Gap fights fashion slump with von Furstenberg deal

By Alistair Barr

SAN FRANCISCO (Reuters) - Gap Inc is turning to women's designer Diane von Furstenberg to help sell baby and kids clothes as it tries to reverse fashion missteps that have eroded sales.

Von Furstenberg, famous for her floral prints and wrap dresses, will create a new collection of children's apparel at Gap, which turned to a more subdued palette this spring when color and prints were the rage.

The collection should be ready by March 2012, and the clothes will be sold through GapKids and babyGap stores in almost 30 countries, including the United States, China and Japan.

They will also be available online in 75 countries, Gap added.

The partnership marries Gap, which has struggled for years to stop falling sales at its main Gap brand, with von Furstenberg, who took back control of her brand in the late 1990s and is developing perfume, cosmetics and home lines.

After booming in the 1990s, Gap has struggled for years to stop falling sales at its main Gap brand in the United States. The company ousted top Gap designer Patrick Robinson last month after he failed to stem the slide.

The search for a replacement is still under way, a spokeswoman for Gap told Reuters.

Gap Chief Executive Glenn Murphy has cut costs and boosted profit margins in recent years, but sales remain stagnant and soaring cotton prices are set to bite in the second half of 2011. The company's shares slumped on May 20 after it cut its full-year earnings forecast.

Gap has also missed some fashion trends, most notably the lack of color in the spring collection of Gap's premium brand Banana Republic, according to Brian Sozzi, a retail analyst at Wall Street Strategies.

Partnering with a designer like von Furstenberg may help address Gap's fashion faux pas. She is known for "print, optimistic color and femininity," Art Peck, who became president of Gap brand, North America, said in a statement announcing the partnership.

Peck was promoted in February as part of a broader shake-up by Murphy that's focused on improving the performance of Gap's main brand in the United States. The von Furstenberg collaboration is the first public move by Peck.

The collaboration also shows how Gap's focus is shifting abroad and online as it searches for stronger sales growth.

GapKids and babyGap products have seen some of the strongest demand of any Gap category in the company's European e-commerce division recently.

(Editing by Peter Henderson and Tim Dobbyn)