Photo: Gap, Inc.
Gap plans move into non-apparel categories
Apparel retailers are struggling with lockdown restrictions, but those that were already struggling before have an extra tough road ahead of them — and that includes Gap Inc. The retailer has long struggled to return to relevance. Now, for the first time, Gap is looking for growth outside of apparel with an entry into categories it has never before explored.
Home décor, furniture and textiles are the newly announced spaces where Gap will be selling products as part of a deal with licensing firm IMG, according to a story on Business of Home. Gap-owned Banana Republic and Janie and Jack will also be expanding into new categories, which have yet to be named. Additionally, Gap will be launching baby equipment and care products, presumably under its existing baby clothing brands.
Gap has long since slid from the height of casual fashion to the top of the discount bin. In recent years, it had relied primarily on the success of fast-fashion imprint Old Navy to keep it afloat while the other brands in its portfolio faltered.
Things had gotten rocky even for Old Navy by the end of 2019. For Q3 of last year, Gap Inc.’s three biggest brands, Banana Republic, Gap and Old Navy, posted same-store declines.
Throughout 2019, Gap had been planning to spin off Old Navy into an independent and unaffiliated company, but after nearly a full year of planning to make the move, the chain announced early in 2020 that the companies would remain together.
Late last year, the retailer announced that CEO Art Peck would be stepping down from his role. Mr. Peck had tried numerous strategies to create a turnaround as Gap with limited success. He was replaced in March by former Old Navy CEO Sonia Syngal.
Gap is among the retailers planning to begin slowly reopening its stores as some U.S. states and cities begin lifting lockdown restrictions, according to The New York Times. Gap plans to have 800 of its Gap, Old Navy, Athleta and Banana Republic stores doing business again by the end of the month in a move Ms. Syngal calls “responsibly aggressive.”
Discussion Questions
DISCUSSION QUESTIONS: Is it wise for Gap Inc. to move into home décor and other non-apparel categories? Which of its retail brands do you think is most likely to find success diversifying into other areas?
Poll
BrainTrust
Ken Cassar
Principal, Cassarco Strategy & Analytic Consultants
Doug Garnett
President, Protonik
This is a tough time to launch a new business or expand into a new product category. Retail sales are down in almost every segment except for staple products like food, drug and personal care. Banana Republic is the brand with the best defined image that makes sense for extending into home decor or furniture. However investing in building awareness for new product categories doesn’t seem like a smart strategy for a struggling retail company.
Hi David,
I agree with you – it makes more sense for Banana Republic to expand into a lifestyle brand, Gap not so much. I think it goes back to the question of what Gap wants to be — to expand right now into home, etc. doesn’t make sense, they will have to spend money on marketing to let people know who they are now. I don’t see it.
The best time for a brand to stretch into adjacent categories is when it has a strong share in its primary category. For Gap, that was a long time ago. Expanding into other areas while the core business is struggling will further dilute scarce resources and put the entire enterprise at greater risk. Gap needs to reconnect with its core base first; this is not the time for the Hail Mary approach.
As a strategy it sounds desperate. Home decor itself is struggling. It is neither complementary to what Gap sells, nor will it be seen as a move up in value or perception. It is hard to see how it would add any value to Gap. On the contrary it is likely to damage with brand dilution and perception.
The track record of negative comp growth for the Gap division during the past many quarters does not exactly give confidence that they have the brand relevance and therefore the strong intellectual property platform to launch into extended product categories. Gap used to be a master at managing color and leveraging marketing to make straightforward product fun. That moment has passed. The licensing idea is a good one. The timing is either off by a decade or two, or premature pending a product and marketing comeback.
This is a good move by Gap – the third big re-invention of its model. All of the great retailers in American history have reinvented themselves at least once as times and circumstances have changed. If Gap can pull this off successfully, it would be a terrific retail story. I’m rooting for them!
There are pros and cons to licensing a brand. It can be a big revenue generator based on the royalties earned on the merchandise that is sold into retailers, however it can dilute the brand’s value depending on where the merchandise is sold. I can see off-price retailers going after this in a big way in their home decor departments because of the recognition of the Gap brand names. For the Gap, they are going to need to find other revenue streams to stay afloat, so more power to them on this one.
I don’t see this move Gap is making as being successful. Gap is guilty of taking what was once a good thing, over-expanding and then after taking their eye off the ball losing their edge, which caused them to decline significantly in sales. Most of us remember when Gap was “the” place to shop, but soon after they added another chain, followed by another chain until they had several. Having more apparel chains was only causing competition for the main brand. I know this is the current plan that big retailers employ, but it never works and it always leads to failure. So yes much money was made, but that’s not the case now. We have seen this pattern time and time again. Gap is not the first retailer to attempt to expand with other categories, but that too rarely works. Gap would be best served consolidating their brands and starting The New Gap, where all their successful lines can be found under one roof. This plan would cut their expenses tremendously and allow them to rebuild their company, which will also require reinventing themselves with apparel that is appealing to the younger generation and once again is in demand.
This feels like they are grasping at straws. The brand is greatly diminished so the appeal of home goods with the Gap brand is going to be limited. Maybe some items could have an appeal in the Banana Republic brand but not enough to be a significant revenue driver.
“We can’t figure out how to sell things in our three brands, I know what to do; license them!” – said only those still at Gap. What exactly would the Gap design aesthetic be? #You’reNotRalphLauren
Entering a licensing agreement to deliver cross-category product extensions should be seen for exactly what it is: a way for Gap to quickly and cheaply raise some money. In the current environment, the company cannot be blamed for exploring its options, however there seems to be little appreciation of the longer-term impact. The correct course of action would be to fix the problems with the various brands and then engage in brand extension. Doing the latter before the former has the potential to cause confusion and cheapen the image of the brands.
