Gap to Shutter 21 Percent of Its Stores

Discussion
Oct 14, 2011

If you can’t beat ’em, close some stores. Gap Inc. announced it plans to shrink its North American store base from 889 at present to 700 within two years. The company had announced several years ago that it was looking to reduce its footprint in the domestic market but had not been specific about a store count number.

"Over the next 26 months, we’ll look store by store at our specialty fleet and determine which stores meet the standards we’ve set for our brand," Art Peck, president of Gap North America, told The Associated Press. "This is a continuation of our work since 2007."

Most of Gap’s wounds have been self-inflicted, with the chain failing to come up with merchandise that excited consumers.

Back in March, the company announced it was "disproportionately" shifting more of its focus to consumers between 25 and 30 as well as African Americans, Asians and Hispanics.

On the younger consumer question, 79 percent of respondents to a RetailWire poll said it would be somewhat to very difficult for Gap to capture the target audience.

Edward Yruma, a senior apparel and retail analyst at Keybanc Capital Markets, saw the Gap store closings as a reasonable response to market conditions.

"Retailers were overstored before we headed into the downturn," Mr. Yruma told The Wall Street Journal. "Given the way consumers are spending, coupled with the fact more are going online, we just need fewer stores."

While the retailers plans to close mainline stores, it is looking to open 50 additional Gap Outlet locations in North America and further develop its online business. The company also plans to aggressively develop markets outside the U.S., including China.

"The combination of our global strategy and formidable growth platform puts us in a strong position to expand our reach into the top 10 apparel markets worldwide," said Glenn Murphy, chairman and chief executive officer of Gap Inc., in a press release. "In North America, we’re taking a number of steps to improve sales in the near-term, and I’m confident that with a strong management team in place, we’re well positioned for sustained growth across the business."

Discussion Question: What is your take on the latest news from Gap Inc.? Will these moves strengthen their core business?

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10 Comments on "Gap to Shutter 21 Percent of Its Stores"

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Doron Levy
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Doron Levy
6 years 1 month ago

It’s easy to over saturate a market when the good times roll. Gap is guilty of that but while opening new stores, they have done little in terms of product allotment and service. I wonder if these closure stores could be considered shells and would be interested to know their open date. Closing stores will free up money but that doesn’t necessarily strengthen the core. Gap needs new direction in an already fierce marketplace.

Rick Moss
Staff

In light of this news, it’s interesting to note that the Japanese chain Uniqlo is opening two more (BIG) Manhattan locations: a 64,000-square-footer in Herald Square and an 89,000-square-foot mega store on 5th Ave. This will spearhead a “massive expansion strategy” in the U.S., according to the Retail Traffic website. With its own-brand line of irresistibly affordable, youthful apparel, Uniqlo is perhaps what Gap should have become about 10 years ago.

David Biernbaum
BrainTrust

Staying ahead of the curve in retail is a very tough business with a constantly moving target. The Gap seems to have lost its aim.

Charles P. Walsh
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Charles P. Walsh
6 years 1 month ago

It has the potential to improve their financials; closing under performing stores will reduce inventory and could boost their profitability if it leads to increased comp sales and reduced markdowns. Even if it doesn’t improve their bottom line, it is the right move to make now, when a measured and thoughtful approach to the closings can be taken rather than having to suddenly close hundreds of stores due to a looming financial disaster.

Whether it will lead to a boost in their core business depends upon their ability to leverage their stated intent to expand and bolster online business and expand in overseas markets. China is definitely a big opportunity and the demand for Western brands hasn’t softened. GAP is an iconic brand and should fare well in China’s increasingly fashion conscious middle class.

Bob Phibbs
BrainTrust

I would suggest the “blow out” response we covered here on RW last year was all hype. “Groupon Inc.’s first nationwide deal — an offer from the Gap for $50 worth of merchandise at $25 — sold 445,000 vouchers for the retailer last Thursday, bringing in $11 million in revenue.”

In addition, when their sales went DOWN last holiday when everyone else’s went up, we can see proof severe discounting doesn’t work. In fact, it hurts.

I hope GAP can fix themselves but it seems they haven’t addressed fundamental operations problems in who is on the floor and how they’re trained. When can I start?

Warren Thayer
BrainTrust

Good move, all things considered. What happens next will be what matters. Rick is right that Gap coulda/shoulda repositioned a decade ago. I lost track of who Gap was targeting years ago. So did Gap.

Doug Stephens
Guest
Doug Stephens
6 years 1 month ago

The move to China is becoming a card that every mediocre brand seems to be playing. In GAP’s case it may not really help them because GAP isn’t seen as a luxury or aspirational U.S. brand in China. That and the fact that the Chinese economy appears to be cooling might not bode well for them.

As for North America… this is not for the faint of heart but what GAP needs is a complete brand rethinking. The world has changed, the consumer has changed, the competitive set has changed and GAP has to change radically in order to compete. It’s time to leave the lifeboat once and for all and make a swim for shore. And yes… those are sharks in the water.

Craig Sundstrom
Guest

What choice do they have (?): a quick look at their financials – which are very nicely presented, BTW – will show that sales have fallen by about a third over the past 7 years (they also show store count has fallen by the same amount, so this is nothing new).

Ted Hurlbut
Guest
Ted Hurlbut
6 years 1 month ago

I think that GAP realizes that growth in the U.S. is limited, so their focus has shifted to increasing profitability. They have too many stores, and too many under-performing stores. Nor are they anything resembling a fashion leader anymore. So closing stores and downsizing others makes sense domestically.

Overseas, their expansion in China is all about market share. Every major retailer understands this well — it was the common strategy for years in this country.

David Slavick
Guest
David Slavick
6 years 1 month ago
Seriously, there are so many things in need of a fix in their business model that it is tough to pick which things they should do first. Ok, let’s give them credit for closing underperforming stores. But, don’t you think a GAP or Old Navy store selling jeans, t’s and hoodies at modest prices should be able to sustain profitable return on a square foot basis regardless of apparel struggling for the past six years? Investors should be thankful that GAP Inc has Banana Republic, a brand that has sustained them for years. Copycat to Zappos footwear site Piperlime didn’t hurt them either. Old Navy advertising was most certainly a disconnect for their target customer base. Reliance on their credit portfolio for 1:1 marketing is a big “gap” – sorry for the pun but they don’t get it. Delivering relevant, compelling communications to all customers and drive traffic with a brand inspired unique positioning will help. Overseas as a panacea? I’m skeptical. They need to fix what’s broke – too much real estate invested in the U.S. to walk away from core problems. Leverage the data to reach core customers — credit and non-credit. Use insights from the data to… Read more »
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