 2001, the pharmacy chain built in the 1960s by Murray Koffler wasn't listing quite like the Gap, but it had plenty of problems that had been accumulating over time. It was "a very neglected business," one retail watcher recalls, controlled by the conglomerate Imasco. But there is an important contrast: Shoppers had been under-managed, whereas Gap, during Pressler's time as CEO, was overmanaged.

Murphy was recruited to lead Shoppers following the $2.55-billion acquisition of the chain by buyout giant Kohlberg Kravis Roberts & Co. and the Ontario Teachers' Pension Plan. He arrived with a business degree from the University of Western Ontario and a long stint at Loblaw during the halcyon years of Galen Weston, Dave Nichol and Dick Currie. "He was part of a group of Young Turks who were going to school with these iconic guys," says J.C. Williams Group senior partner John Torella, a retail consultant. After Loblaw, Murphy had a brief gig as an executive at bookseller Chapters in the months before it was taken over by Indigo.

Shoppers director David Peterson says Murphy sold the new owners on an aggressive expansion strategy that saw the chain build hundreds of new stores and renovate existing ones. On Murphy's watch, Shoppers also branched into high-end cosmetics and beauty products and diversified its offerings in non-traditional product categories: Convenience foods were added, seasonal goods revamped. "He's one of the best executives I've ever seen anywhere," enthuses Peterson. "The build-out strategy is still working fabulously. We're now at a thousand stores, and there's still room on the runway."

Other retail insiders say Murphy ushered in a new culture at Shoppers. He succeeded long-time CEO David Bloom, one of the pharmacists who'd been there with Koffler from the early days. According to Torella, Murphy managed to transform Shoppers from an inward-looking organization dominated by franchisees to an outward-looking retail powerhouse focused on its customers. "He was able to make retailers out of the pharmacists."

Those who know Murphy describe him as affable, hard-working and intensely focused. He is famous for spending huge amounts of time—as much as three days each week—traipsing through stores. And, unlike Pressler, he comes to the job well versed in all the generic minutiae of retailing—merchandising, store refurbishment, real estate, pricing, supply chains and so on. One industry insider notes that Murphy also learned another salient lesson at the University of Loblaw: Keep yourself out of the press. "Not a lot of flash with him, that's for sure." (Gap declined requests for an interview.)

While Murphy may be an ego-free zone, his approach to branding is anything but self-effacing. Rob Guenette, president of ad agency Taxi Canada, notes that Shoppers clearly sought to greatly raise the value of its brand through its store renovations, which emphasized large, vivid external signage and assertive interior design. "They went from whispering their brand to shouting it," he comments. "You can't miss their stores. It is a very, very inspiring place to walk into as a shopping experience."

Whether all that resumé grist is meaningful in the apparel business is another matter. It's easier for a retail executive to move between, say, hardware and consumables because both involve thousands of SKUs (retail parlance for "stock-keeping units") and staple goods. Clothing, says CIBC retail analyst Perry Caicco, "is much trickier." There are probably more SKUs on one side of a supermarket aisle than there are in an entire Gap outlet. Consumer buying patterns are less predictable, and far more subject to imponderables, such as tsunami-like fashion trends and the cool factor.

In the 1990s, Gap had plenty of the latter, thanks to great clothes and great ads. Today, rival retailers boast more potent cachet and profile. On one side, there's Swedish giant H&M, which specializes in peddling disposable but incredibly trendy duds produced and then heavily hyped by celebrity designers. On the other, there's Abercrombie & Fitch, and its sister brand, Hollister Co., whose groovy-moody stores, with thumping music and low lighting, are magnets for young people. H&M festoons its brands on the sides of buildings throughout the downtowns where it operates. Target, meanwhile, has taken a carpet-bombing approach to promoting its brand in print and television advertising.

In the face of such competition, says one clothing industry insider, Gap and Old Navy "have to reposition themselves. It's not easy to reposition a retail concept." And, as this person sniffs, "it's not easy to do if you don't have a fashion background."

