Gap Grows as Consumers Buy Clothes
Eli Portnoy, chief brand strategist of Portnoy Group, is
among those who are having trouble rationalizing sales growth at retail apparel
chains and some of the more troubling aspects of the current
economic picture, such as high unemployment.
"It is a baffling situation; the only thing I can attribute it to is
we’re a consuming economy," Mr. Portnoy told the Los Angeles Times. "We
like to buy stuff and we can only be in withdrawal for so long in this country."
Gap
Inc. was one of the beneficiaries of consumers’ willingness to spend as the
company announced that sales grew across all its banners for the first quarter
and profits were up 40 percent versus the same period a year ago.
"We got off to a great start this year by improving our top line and
delivering significant earnings growth," said Glenn Murphy, chairman
and chief executive officer of Gap Inc., in a press release. "Fueled
by our strengthened economic model, we’re in a strong position to execute
on our international and online strategic investments as we continue to build
upon the momentum in North America."
Comparable store sales were up four
percent for the company. Gap same-store sales in North America were up two
percent, Banana Republic increased five percent and Old Navy achieved a seven
percent gain.
Tom Wyatt, president of Old Navy, credited a new format with
helping the chain to achieve such strong results.
"We’re reacquiring a lot of customers that we lost," he told Bloomberg
News.
Discussion Questions: Are there common factors that Gap and other clothing
retailers share that have led to their recent successes? What clothing retailers
are you most impressed with at the moment?
Baffled is a good place for pundits to be. The reality is all the doom and gloomers who are still proferring that everything has “fundamentally changed” about shopping continue to be wrong. Sorry, we aren’t all becoming Amish.
Consumers still need apparel…at some point discretionary purchases become necessities as styles change, kids grow and clothing wears out. So it was inevitable that the sharp drop off in demand would start to correct itself, keeping in mind that the current comp sales still don’t return most retailers to pre-recession levels.
Gap Stores, like many other retailers, has taken the opportunity provided by the slowdown to rethink many of its strategies, from marketing to value positioning. So the rebound happening at Gap isn’t just a macroeconomic trend but also reflects better execution.
Thus proving once again that if you decline long enough, and lower the benchmark enough, eventually you will show growth. Additionally with personal savings rates still tracking at historically high levels, we should not read too much meaning into this result.
There is growing confidence. The most-always-negative press is reporting where situations are improving. Gap and others are running tighter ships and controlling costs.
Bob is right. The consumer is not going to hibernate forever–they want to and like to go to the “bazaar.” Part of the ‘fundamental change’ that has the marketplace concerned about lies in “uncertainty,” the “understanding that we don’t HAVE to HAVE,” and certainly the “wealth indexes have fallen.”
So what’s a clothing retailer to do? Follow the path of the GAP, or Aeropostale, Kohl’s, Victoria’s Secret, or other retailers that have seen clicks upward–LISTEN TO THE CONSUMER. That valued patron is still most interested in some key areas for ‘Reasons to Shop’.
Price, selection, location, quality lead the list. In the case of Kohl’s, the next big reason is coupons and special sales. For Aeropostale and Victoria’s Secret, fashion ideas and newest styles come up in the minds of their shoppers.
Knowing the customer and what they value has always been a cornerstone for successful retailers. Check your loyalty levels–have they been a shopper for 5+ years? would they recommend you to a friend or colleague?, what do they value?
There is still pain ahead for a number of retailers. They haven’t been able to see and hear their customers. Get the data out–it’s there. The BIGresearch “Forecast IQ” model provides a glimpse of what comp store sales are likely to be 45 and 75 days out for publicly traded retailers. Recommend that you click on, and make complimentary use of this tool, if you’re interested in understanding who some of the winners are.
Even though macro level retail sales have shown an uptick over the past several months, for every Gap there have been others with much less rosy results. In my judgment, the apparel category is likely to remain under pressure for a while, as customers continue to re-prioritize their spending. In such an environment, there are going to be winners–and losers.
Keep an eye on inventories. As much as retailers got religion about the virtue of maintaining lean inventories over the past couple of years, they are likely to re-inflate inventory levels once they believe forward sales can be counted on to be up. So far, that hasn’t happened. Those executives, who are genetically predisposed optimists, remain cautious and prudent.
People have been watching their spending for 18 months and have had enough of it. They need to splurge a bit, and why not do it on some new clothes. People don’t like to be seen looking shabby but will leave the old TV hidden away at home.
We for years have watched retailers give us quarter after quarter of positive news as they head to bankruptcy…why do we continue to fall for the hype? Yesterday Sears, today the Gap. The Gap is up against several straight years of double digit declines so an increase of 4% leaves their stores still well below 2007 levels. Ask any 21 year old what they think about the Gap and the answer is…who? They have gone from being a bellwether, benchmark icon to an afterthought. Zara, H&M, Forever 21 and American Eagle all have higher profiles and more brand meaning to young customers while older customers have either traded up or traded down. That also is a continuing issue…they have not clearly committed to a single target group and because for a brief period in the early 1990s when they were everything to everybody, they cling to the erroneous belief they can do it again.
I wonder if this spike in consumer sales is connected to many people getting a tax return and having a strong desire to spend it on themselves?
We have a winnnahhhhhhh!!! give Mike the Brass Ring for hitting the bulls eye: it isn’t hard (for the GAP) to show growth when they’ve had 305 consecutive months of comp sales declines (or whatever it really is). Now let me know when Sears finally does it…that’ll be REAL news.
Gap is going a wonderful job creating loyalty and engagement. They are focused on their customers, on the individual, and making sure they are keeping items fresh, OOS low and keeping prices up.