What's next for the Gap?

NEW YORK (Fortune) -- The annual dinner thrown by investment bank Financo is the garment business's equivalent of Swifty Lazar's Oscar bash. When Gap CEO Paul Pressler missed the Jan. 15 event at New York's exclusive Harmonie Club, industry observers interpreted it as another sign that the former Disney exec's tenure was coming to an end.

How right they were: Just one week later, on January 22nd, Gap (Charts) announced that Pressler was, indeed out, to be replaced on an interim basis by Gap Chairman Robert Fisher, son of founders Don and Doris. The search committee is to be led by Adrian Bellamy, a Gap director and chairman of The Body Shop LLC. "The feeling was that it was in the company's best interest that [Pressler] step down," says a Gap spokesman.

Newly-ousted Gap CEO Paul Pressler

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Certainly, it was in just about everyone's interest that something major happen, and pronto. The beleaguered $16 billion retailer - whose brands include Gap, Old Navy, and Banana Republic - has been plagued by lousy same store sales (down 8 percent in the two months ended last December), rampant executive turnover, and a growing sense of irrelevance as rivals such as J. Crew and American Eagle (Charts) gained traction.

The company reportedly hired Goldman Sachs as an advisor in January to explore its options. Now its future hinges on two key questions: Will the company go private, and who is going to run it?

Gap would seem a natural target for a private-equity firm, with its relatively clean balance sheet and $2.4 billion in cash, except for one thing - the Fisher family, who founded Gap back in 1969 and still own 33 percent of the stock.

"I don't think they want to sell," says Kimberly Greenberger, senior retailing analyst at Citigroup, "and I don't think they want to add debt, so therefore there is no private-equity deal going on."

Any new top dog, analysts insist, must truly know the apparel business. Pressler brought financial discipline and stronger branding to Gap. But he came under fire for not understanding the stores and the clothes, which A.G. Edwards retailing industry group leader Bob Buchanan dubs "an over-assorted mess."

So who could do the job? The longest shot - but the one many analysts lust for - is Millard "Mickey" Drexler, Gap's former CEO until he was dismissed in 2002 and now the man behind J. Crew's (Charts) stunning turnaround. Drexler won't talk, but those who know him say he's both too rich - he owns 11 percent of J. Crew's shares, valued at some $250 million based on the stock's meteoric rise since its June IPO - and probably too proud to make a return trip.

"He said the Fisher family will have to sell every share of stock they own before he goes back to that company," says one industry insider.

Other names being bandied about by headhunters and analysts include Polo Ralph Lauren president Roger Farah; Susan Kronick, vice chairman of Federated Department Stores; Gap board member Domenico De Sole, former head of Gucci; and Allen Questrom, who turned around J.C. Penney and Federated Department Stores. Questrom, now a partner at private-equity shop Lee Equity Partners, laughs off the possibility. "I'm too old for that stuff,"he says.

One thing any serious candidate will need is a strong constitution."That particular job at this particular time," says Buchanan, "is a recipe for an ulcer."