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How a warehouse fire sparked company-wide innovation at Gap Inc.

With 1.3 million square feet of warehouse reduced to rubble, executives had to problem-solve on the fly, transforming the 50-year-old company’s culture.

How a warehouse fire sparked company-wide innovation at Gap Inc.
Warehouse Merchandise Handler performing the induction function in retail Bombay sortation system. [Photo: courtesy Gap Inc.]

At 10:30 p.m. on Monday, August 29, 2016, Jim Young had just gotten home after a long day on the factory floor when he received the call he had been dreading his entire life.

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Gap’s largest distribution center in Fishkill, New York, was engulfed in flames. As regional general manager, Young was the first person to hear the news from a staffer on duty. In his three decades at Gap–which owns Banana Republic, Athleta, and Old Navy in addition to its namesake brand–Young had led employees through hundreds of fire drills. But no amount of disaster training could prepare him for the photo that popped up on his phone showing his workplace ablaze.

The distribution center burning on the night of August 29, 2016. [Photo: Jon Tenca/Puck Stopper Photography]
“Before I even got in my car to drive back to the warehouse, I needed to know: Was everyone out of the building?” he recalls. “These people mean a lot to me. We have worked hard together over the years.”

Miraculously, although half a million square feet burned down that night and another half a million was damaged by smoke, no one was reported missing or hurt. Young didn’t believe it. He asked four separate people to do head counts. “I heard the same thing from loss prevention, our maintenance team, and our operations team,” Young says. “The fire was in a far part of the facility and everyone was out of there in five minutes. I’m glad we’ve taken disaster training so seriously, because this could have very easily led to fatalities.”

Jim Young in front of Automated Storage and Retrieval System (ASRS). [Photo: courtesy Gap Inc.]

The cause of the fire is still a mystery. The investigation is ongoing, but early police reports suggest the fire was set intentionally. Gap Inc. and the Bureau of Alcohol, Tobacco, Firearms, and Explosives recently raised their joint reward to $25,000 for anybody who comes forward with information connected to the incident.

The night of the fire was harrowing for Young. When he drove back to the warehouse, more than a 100 firefighters from 20 departments across three counties had been dispatched to battle the flames. But it was only the beginning of a two-year-long odyssey to get Gap back on track after the disaster. With Black Friday and the holiday season around the corner, Gap’s senior leadership–Young, along with his direct boss, supply chain head Shawn Curran, and CEO Art Peck–had to figure out how to cope with the lost merchandise and get orders out to customers. They had to respond to the 1,300 Fishkill workers who worried they would be jobless for months. Then there was the work of rebuilding the facility.

But through this process of solving one problem after another, something interesting happened: A wave of innovation began to sweep through the entire corporation. On the fly, managers like Young were forced to invent more efficient ways of running the business. The company quickly piloted more powerful technology that would speed up operations and make up for the lost productivity, and then implemented this new machinery in other distribution centers. Today, two years later, Gap is able to get a higher volume of clothes to customers more efficiently than ever before.

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An operations supervisor traveling through the warehouse on a bike. [Photo: courtesy Gap Inc.]
RELATED VIDEO: How Gap’s innovative automation system in factories keeps business booming

The on-the-fly packing pop-up

2016 had already been a tough year for Gap. The company, which is nearly five decades old, is still a giant in the American retail landscape, generating around $16 billion in sales and seeing 2 billion customer visits between its stores and websites. But while Gap brands once represented classic American style and quality, many consumers seemed to think the company now produced dowdy, poorly made products. In 2014, the company began slipping into a downward spiral of declining sales, from which it is only now emerging. This was partly due to the fact that customers were not shopping in stores.

In a call with investors in 2015, Peck admitted that the company had missed the mark. He said he had a turnaround plan that involved improving the quality of products along with continuing to invest in its e-commerce operations and big data. Peck pleaded with investors to wait a few months to see results, referring to the spring of 2016 period as Gap’s “no excuses moment.” But that spring came and went, and Gaps’s losing streak continued.

Warehouse merchandise handler performing the inducting function in retail Bombay. [Photo: courtesy Gap Inc.]

And then the fire happened. “My reaction, after making sure that no one was injured, was, ‘We need this like we need a hole in the head,’ ” Peck recalls. “But the power I have is to galvanize and focus the energies of the organization. I believe that if you can give people the confidence that you’ve got their back, then they’re going to deliver for the company.”

Everybody at Gap had to swing into action to deal with the immediate disruptions to the business. They had to think on their feet and find quick, workable solutions. With a million square feet of warehouse space reduced to melted and charred rubble, the company had to come up with a way to pack and send off orders to customers. The solution: A pop-up packing facility.

Warehouse merchandise handler performing the function of closing cases in retail Bombay. [Photo: courtesy Gap Inc.]

In six weeks, Young converted one of the still-functioning storage units at the warehouse into a place for workers to manually pick up products and pack them to be shipped. It was a rudimentary system that went all the way back to the earliest days of e-commerce, before warehouses were automated. Having worked at Gap for three decades, Young had to rely on his institutional knowledge to get operations off the ground. Racking had to be set up from scratch, and workers had to walk up and down to pick up goods.

