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Gap Hires Founder of EToys

March 28, 2003|Abigail Goldman | Times Staff Writer

Gap Inc. said Thursday that Toby Lenk, founder of defunct Internet retailer EToys Inc., was rejoining the online world as president of the San Francisco-based clothing company's Web division.

Lenk's appointment came six months after Gap Chief Executive Paul Pressler left Walt Disney Co. to take on the job of turning Gap around. Pressler worked with Lenk, 41, at Disney, where Lenk served as vice president of corporate strategic planning before starting EToys in Santa Monica in 1997.

EToys -- which never made a profit and filed for bankruptcy protection in spring 2001 with $285 million in debt -- became a symbol of the fast rise and even faster failure of what had been billed as the e-tail revolution. Pittsfield, Mass.-based KB Holdings Inc., a privately held company that operates the KB Toys chain, later bought EToys' inventory and Web address.

Still, analysts and others familiar with Gap say Lenk's new post overseeing Gap.com, BananaRepublic.com and OldNavy.com could prove a good fit.

Lenk was a pioneer in using sophisticated systems and databases to create an easy-to-understand Internet site, analysts said.

"He understood what the impact of the online channel could be, and he understood that it was different than the traditional way of doing business -- two things I think Gap could benefit from," said David Cooperstein, a retail industry analyst who has studied online selling.

A spokeswoman for Gap said neither Pressler nor Lenk, who Gap said has been working in venture capital since leaving EToys, was available for comment.

Cooperstein said Gap.com, the company's first Web site, for a long time had been a classic example of clunky electronic retailing and bad brand management, and bore little resemblance to Gap stores in products or shopping experience.

Though the company has worked to improve its online stores, particularly with the newer Old Navy and Banana Republic sites, there still is room to grow, Cooperstein said, particularly in getting more viewers to make purchases.

Lenk's EToys established a loyal shopper base by storing customer information and using it to make gift recommendations based on previous purchases or descriptions of the recipients.

Gap's sites could work similarly, Cooperstein said, by storing the apparel sizes of customers' friends and family and by making better suggestions based on favorite colors or styles.

Those are the kinds of changes Lenk could implement as well as anyone, Cooperstein said.

At the same time, Lenk probably would not be in a position to make the kinds of mistakes that unraveled EToys. It collapsed as a result of wild spending in the name of attracting customers and an ambitious plan to buy warehouse space and sophisticated machinery to pack and ship its merchandise.

"He has vast experience in running an e-tail operation," said Gap analyst Todd Slater of Lazard Freres in New York, who has a "hold" rating on the stock and does not own shares. "He started one from scratch, whatever his shortcomings may be."

And because its Web sites are a minuscule part of the nation's largest specialty retail company -- Gap never has released Web revenue, saying it is not a material part of the business -- Lenk has the opportunity to make great strides, Slater said.

Lenk's appointment was the most recent in a series of leadership changes put into place by Pressler, who has drawn in part upon his former Disney ties to assemble his team.

But several analysts said that announcements about the most crucial new managers -- those in the merchandising ranks -- probably still are yet to come.

"Gap is lacking bench strength and top management talent in the areas of merchandising and product development," said Bob Buchanan of A.G. Edwards in St. Louis, who has a "hold" rating on the stock and does not own shares. "And that's what Pressler and Gap need."

Even without those appointments, business has been looking up at the $14.5-billion company, which reported strong January and February sales in stores open at least a year, considered a good measure of a retailer's health. Until late last year, sales had been flagging.

In addition to Lenk, Pressler looked to Disney for Gap's new chief financial officer, Byron Pollitt, who was appointed in January. Pollitt had been CFO of Walt Disney Parks & Resorts, the division Pressler headed.

But Pressler hasn't limited himself to old colleagues, reaching outside Disney to choose a new marketing chief for Banana Republic and a new head of human resources.

Shares in Gap, which operates 4,200 stores, fell 2 cents to $14.83 on the New York Stock Exchange.

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