Gap was set up by Donald Fisher in 1969. After a pair of Levi’s jeans purchased by him
fell short of his size requirements, Fisher sensed a gap in the market. He decided to start
an only-jeans outlet that offered a wide range of sizes to the customers. With this intention,
the first store was started in San Francisco. To reinforce the choices available at the
stores, Gap’s first advertisement carried the tag line “four tons of Levi’s.” The retail concept
was an instant hit. Gap’s “basics look” comprising signature (Levi’s) blue jeans and
white cotton shirts became a rage. Initially the goods were sold at Levi’s controlled prices,
allowing Fisher to earn hefty margins (in the region of 50%). A 1976 Federal Trade Commission
(FTC) directive banned manufacturers from setting the retail price. With an increasing
number of retailers discounting their retail offerings, competition in the market heated up and
margins dried up. Fisher parted ways with Levi’s and shifted to high-margin private labels. By
1980, 200 Gap outlets in the U.S. offered 14 different private labels, such as Foxtails, Monterey
Bay, and Durango. As other retailers started taking the same private label route to bolster
their margins. Gap seemed to be getting lost in the crowd. It was at this juncture that
Fisher hired Millard “Mickey” Drexler (Drexler) to give a new direction to Gap.