Photo: Getty Images/tupungato
Can Gap prosper without mall stores?
Gap Inc. is getting out of Dodge and just about any other place where it has a store located in a mall.
The parent company of its namesake brand, Athleta, Banana Republic and Old Navy announced on its investor meeting webcast yesterday that it plans to close 30 percent of its Gap and Banana Republic stores in North American by 2024, leaving 80 percent of those chains’ locations in non-mall properties.
Like many other clothing retailers, Gap Inc. has used these past months in which the industry has reeled from the novel coronavirus pandemic to take stock of its strengths and weaknesses. Management has developed a new strategic plan largely focused on outlet locations and online sales.
Mark Breitbard, CEO of the Gap business, said the chain had become “overly reliant on low-productivity, high-rent stores” and has focused in recent months on addressing its “real estate issues” and accelerating its transition “to a true omni-model.”
Two bright spots for Gap Inc. have been its Athleta and Old Navy banners and the retailer has plans to grow store counts for both.
The Athleta business has tapped into the growing market for women’s active athletic apparel, which has outpaced the total women’s clothing category by 14 points. The brand said its core four strengths — health and wellness, female empowerment, sustainability (70 percent of items made from sustainable materials) and inclusivity (clothes designed for all ages and sizes) —position it to double its current sales to reach $2 billion by 2024. Athleta is looking to double its store count from 200 to 300 by 2024, and will continue to simultaneously focus online. The banner has added more than two million customers online in the past six months as its digital sales have grown 95 percent year-over-year during that time.
Old Navy, which has helped buoy its parent company’s results for years, plans to add 30 to 40 new stores over the next three years to add to its current total of roughly 1,200. During that time, the chain expects to grow its annual sales from its current $8 billion to around $10 billion.
Discussion Questions
DISCUSSION QUESTIONS: What do you think of Gap Inc.’s plan to cut store counts and move its Gap and Banana Republic chains out of malls? Is the retailer also making the right moves with its growth plans for Athleta and Old Navy?
Poll
BrainTrust
Kathleen Fischer
Director of Marketing, Körber
Brent Biddulph
Industry Marketing Lead, Retail & CPG
Closing stores isn’t the solution to the problem that your brand has no identity to the consumer. I’ve been saying to my clients for months, “if you can make it in a mall stay there because it could be the very best place for you.“ With Gap’s unending 40 percent off and friends and family sales they don’t seem to have a clue how to do anything but discount. That hasn’t changed with closing stores and it’s not the function of omnichannel. Until and unless they can craft a statement of who the customer is and why they should continue, Gap will continue to struggle – no matter what channel.
The malls are diminishing in importance. Many (the B and C malls) are closing. Gap and many other retailers see the writing on the wall as do the major mall developers in the country. Gap can function in strip malls. They will keep mall stores, but only in the better-performing malls. (Why would they do anything else?) Unfortunately for the malls, Gap’s exit from many malls is a self-fulfilling prophecy: “…we’re pulling out of many malls because they are dying, and many malls will die because retailers such as Gap are leaving the malls.”
With the future of traditional malls in question, Gap Inc.’s plans make sense. Every retailer should have used the last few months to take stock of underperforming locations and move forward with a stronger portfolio.
This all sounds like a discussion of the painfully obvious. The Gap division has too many stores and Old Navy and Athleta are growth opportunities. That is not new news. And they still haven’t figured out how to make the Gap division relevant again. And what happened to the plan to double the size of Old Navy? Weren’t they going to grow to 2,000 stores as a standalone business? And based on this the stock hits a 52-week high…?
Gap was way over-stored. Now it feels like it’s going to be a bit under-stored, but it says that the namesake brand is no longer interesting. You can get the same stuff cheaper at Target and other less expensive retailers. And in a mall, with fast fashion stores in there too, it’s like a set-up.
The other two brands have much more interestingly priced and appropriate styling.
It’s a good move.
Go with your strengths. If malls no longer make sense for Gap and Banana Republic then it’s time to try something else.
I was a Gap store manager near the beginning of my retail career; it’s sad to say that the merchandise assortment in the stores has not evolved all that much. Banana Republic is known for business and business casual attire that obviously isn’t selling right now. Both may benefit from a new location strategy but it’s more than that; both need to update their merchandise plan, adding things people actually want to wear.
When you break it down Old Navy and Gap sell essentially the same styles, the difference is quality and cost. Why would a consumer pay $65+ for basic jeans at Gap when they can get something similar at Old Navy for around $20? Sometimes Gap is its own worst enemy.
I can´t comment on the strategy, but I hope it is a real strategy (i.e., a long-term plan) rather than a reaction to COVID-19 or investor unrest. Gap seems to still be popular but no longer stands out for its line of clothing, and they have not been able to spot the next trend that would endear younger generations like they did 20-30 years ago.
Endearment (aka “loyalty” based on the combination of product, experience, and value) is what got parents who grew up with their comfortable clothing to blindly buy the same style of clothes for their own children during the past couple decades. But that wave has passed and the group not only needs a real strategy but the foresight to catch the next wave, or ROI will be depressed until the strategy and foresight materialize.
Can you imagine reading this story a year ago?
Changes to retail are breathtaking and transformational. Any retailer now that isn’t having regular discussions about major changes to business models has a murky future at best.
A year? How about two?
I guess the main point of issue (of then vs. now) would be WHERE the stores are located … a random assemblage, or format specific.
