That expansion started to go awry in about 2000, right around the time that H&M, the Swedish fast-fashion juggernaut, opened its first store in the United States, in Manhattan. Its strappy dresses and sharp jackets were not only cheap, but also were straight off the fashion runways. Old Navy’s laid-back hoodies and campy ads started to feel uninspired by comparison. A partnership in 2007 with the celebrity designer Todd Oldham flopped. The recession took a huge bite out of retail spending, even at the low-end Old Navy. Its sales fell by more than $1 billion from 2006 to 2008. Morale hit a low.

Brought in to rescue a brand in distress, Mr. Larsson set to work assembling a heavyweight team. He hired Ivan Wicksteed, former global creative director of Coca-Cola and the architect of brand makeovers at Converse and Cole Haan, as chief marketing officer. One of the first changes Mr. Wicksteed made was to liven up the company’s drab headquarters in San Francisco with pop photography and upbeat music.

“It looked like a doctor’s office,” Mr. Wicksteed said. “You have to start with ground zero. You have to start with the employees. If you can’t get your own people to want to get on board and change direction, then you’ll never persuade your own customers to do it.”

Another important recruit, Jill Stanton, the former head of apparel at Nike, has transformed Old Navy’s approach to design. Previously, its merchants would buy clothes from higher-end retailers like Saks Fifth Avenue or Abercrombie & Fitch and pick pieces to adapt, often clumsily, for Old Navy stores.

“We were taking a product that was in the marketplace and we were bringing it to market maybe a year later,” Ms. Stanton said. “And our designers were designing for somebody else. So you used to get design teams say: ‘Well, I’m not sure if I’d wear that, but it’s O.K. for Old Navy.’ ”

Ms. Stanton instead pushed to build Old Navy’s own design muscle, leaning on Gap’s supply chain to allow designers to quickly test various prints, shapes and sizes in small runs in stores before increasing the production of styles that were with a hit with shoppers. It shifted its collection from everyday or basic items to others that were on-trend and in season. Instead of hiring designers whose experience was in the low-price market, Old Navy hired top talent: an accessories and bag designer from Coach, athletic wear designers from Nike and Reebok, the men’s apparel director from North Face. (“They don’t start with cheap,” Ms. Stanton said.) Old Navy’s new ads, starring two comedy favorites, Amy Poehler and Julia Louis-Dreyfus, have gone viral.

One of Old Navy’s biggest triumphs has been its pixie pants. Two years ago, just as Mr. Larsson’s team was getting the label’s new look off the ground, a designer on Old Navy’s women’s team noticed that blogs and runways were filling up with casual, slim-fitting pants. The design team “obsessed over every detail” — the fit, the cut just above the ankle — and quickly tested different prints and colors in stores. The pants were a hit.