The shmatte business, perennially impressed by its own exceptionalism, isn't bowled over by Murphy's low-brow credentials. Caicco points out that Murphy has been up front about his lack of experience in clothing. Others are less charitable. The hiring, sniped Condé Nast fashion-industry blogger Lauren Goldstein Crowe, "is apparently not a popular one with the employees, who were hoping for someone with more fashion experience." It's a form of back-biting Murphy's encountered before, when the Canadian publishing industry collectively gasped in horror at the prospect of a lowly grocery store guy trying to sell something as sacred as books. (Instead, we have self-described bibliophile Heather Reisman selling yoga mats and scented candles to accessorize the printed matter.)

Torella, for his part, isn't worried. He says Murphy will put in place "a process" to come up with the right solutions, rather than seek to impose his own prescriptions. "He didn't come in with any preconceived notions." Adds Len Kubas, another Toronto retail consultant, "He's moving with a purpose. He's constantly creating the impression that he knows what he's doing."

Some of the more mechanical aspects of the fix are well under way. Murphy is preparing to push ahead with his signature move: spending $545 million (U.S.) on store openings and upgrades. Some existing locations will need to be gutted, while others only require a bit of touching up. At the same time, Murphy also hints that the company may be looking at doing some consolidation of the Gap "fleet," which includes Kids, Baby and Body banners. "There's definitely a need to make that portfolio a little more in keeping with how we should be presenting ourselves to the consumer going forward," he said during the conference call.

On the marketing front, there's a new Gap Visa card and a push to build web sales, the only part of the business seeing sales increases. But Murphy iced a $75-million (U.S.) television advertising campaign as part of his cost-reduction push. Murphy insists the company will continue to promote itself aggressively in other venues, such as outdoor advertising and magazines. Taxi's Guenette, not surprisingly, questions reducing the ad spend, given that H&M and Target seem to be sparing no expense in touting their brands to consumers. "In retail," he says, "you have to be heard all the time."

True enough, but Murphy knows he has little choice but to rein in costs if there's no net sales growth on the horizon. To further drive down general administrative and sales expenses, the company has worked hard to reduce its inventories—a perennial problem that forced Gap to discount more deeply than was financially prudent. Murphy is also pushing for better trade terms from Gap's network of 780 suppliers, which operate factories all over the world (see story, page 48). "Everyone in the business understands that we are in a financial turnaround," he said during the conference call. The process, he added, is "evolutionary." "These things take time."

All that's back-end stuff, however. What the fashion business is watching, and cares most about, is, well, the fashion piece and the marketing. Gap is only one of several apparel brands now in the process of repositioning themselves—others, according to Women's Wear Daily, include Liz Claiborne, Bill Blass, Tommy Hilfiger and Anne Klein.

Gap's first salvo occurred just prior to Murphy's arrival, when the company poached highly regarded designer Patrick Robinson away from Target, where he'd been hired to develop an international line. Though not exactly a celebrity designer, Robinson is a household name in the fashion world, and has worked for Giorgio Armani and Perry Ellis, where he was creative director. He's in charge of renovating the main Gap line, which has gradually lost sight of what made it so popular.

Not long after Murphy came aboard, Gap bagged another high-profile name who does have some brand recognition of his own. Todd Oldham, a Texas-born designer and TV personality, will take on the task of rebuilding Old Navy. Oldham works in all sorts of areas—clothing, photography, graphic design and, interestingly enough, furniture. Known for colourful pop-culture motifs, he's produced dorm-room furnishings and recently had a run at revamping La-Z-Boy, of all companies. In late November, Gap also engaged noted accessories designer Pierre Hardy to develop a line of women's shoes, which will be launched this spring.

Jim Shedden, who works for Bruce Mau Design, says such attempts to rebuild a look using celebrity designers tend to be "hit and miss. Generally, people don't know these names." Oldham and Robinson may be well known within their worlds, but Gap won't be able to peddle them the way H&M touts new dresses bearing the imprimatur of Madonna or Stella McCartney.

