Gap CEO sees smooth sailing ahead for Old Navy

Discussion
Photos: Old Navy
Apr 24, 2018
George Anderson

While many others are reducing store counts — including sister chains Banana Republic and Gap — Old Navy is moving full steam ahead opening new locations and remodeling others.

In an interview with CNBC, Gap Inc. CEO Art Peck confirmed previously announced plans for Old Navy to open 60 new stores in the U.S. this year, double its new units in 2017.

The move follows a year during which the discount family apparel chain’s sales grew six percent to surpass $7.2 billion. On the company’s fourth quarter earnings call, Mr. Peck said Old Navy’s same-store sales grew across all categories and the chain achieved “strong top line and bottom line growth” in its stores and online.

Mr. Peck told CNBC that the company is focusing on opening new stores in “open-air centers and street-level retail” while moving away from malls. Remodeled stores are receiving more modern fixtures and upgrades to fitting rooms, checkouts and bathrooms.

Gap Inc. is also looking to upgrade its technology through its mobile app including allowing customers to check on inventory in stores, read customer reviews and keep track of loyalty points. Management is also running a pilot to test click and collect service in a small number of stores.

Old Navy’s emphasis on low prices has helped the retailer achieve sales gains with its own brand merchandise while other discounters such as T.J. Maxx flourish selling off-price name brand apparel.

When asked about competition from Amazon.com, Mr. Peck told CNBC, “I would characterize [Amazon] as excellent and hyper-efficient for buying, but it’s not a great discovery platform. … And a big part of fashion apparel is discovery.”

DISCUSSION QUESTIONS: What do you see as the keys to Old Navy’s continuing strong performance? Will Old Navy’s advantage as a “discovery platform” enable it to hold off competition from Amazon?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Art Peck's comment reflecting that Gap is a discovery platform is right on the money."
"...does anyone else wonder what happens to players like this if we slap a tariff on Chinese-made apparel? I guess we’ll just deal with that later."
"Fashion is fickle, but it’s clear from Old Navy’s results that they’ve found their groove – for now."

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9 Comments on "Gap CEO sees smooth sailing ahead for Old Navy"


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Mark Ryski
BrainTrust

Fashion is fickle, but it’s clear from Old Navy’s results that they’ve found their groove – for now. Peck and his team have a long history of running successful retail brands, so when you have a solid operating business supporting products/prices that resonate with consumers, good things happen. Notwithstanding how much apparel is being purchased online, Peck’s point on using his stores as a discovery platform is a good one – apparel is still best served up in an environment where merchandise can be experienced physically. Creating store experiences that support this is part of their successful strategy.

Neil Saunders
BrainTrust

Old Navy is the undoubted star of the Gap Inc family. It also has opportunities to expand physically. I am pleased to see that the focus will be on non-mall locations — this is where Old Navy tends to do well, especially with families. And the new store format, while not revolutionary, is certainly a step forward.

As positive as all this is, Gap Inc still has a lot to do to fix its other two main brands.

Charles Dimov
BrainTrust

Art Peck’s comment reflecting that Gap is a discovery platform is right on the money. In-store experience is a large part of retail. People like to wander a store to find new styles and items like clothing that match their style. Whether this is in-store, online or on an app, you can still capture an element of this adventure. Better yet, Gap’s experiments with omnichannel retailing will be particularly important to enhance this and to help them drive even greater topline and bottom line growth.

Art Suriano
BrainTrust

Mr. Peck is spot-on when he says it’s all about “discovery.” Looking at a photo online is nothing like seeing a product for yourself, feeling it and trying it on. That is and will remain the brick-and-mortar advantage. For the time being, Old Navy has built a brand supported by a strong audience. If they can continue to “wow” their customer with product, service, prices and overall experience from purchase through wearing the fashion, they’ll remain a winner. Fashion apparel is a tough business, one that is very competitive with leaders changing often. However, Mr. Peck has shown excellent instincts and it’s paying off. I would expect Old Navy to be a significant contender for some time to come.

Lee Peterson
BrainTrust

Gee, discount apparel works in the U.S. Good guess. It’s a lot easier than having to get fashion right like the old days, eh? All sarcasm aside, does anyone else wonder what happens to players like this if we slap a tariff on Chinese-made apparel? I guess we’ll just deal with that later.

Also, as an aside; an underrated player to compete here is Holister. It has the same mantra on the price side but is much better on the brand and fashion tip. Don’t count them out as the kids themselves know that Old Navy is for mom. My kids call Old Navy “Old Lady.” Yikes.

Nikki Baird
BrainTrust

I’m with you on the first half. As I was reading the article, I was thinking, “Yeah, Old Navy — it’s easy to be a bottom-feeder on price. How’s Gap doing these days, though?” The middle is a much tougher road.

But I have to say, you lost me at the second half. My kids hate Hollister. They hate everything about the store, which they think is pretentious. My son especially hates skinny jeans (he’s not the only teen to run counter). But I guess the lesson learned here is, welcome to the fickle world of teen retailing! Anyone who can survive it deserves some kudos.

Cynthia Holcomb
BrainTrust

Old Navy… key items and “blanks” on steroids. It’s priced well, the quality is OK and the fashion is OK. That is a winning combo for core customers and folks past 30. There’s nothing wrong with that — moms need to wear clothes too. I agree that discovery is part of the experience, especially at Old Navy which requires some digging to find a size. I think Peck has it right, chasing teen business is difficult and they end up at Old Navy anyway. While Old Navy is mainstream, the Gap brand resonating with the same 30-plus crowd is Athleta! Shop an Athleta store; there’s a very cool vibe, it’s well merchandised and has a focused POV covering the full spectrum of items needed for a great workout and for athleisure wardrobe. The Amazon experience is self-merchandising, via searching and hunting thousands of items with third-party cheap clothes thrown in the mix. Versus walking into Old Navy where the product is all laid out, easy to understand. Grab and go.

Jeff Miller
BrainTrust

This illustrates the power of having a stable of brands who are in different phases of their evolution and targeting different markets and trends. As Gap and Banana Republic may be seeing a bit of a downtrend, Old Navy and I believe Athleta are growing. In 2-3 years it might be the opposite, as quality brands like Gap can always strike a nerve and improve.

The key to Old Navy’s performance seems to be simple quality product at a low price with good store locations always with ample parking. The store experience is good but can also be a bit overwhelming. Not sure I would label Old Navy as a discovery platform as most people go in to the store knowing they need something specific like denim or shirts but they are great at upselling. Walk into an Old Navy for jeans and with the prices it is hard to not walk out with more than you planned.

Mike Osorio
BrainTrust

I do think Old Navy is well positioned for current trends in inexpensive and relatively trend right product — for now. How well the merchants evolve the mix to keep it fresh and worth “discovering” will determine their ongoing popularity.

I am worried though, as always, on the requirement of new store growth in order to satisfy shareholders. This is how retailers die — getting overstored. Inevitably this leads to over saturation in the best markets, expansion into too many secondary markets, challenges with finding sufficient talent to manage the growing stable of stores, and finally the inevitable P&L challenges in downturns when servicing the debt required to fund the expansion create disinvestment and inevitable decline.

Focus on the product (merchants!) and the customer (operators!), manage growth judiciously, and don’t grow store count unless the customer really demands another location.

wpDiscuz
Braintrust
"Art Peck's comment reflecting that Gap is a discovery platform is right on the money."
"...does anyone else wonder what happens to players like this if we slap a tariff on Chinese-made apparel? I guess we’ll just deal with that later."
"Fashion is fickle, but it’s clear from Old Navy’s results that they’ve found their groove – for now."

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