Banana Republic: Turning khaki into gold

February 28, 2013, 3:42 PM UTC

In the late 1970S Banana Republic pioneered a new form of storytelling as marketing, filling its catalogues with tales of jungle treks and safaris. Former journalists Mel and Patricia Ziegler, now 67 and 63, respectively, spun their yarns into retail gold. The venture, detailed in their new book, Wild Company: The Untold Story of Banana Republic, became the international brand now owned by Gap, which had net sales of $2 billion in the first three quarters of 2012. Their story:

Mel Ziegler: I grew up in Scranton, where my father had a small wholesale business selling tobacco, cigarettes, and candy. We had no money. My mother was good at making it happen on limited means.

Patricia Ziegler: My father is from Wales, my mother is Italian, and I grew up in San Francisco. My father worked three jobs, and there was no money. I was an art major and moved through schools and communes as a free spirit until I needed a job.

Mel: For me, journalism was an interesting and lively way to make a living. After graduating from the Columbia Graduate School of Journalism, I finished a book with Bella Abzug about her first year in Congress. In 1972 I drove out to visit a friend in San Francisco and ended up falling in love with the city. Those were the years of the Patty Hearst kidnapping, drive-by shootings on the streets, and the Zodiac killer.

Patricia: I was working as an illustrator for the San Francisco Chronicle when I met Mel at the company Christmas party in 1974.

Mel: We were in our twenties, and both of us wanted to see the world. By 1977 we were talking about leaving the paper. One day, Patricia came home and told me she’d just quit. I had quit earlier that day. We’re very tuned in to each other.

Patricia: We were excited, but discovered that freelancing wasn’t steady work.

Mel: Then I got a magazine assignment in Australia and walked into a surplus store in Sydney. I found an amazing cotton khaki jacket that looked like a safari jacket. When Patricia picked me up at the airport, she immediately saw its possibilities.

Patricia: I decided to make some improvements. So I added leather elbow patches, took the flaps off the bottom pockets, and replaced the brass buttons with wooden buttons. It took it out of a military context and into a safari style. Mel wore it everywhere, and people asked, “Where did you get that jacket?”

Mel: We found a huge cache of all kinds of surplus and decided to sell it in a new context, as cool clothing for people who didn’t give a damn about fashion.

Patricia: We found a pile of old Spanish paratrooper shirts in an Oakland warehouse, haggled a bit, and got 500 of them for $1.50 each. We went to a flea market that weekend but sold fewer than 10 shirts all day. So we decided to double the price and call them Short-Armed Spanish Paratrooper Shirts. We sold more than $1,000 the next day, and Mel said, “We need a store.”

Mel: So about six weeks later, in November 1978, we negotiated a lease on a store way off the track in Mill Valley. We went like lightning, even though we didn’t have any money.

Patricia: Having no money was a great asset because we had only our imagination.

Mel: We didn’t know anything about catalogues, retailing, or selling things. We had $1,500 and an American Express card. We were able to negotiate credit, so we kept ahead in the cash-flow department.

Patricia: Mel is more conceptual and strategic. He did the marketing and publicity, set up the accounting procedures, and kept the overview of things. I was the production person, merchandiser, designer, and artist.

Mel: We came up with the idea of Banana Republic by fantasizing about the source of our merchandise. We invented a world in our catalogue that quickly found a following. In the beginning, every day was about making enough money to survive. In 1979 we charged $1 for the catalogues. We’d work until we were exhausted, go home, open the mail, and take the dollars from the envelopes to go to dinner.

Patricia: The people who worked for us were on minimum wage, but everyone had creative freedom, and we had a good time.

Mel: We didn’t have any investors, and by 1983 we were doing $2.5 million a year in revenue. One of our best customers, a real estate developer named Merritt Sher, kept asking to put a Banana Republic in one of his shopping centers, but we didn’t have the energy or the money. We said if we could, we’d sell the company. Within 24 hours he had us talking to Don Fisher, who owned the Gap (GPS).

Patricia: Army surplus wasn’t going to last forever. Gap had the money and factory connections to let us do our own private label.

Mel: When Don’s CFO saw that our margins were north of 80%, he accused me of lying. But we were just finding other people’s junk and turning it into gold. So Gap acquired Banana Republic Inc. on Feb. 1, 1983. We owned a percentage of the gross margin as long as we stayed. Later, we changed it to a percentage of the sales.

Patricia: The only reins we turned over were operational, accounting, and legal, the things we didn’t like to do. Don gave us autonomy. We could open a store, no questions asked, as long as we were profitable. In Beverly Hills, I wanted to do a panorama of Africa, so we had a bush plane flown in and wheeled it up Santa Monica Boulevard with a police escort.

Mel: It was the 1980s, when Indiana Jones and Out of Africa were very popular.

Patricia: We had a strong message. Before, there were working-class clothes and designer clothes. We came along and said these are clothes for individuals. If you have a sense of romanticism and adventure, we’re your brand. If you go shopping, we’re going to entertain you.

Mel: Banana Republic grew exponentially, from two stores to 100, and began to show up as a few cents per share on the earnings of the Gap. Don and others began to worry that what we were doing was just a passing trend. In September 1987, Gap missed earnings, and in October the market tumbled on Black Monday. Don’s people wanted to turn Banana Republic into a higher-end Gap. So in 1988 we left. Banana Republic had annual revenues of $250 million then.

Patricia: After that, we had our first child, and Mel decided to go to a meditation retreat.

Mel: I was a coffee-drinker, type A kind of guy, and at the retreat you sat in silence for 10 days. They didn’t have any coffee, and I got a terrible headache. The goal of meditation is to stop thinking, and anytime I couldn’t stop thinking, the thought of a tea business came into my head. So not knowing anything about tea, we jumped into the business.

Patricia: I started mixing together teas with different flavors in the kitchen and designing packages.

Mel: In 1992, Doubleday published our book, The Republic of Tea, and the advance served as funding for the launch of our next republic. In the early ’90s we became America’s first full-leaf tea company.

Patricia: Having children changed us. With Banana Republic, we were so full of youthful energy and worked around the clock. Realizing how quickly our two children were growing made us want to savor the moment.

Mel: We love inventing things, but we don’t love running things. We ran Republic of Tea for two to three years, then sold it to Ron Rubin [founder of New Age Beverages]. Now we’re inventing a new business in the healthy packaged food category.

Patricia: Everything’s a creative process with us. We wrote Wild Company to illustrate to our children and other young people wanting to take charge of their lives that creativity, chutzpah, and imagination can work wonders even without money or experience. In the process, Mel and I rediscovered how much we love working together as a couple. Every day is a new discovery.

Our Advice

Your customer is your best asset, so overdeliver. Our clothes were always better than they needed to be. The fabrics were so good, people are still wearing them 30 years later.

Never take no for an answer. When the Stanford Shopping Center sent us a list of design rules for our first mall store, our design broke every rule, and we sold more per square foot than any of the other apparel retailers in the mall.

Be authentic. Everything that’s successful is intensely personal because you give your whole self to it — your talents, your tastes, your aspirations. If you put that out there, you become a presence that will not be ignored.

This story is from the March 18, 2013 issue of Fortune.