Photo: RetailWire
Gap Inc. leans more heavily on Old Navy and Athleta
Even within the troubled world of brick-and-mortar apparel retail, Gap Inc. has been notable for its struggles in recent years. Now the clothing retailer is closing a significant number of underperforming stores.
Gap recently announced the impending closure of 200 Gap and Banana Republic stores through 2020, about 10 percent of those chains’ total locations, according to The Street. In the same timeframe, Gap Inc. plans to expand the brick-and-mortar footprint of its more successful chains, opening 270 Old Navy and Athleta stores.
Back in 2011, Gap made a similar move, announcing the closure of about 21 percent of its mainline Gap stores in North America. At the same time, it announced the opening of 50 Gap Outlet locations and an increased focus on foreign markets.
The company’s most recent quarterly report follows a now-familiar trend, with same-store-sales from Gap and Banana Republic decreasing among rising numbers from Old Navy.
Old Navy has been the standout brand in Gap’s portfolio since the company’s three-year run with Stefan Larsson as head of global sales. While the brand experienced a slight decline after Mr. Larsson’s departure for Ralph Lauren, the brand seems to have righted itself in recent quarters. (Mr. Larsson left Lauren earlier this year because of a conflict with the company’s founder regarding that brand’s direction, according to Bloomberg.)
In a retail landscape many consider overstored, it has become more common for chains to shrink their brick-and-mortar footprints. But closing stores to save on real estate isn’t the only strategy Gap has been using to try to turn its business around.
In 2015, the company announced that it would be adopting new supply chain strategies informed by Old Navy’s success with a quick speed to market. Around that time, it also began discussing a tech-enabled strategy dubbed Retail 3.0 meant to bring the company back to its heyday. One of the innovations discussed was the selling of clothing through next-gen vending machines, but the initiative never came to fruition. More recently, Gap began developing an augmented reality try-on app for clothing.
- Why You May Not Be Able to Shop Inside a Gap Store Soon – The Street
- Gap to shutter 21 percent of its stores – RetailWire
- Ralph Lauren CEO Leaving After Creative Clash With Founder – Bloomberg
- Is a trendless fashion industry killing Gap’s business? – RetailWire
- Can Gap beat fast fashion chains at their own game? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Is Gap Inc. going fast and far enough in closing its namesake banners and opening more Old Navy and Athleta locations? Will having fewer Gap and Banana Republic stores help revive those struggling chains?
Poll
BrainTrust
Anne Howe
Principal, Anne Howe Associates
Paul Donovan
Global Senior Director, Retail Business Unit at SAP
Rationalizing the store base and adjusting the banner mix is just smart retailing. Old Navy and Athleta are performing well and it behooves Gap Inc. to shift resources accordingly. Fashion has and will always be fickle. Having fewer Gap and Banana Republic stores will enable the brands to continue to evolve and minimize their drag on the entire enterprise.
What I feel is lacking in Gap stores and Banana Republic stores is a winning concept. Many specialty apparel chains today are suffering from too much “sameness.” Gap stores and Banana Republic are no different. It makes sense to consolidate, and if Old Navy and Athleta brands can remain winning formats for Gap Inc., then they should concentrate on continuing to build those brands. Just closing stores will not be the answer for Gap stores and Banana Republic but reinventing themselves with items today’s shopper wants would be. In apparel that’s always challenging so perhaps not just closing stores but eliminating some of their brands might be a better way to go — and a move that they may make in the future.
Wholeheartedly agree! Gap and Banana Republic don’t stand out and I honestly can’t remember a time when they did. They make wardrobe essentials, but they don’t have an interesting angle that’s compelling to consumers (ethical standards and transparency at Everlane, low prices/diverse sizing at Old Navy or Uniqlo, funky Millennial branding and trendy pieces at Athleta or Outdoor Voices, etc). They’re yawn-worthy. They’re done. RIP The Gap, long live Gap Inc., which is making a smart move in pouring their resources into their more compelling brands.
Gap’s customer base keeps hoping that they’ll find something fresh and new in the store. Rather than closing outlets and effectively waving the white flag, I’d prefer that Gap focus on the brand, and sourcing some merchandise that’s compelling.
I was in Madison, Wisconsin last week and walked down the pedestrian mall running from the state capitol to the University. It was impossible to ignore that the vast majority of women were wearing “activewear as streetwear” — in particular, black yoga pants instead of jeans. And these were college students for whom jeans would have been “the uniform” five years ago.
On the last wave of quarterly earnings calls, most retailers complained about the lack of traction in their women’s sportswear businesses — while mentioning the rapid growth of fitness wear. It’s increasingly clear that activewear is cannibalizing more traditional women’s apparel, so Gap ought to push the growth of its Athleta brand as hard as it can for as long as this lifestyle shift continues.
Store numbers per se are not the primary issue for Gap nor Banana Republic. Closing loss-making shops may help improve profits, but it won’t cure the main underlying illness which is the poor assortment.