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During peak periods, workers were able to pack 125,000 units per day. “It took four times as many people as it would if a machine was involved,” Young says. “We were supposed to be doing 300,000 units a day in the building that burned, in half the square footage. But you do what you have to do.”

To make up for the loss in productivity, other warehouses across North America, from Gallatin, Tennessee, to Fresno, California, had to increase their capacity. But everyone was invested in making sure that the Fishkill warehouse was still operational in some way, even as the demolished warehouse was being rebuilt. In fact, the State of New York poured $2.65 million into building this pop-up to ensure that there would be no layoffs during this period.

And on Gap’s end, Peck repeatedly promised workers that would continue to receive their paychecks, even on days when they didn’t need to come in to work. “I find its oftentimes easy, but inappropriate, for senior executives to look at these situations in the abstract,” Peck says. “It’s important to focus on what this means to the individual working in the factory who has a mortgage, a car payment, maybe a kid in college.”

Warehouse merchandise handler on a power industrial vehicle. The Inbound Department on the left, and the Bombay Sorter on the right. [Photo: courtesy Gap Inc.]

A big tech upgrade

An unexpected outcome of the fire is that Young suddenly had a fresh slate when it came to technology. As Gap slowly began rebuilding the warehouse that had been destroyed, Young and his colleagues were tasked with replacing many expensive pieces of machinery that still had years of life in them, but that were originally purchased in the late 1990s. “We were leveraging equipment that we already had available to us,” says Young. “There’s not a great business case for tearing down a perfectly good sorting machine out for a new one that can pick up a few more units per hour.”

One of the older machines called a tilt-tray, for instance, had a 98% accuracy rate at dropping products into the right chute by tilting to the left or right. While 2% doesn’t seem like a big deal, it ends up being very expensive when you consider the millions of orders Gap processes every year. Young was able to get a newer device called a Bombay sorter that has a 99.9% accuracy, which avoids thousands of returns.

A warehouse merchandise handler performing the induction function in the retail Bombay sortation system. [Photo: courtesy Gap Inc.]

Fishkill became an incubator, of sorts, for the newest warehouse technology, and when a new machine proved to be a great investment, it would get rolled out to other Gap distribution centers.  “In the online business, you want to be right the first time you get that package out to the customer,” says Young. “We are the cash register when we ship that package.”

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More broadly, Peck says that the company is working to rethink its entire logistical apparatus. Gap started as a brick and mortar business. When it began selling products online, it built out e-commerce operations that were essentially separate from its in-store operations, with a separate pool of inventory and separate software. Unlike the new wave of fashion startups that started online, like Everlane and American Giant, Gap was never optimized for e-commerce. “You had these two businesses operating adjacent to each other, which was fine in the late ’90s and early 2000s,” Peck says.

But today, many customers don’t think of shopping online and in store as two distinct experiences. Many begin shopping online, then pick up products in a store, or they look at the product selection in store with the goal of ordering online at a later point. Peck’s goal is to ensure that the back-end operations of the business reflect this new, modern way of shopping. When the Fishkill distribution center burned down, it gave the company an opportunity to think about how best to reimagine how all of its warehouses would operate. And as the rebuilding effort went into effect, the company began implementing the new strategy of bringing the two pipelines into a single stream much faster than it would have otherwise done so.

“I want all demand, wherever the customer is starting her shopping experience, to be connected with all supply,” says Peck. “This is the foundation for being able to do that. It’s also obviously more automated, and we’re looking at some AI and computer vision solutions.”

Looking up at the conveyor line (commonly referred to as spaghetti junction). [Photo: courtesy Gap Inc.]

A “clean sheet of paper”

It’s hard to overstate what a big deal the Fishkill fire was, even to a company as large as Gap. The company has rigorous disaster training drills, but nothing this serious had ever happened in the brand’s five-decade history. Take it from Young, who has been there for three of those decades. “You always read about stuff like this, but until you experience it, you don’t realize how emotional it is to see people come together,” Young says. Peck agrees. “Companies are made up of people,” he says. “In this fire, you just felt the energy of the organization come together, then you saw the results.”

And the result was that Gap not only managed to survive the fire and rebuild the Fishkill facility, but rebound from its sales slump. The 2017 holiday season was a huge success for the company, driving up fourth quarter sales by 7.9% and causing Gap’s stocks to soar. It was a significant achievement, given that other big retailers like American Eagle Outfitters and Victoria’s Secret had flat holiday season sales.

ASRS on left, storage locations on right. [Photo: courtesy Gap Inc.]

Peck attributes this success to a range of factors. For instance, the company’s investment in data analytics was paying off, helping Gap better target customers through its online advertising and better understand what kinds of products were doing well. Peck says that Gap had also followed through on its promise to improve the quality of products across brands. And while it is harder to quantify, the company’s response to the Fishkill fire may have boosted the employees’ morale, which could have impacted the Gap’s bottom line in indirect ways.

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In the end, Peck says that employees now look back at the fire and its aftermath as a time of growth and progress for the company. “We said, how are we going to make lemonade from the lemons we have here,” he says. “Now that we have a clean sheet of paper, how are we going to build a facility for tomorrow, the next year, the next decade? It was a moment of innovation.”

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About the author

Elizabeth Segran, Ph.D., is a staff writer at Fast Company. She lives in Cambridge, Massachusetts

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