I think this is an important step in what will be a long road back for Gap. Pruning the store count just makes sense and so does moving out of malls in order to more easily provide services like BOPIS and curbside, which will definitely remain part of retailing well past the current pandemic. I also think the focus on Old Navy and especially Athleta are smart. Old Navy still delivers solid results and Athleta is one of the few brands that has any chance of taking a bite out of Lululemon’s attractive market.
This consideration was surely on the table before COVID-19. Mark Breitbard makes it clear. The chain had become “overly reliant on low-productivity, high-rent stores.” The objective is not to have many stores, the objective is to have profitable stores. There is no logic to have a store, just to have a store, because there a mall exists.
Gap will not be the first chain to make a similar decision.
While I can see this as a short term Band-Aid for Gap Inc.’s issues, there still remains the question — what does Gap want to be?
Options: You can run out of the malls for cheaper rental rates, or renegotiate a percentage of sales arrangement, but running away down the street comes with risks and expenses. Building the traffic will take some form of promotions to change customer habits, and that almost always is necessary. Cheaper rents, and promotional pricing which affects margin, can be a dangerous move.
In 2005 Paco Underhill wrote the The Call of the Mall: The Geography of Shopping. In 2020 the title might be The Mall is Calling: But No One is Answering. The “A” malls malls might survive but the lesser malls are not likely to. Gap and other retailers need to find alternatives that work for them.
Saturating every mall in America with all of its brands never made sense for Gap — many of those B or C malls have been in the doldrums for years, not just since COVID-19. As soon as a mall’s anchors start closing their doors, the die is cast.
When Old Navy started (if my memory is correct) it was the off-mall alternative to The Gap. The lower occupancy costs allowed Old Navy to be more price-competitive on similar goods, so one division stole market share from the other. If all of the divisions can lower operating costs — and find sustainable off-mall locations — the new strategy makes sense.
If Gap has been monitoring sales and mall sales are falling, then it makes sense to close those stores. However, have the mall sales been falling for a long time time or for a year? Using data from this past year to make the decision is not appropriate because mall traffic has been down as people stayed home. Continuing to pay rent with low sales is a problem most retailers are facing this year. The strategy for Athleta and Old Navy makes sense for now. Whether Athleta will continue to be so popular once people are leaving home for work and school remains to be seen.
Malls are dying but the right question, is could Gap and or Banana Republic maintain their brands inside the mall if malls weren’t in trouble? If the answer to that is no, and it may well be, then I’m hard pressed to see how the online/outlet strategy works — since for most people that means having an online presence alone. As far as Old Navy goes, slow and steady freestanding store growth may be the way to go. Athleta, on the other hand, might want to taper its ambitions a bit until it figures out how much of its allure comes from the fact that the banner doesn’t have a store on every corner.
This statement says it all – “overly reliant on low-productivity, high-rent stores.”
Gap’s namesake brand has lost relevance with customers and, as a result, created too many unprofitable stores in B and C malls. Gap is wise to eliminate these underperforming stores, but they should have been planning this since before the pandemic. The writing has been on the wall for those poorly performing mall locations. Gap and Athleta stores will likely perform well off-mall, but they have a long, hard road ahead of them. This is only the beginning. Gap still needs to understand what its brand means to its customers. If Gap disappeared tomorrow, would any of their customers care? Product assortment is also an issue for Gap stores. As others here have pointed out, why pay $60 for jeans at Gap if you can buy them for $20 at Old Navy. The quality isn’t all that different, unfortunately. Shoppers need a reason to want to buy at Gap stores and today that’s just not there. Banana Republic may be suffering from less demand for business casual work attire these days but could be turned around post-pandemic with the right store count and locations. Old Navy and Athleta are the growth engines, but Gap stores need significant changes to succeed.
Most retailers have taken stock of their store inventory over the past six or more months. They are deciding where to stay and where to go. Just like restaurants, we are going to see many closures. How will Gap’s plan work out? My guess is they will continue to feel some pain before they reach their comfort point.
Unlike most Retail CEOs, Ms. Syngal has serious “chops” in the supply chain side of retail. And, with the acceleration of consumer fulfillment (aka omnichannel) expectations — all retailers are re-evaluating brick and mortar. Smart move for Gap IMHO, and not surprising for me having had the opportunity to chat with Ms. Syngal a few years back.
Closing underperforming stores is good if they reinvest the money toward reinvigorating their brand, their product, and the customer experience to get back to where they were in their heyday.
So where will the stores remain? The story is a little vague, but the slide presentation shows on pg 35 it will be mostly strip mall/lifestyle center + outlet centers (the specific breakdown of each unit unfortunately seems not to be shown); many people might call the latter two “malls,” but more to the point: only a few will be street-front retail, as the picture might suggest. The store shown, the SF flagship, will close and that sector will actually shrink (as much as malls).
So what to make of it? Probably everyone agreed the company was over-stored … indeed it’s somewhat of a “poster-child” for the problem. To the extent that they’re closing the underperforming stores — and that’s the obvious assumption — it seems a necessary move.
Tough call on Gap stores but considering the current trajectory of malls right now, this is likely the most viable option to maintain productivity and profitability across the portfolio (notwithstanding a simmering brand-identity challenge).
Not surprising to see the uptick in Athleta. With half of the country still homebound due to the pandemic, athleisure wear is in prime demand. Whether or not this trend will continue and support 100+ new stores when the masses return to work (whenever that may be) is an intelligent gamble considering many companies are likely to retain some portion of today’s remote work-style when this pandemic is over.