That said, retail watchers like John Torella predict that Gap, under Murphy, will go back to being more, well, Gap-like. What that means for a creative star like Robinson is hard to say. As Lauren Goldstein Crowe, of Condé Nast's fashion blog, says, "One can never account for...the amount of inner-company resistance Robinson will encounter at Gap. His great collections for Perry Ellis were much under-appreciated by management, who were in favour of a more commercial, less fashion look. He left before he could make a real impact on sales."

Consumers, however, will have to wait until next fall for the full rollout, although some details of the new look were apparent this Christmas at both Old Navy and Gap. Murphy, for his part, doesn't want to rush his new creative teams and so has given both Oldham and Robinson several months to develop the new lines that will go into production over the spring and summer, and hit the racks in time for back-to-school.

As Murphy and his team headed into the make-or-break holiday season, one thing became clear: He has calmed the nerves of the investment world. Since Murphy took over, the stock has risen from under $16 (U.S.) to around $21, approaching analysts' target of $22.

Christine Chen, a retail apparel analyst at Needham, in San Francisco, last fall lauded the company's decision to target slightly older consumers and abandon Gap's ill-fated attempt to play in the mosh pit with all the other youth-obsessed clothing chains. "Overly flashy, superbright colours are visibly absent…which we view as a positive." Chen praised Old Navy's higher-quality holiday merchandise. As for Gap, Chen said, "We think the return to iconic Gap style exhibited in the fall merchandise…is a very important indication that [Gap] is committed to reaching the older, quintessential Gap customer."

Not everyone is sold on the makeover, however. UBS analyst Michelle Tan said in a research report in early November that the "jury's still out on the long term." "Glenn Murphy's most compelling attribute is his having thought outside the box at Shoppers," she says. "We would love to see him revamp Gap stores and add relevant third-party vendors that are consistent with its positioning, as we do see potential in the brand. Still, there are reasons to be doubtful, as non-apparel CEOs have struggled at apparel retailers. Shoppers was a much smaller chain with a better mousetrap [pharmacy] and dominant position in a less-competitive Canadian retail market."

Taxi's Rob Guenette isn't worried, however. "When Murphy sets his strategy, he sticks to it. He's got the tenacity." And he's got a stylish but cheerful sweater to prove it.

WHO PUT THE SWEAT IN SWEATSHIRT?
It's not the sort of episode one normally encounters as the head of a Canadian drugstore chain, even a big one.

Late last October, Glenn Murphy, just a few months into his new job, got a quick education in the prickly politics of apparel sourcing when two British media outlets ran graphic accounts about a 12-year-old Indian boy who'd been sold by his parents to a New Delhi sweatshop operator that subcontracts to one of Gap's suppliers.

Gap reacted swiftly, promising to investigate and withdrawing the clothing produced by the firm, which, as it happened, was children's wear. But the incident attracted global media attention and tore a strip off the company's carefully cultivated image as a responsible corporate citizen. The incident even provided fodder for satirical news service The Onion, which ran an item about Gap's imagined new "For Kids, By Kids" line.

The company has a bumpy track record for labour conditions in the thousands of factories that provide its wares. In the mid-1990s, stung by accusations of shoddy labour practices from unions, human rights groups and anti-globalization activists, Gap decided to improve its monitoring and impose codes of conduct.

In 2004, the company published its first comprehensive corporate social responsibility report, which was packed with hard, and not especially flattering, data about working conditions in its suppliers' factories, culled from reports by 90 inspectors. That effort, widely publicized, brought kudos from anti-sweatshop groups like Clean Clothes Campaign. Two years later, jumping on the ethical-consumption bandwagon, Gap joined a pro-Africa effort led by U2 singer Bono, producing a line of T-shirts made entirely in Africa.

After last fall's incident, Gap pointed to its corporate social responsibility report, which said the company had terminated relationships with 23 vendors in 2006 due to poor working conditions. Said Marka Hansen, president of Gap North America, "We strictly prohibit the use of child labour. This is a non-negotiable for us—and we are deeply concerned and upset by this allegation.

As we've demonstrated in the past, Gap has a history of addressing challenges like this head-on, and our approach to this situation will be no exception."