Gap is boring and is still selling the same sort of styles it has sold for the past 20 years; prices for what are fairly basic products are way out of kilter with the market, hence the constant stream of discounts.
Banana Republic has lost any semblance of an identity. Its assortment is a confused mishmash of products which are over-priced and out of step with what modern consumers want.
It seems to me that any of the better-performing locations (regardless of banner) could feature cross-merchandised collections from the other banners as a way to serve the shopper in more diverse ways. Why not feature a collection of Banana Republic or Gap classics in an Athleta store? They wouldn’t even have to stock a lot of sizes, if the associates were ready to help shoppers get online and order their size to be shipped to their doorstep. This would not even be that hard to execute, given most markets have most of the banners.
The risk for Gap is that the Old Navy brand is far more promotional in merchandising strategy and this would drive gross margins lower overall which would affect their profit margins and thus their appeal to shareholders. They need to be measured with this change of strategy as we have seen all the other examples of impact when retailers make dramatic changes to their approach — J.C. Penney, Kmart etc.
Gap is a reflection of the current state of retail. Some malls are closing, but not all. Some Gap and Banana Republic locations under-perform, but not all. In the bubble, folks just don’t understand the economic reality away from urban centers where malls, with Gap and Banana Republic continue to operate.
Trump or the opiod crisis ought to provide clues to a challenged nation. Rural economies are in the tank. Middle America is struggling. Stores that rely upon those constituencies either change, go out of business or enter the market as a fresh relevant alternative.
Old Navy delivers value to these folks. Athleta is a response to the new dress code. Comfort, ease of use, casual first. Gap and Banana Republic will shrink until the portfolio no longer remains a viable business.
Without knowing anything specific about the performance of the stores being closed, or that could potentially be closed, it’s pointless to speculate whether or not it’s “enough.” The big question, really, is if it’s wise to open up more stores even for the brands doing well, with sales moving increasingly on line. And again, that’s really dependent on data that only management is privy to (there will always be a certain number of openings in newly built areas).
But whatever they do, GAP Inc. will have a tough row to hoe: the fast fashion field that Old Navy represents is a crowded one, and I’ve little confidence that past results will guarantee future success.
Closing under performing retail locations is something every retailer should be doing on an ongoing basis. Hard to say if they are moving quick enough, but I doubt this will be the last announcement of store closings for them in the immediate future. The problem with Gap and Banana Republic to me has been the race to the bottom with pricing and promotions. I honestly get an email from them every day with some version of 40% off and the rare times I do shop in store, I see a similar themed window or poster. 40% off is not a merchandising and marketing strategy.
I applaud them for taking a risk and opening more Old Navy and Athleta stores in this environment. I don’t see how Athleta will succeed in the long term in a crowded space with a trend timeline that is poised to slow down. I hope for their sake that they have learned some key lessons. I hope they will be able to test these stores and have a chance to change or get out of the leases with less pain so as to avoid a similar announcement of closing of these stores a few years down the line as Amazon and their private labels dominate the apparel basics category.
I also like that they are testing a few niche online programs like the new and still under marketed Baby Gap Outfit Subscription Box. I hope they launch more non-promotional tactics and programs.
This is a smart outcome for Gap, Inc. although not necessarily a smart fix for what ails them. Yes, Gap and Banana Republic stores have been in decline for some time — Gap Inc still needs to address that or a year from now we’ll be hearing that they will close another 10% of those stores. Fundamentally they are a victim of two major consumer trends — active-wear taking a bigger chunk of the overall fashion market, and a decreasing desire to spend on upscale clothing by middle class shoppers. While extreme luxury brands may be immune to such trends, many specialty apparel brands are suffering from bland product assortments. Gap and Banana are perfect examples of this. They are largely selling the same fashions they sold two decades ago while their customer base has moved on to other fast fashion brands with a more reasonable price. Heavy discounting is not saving Gap and Banana because the merchandise just isn’t what customers want. Until they change that, both brands will continue to decline.
On the other hand, Athleta is in the right place with respect to current trends in active-wear and Old Navy is hitting the price/value point consumers want, so opening more of these stores simply makes sense for Gap Inc.
Gap and Banana Republic would do themselves a big favor if every now and then they actually said something with their assortments. I have watched them improve tremendously over the last 18 months, but mostly from offering less “D” and “F” product and not more “B” and “A” product. Especially the Gap. Even they have permission to surprise us every now and then. Of course they are consolidating the store base. Same for every retailer.
I have also walked into Gap stores and wondered, “…why don’t they convert this into Athleta TOMORROW…???” Athleta seems to be doing a great job of creating a lifestyle brand that goes seamlessly from workout to street. And they have some fun in the process with fabric, body, color … the whole equation. They are giving themselves permission to be a brand with an actual Brand Promise. They are not tethered to some decades old mind set. I know both Gap and Banana Republic tried a reinvention of sorts. They’ve stabilized … and now they need to try again.