Gap talks of its brands being lifestyle-oriented and popular in culture. This might have been true 20 or 30 years ago, however it is not true now. While the company’s brands are not hated, they are not loved either. The way Gap sees itself is increasingly out of line with the way consumers view it. This is a major problem that necessitates a dose of realism as a remedy.
Interesting move, and one that reminds me of how big box book stores morphed into lifestyle stores to maintain relevance and foot traffic. For many, that worked out very well. Apparel sales will likely head south for a long time, and the category is extremely over stored. The same was the case for books.
So if they can execute this well, this may in fact be a great move.
Gap desperately needs to re-invent themselves. They lost their way a long time ago in the eyes of their customers. The question is, how will diversifying into other product categories like home goods help change that customer perception? I don’t see this helping the core Gap brand. What consumers will think of buying their next home decor piece from Gap? Most likely none. Banana Republic is the brand I would focus on this effort. They have just enough remaining brand appeal to venture off into other categories, very similar to how Tommy Bahama does this, but Gap could go further. My concern is that they will only go half-way with this approach and then tell themselves they did “something different” and call it a day. They need dramatic change to turn things around and just adding licensed products in new categories isn’t enough by itself.
Emphasis on “dramatic change”…
Gap’s struggle symbolizes retail’s shrinking middle: Old Navy covers value, Banana Republic covers premium and mid-market Gap suffers. The optimistic strategy seems to be, “If you sell it, they will come,” yet adding new categories to a brand with eroded equity won’t make Gap sales soar. If anything, testing an upscale, classic décor line among loyal Banana Republic shoppers makes more sense to measure how much demand exists.
In “normal” times I would be all for it as a means for diversification, especially as apparel is struggling. However, in today’s environment, launching a new segment is not ideal. Demand is weak, supply chains are broken, and money is tight. Gap would be best served to try to shore up its current business model before branching into something new.
Gap started out selling records and jeans – its name was Pants and Discs – so in a way the retailer is going back to its roots. New day, new rules; it’s about time The Gap reinvented itself.
Old Navy already has a selection of items at the checkout that you wouldn’t expect to find in that store. Car seats, strollers and other baby items in Gap Kids stores makes sense. Most of the current footprints for Gap brands are too small to make an impact selling furniture, home decor and apparel a la Anthropologie. It will be interesting to see how this goes. This former Gapper wishes them luck.
Well I suppose they have to try something. The playbook for retailers in recessions/depressions is to head to basics and essentials. Hope you are in kids and pet products. Often the luxury end of the market still mysteriously enough hangs in through tough times. Even if the economy “comes roaring back in July” (right…) I have trouble seeing this helping out in time.
At face value, expanding their assortments typically has some appeal to me, but only if the brand identity is strong and thriving. I suppose one could argue that Banana Republic’s brand identity is strong and thriving enough to make this strategy work. That it would work for Gap, however, is a tougher argument to make. I am not sure about their intended target markets or messages, but maybe they could target college students and position themselves as dorm room outfitters? Or possibly they could target young city dwellers with gear for apartments and flats? Off the top of my head, these ideas feel like they have as good a chance as any, but I am not convinced those chances are all that good. I wish them luck, however, and hope that it works out well for them.
This is very sad. The lack of product vision in apparel will morph into great home decor, baby strollers, and textiles? Looks like Gap is following the JCP and Sears playbook.
Gap moving into other categories is a bit like a hoarder moving into their garage because their house is uninhabitable. If you are having trouble engaging your core, target customer how likely is it you’ll be successful crafting offerings to consumers in categories where you have never competed? Diversification is too often the refuge of last resort for underperforming companies. Honestly, I’m not sure diversification will help any of them, at least based on what we know today.
I feel like Gap doesn’t have the brand equity to make this happen at all. I think I would have liked to have seen them expand into new areas and grow their brand equity via partnerships. That would be a better fit. We know that DTC brands for example will be seeking retail space at some point to grow.
Off the top of my head – Floyd, Burrow, Parachute Home are all cool brands that would do something to up the equity of Gap, that Gap could offer some real estate in trade.
From studies we’ve done around the question of how retailers can attract more traffic, the #1 draw to over 4,000 consumers was food; some form of nosh, with coffee playing a role as well. Moving into home goods though, didn’t even make the top 12. So given that data, I’d have to caution that it’s going to be rough sledding for them. Just ask Pier 1.
I’ll offer the idea that this is a great time to move into a new category — they’ll have some time to sort it out before their execution has to be challenged competitively.
That said, there’s considerable risk for Gap. But, given their options at this point, I think it’s a smart move — give people more reasons to come to their stores because not enough were coming before.
Let’s hope, too, that they get the benefit of things being so critical that they feel like they’re working without a net — a critical sense needed to break through the existing bureaucracy’s tendency to put up roadblocks.
There’s brand extension — a logical and well thought out movement into related categories (I always thought Nordstrom might logically expand their minimal gift and linens offering into a full-blown home store). Then there’s grasping at straws.
I can see, maybe, Banana Republic offering décor; I can’t see any other Gap division doing it. And overall, I think it’s likely to be a costly distraction from fixing the core business.
The time is ripe to say the least for Gap (and any other struggling apparel store) to reveal version 2.0. While diversifying assortment could have been useful if thought of a while ago, it could still be a worthwhile endeavor if well-executed. The focus should be on brands that already have enough market clout to carry momentum through this change, and on ensuring that said branding is not diluted through the broadening of inventory, but rather reiterated and strengthened. Otherwise, the effect will be temporary at best.
For other, less-loved brands, though, it could be too late to see success from measures that are anything less than dramatic. Before implementing anything, Gap Inc. should take a good hard look at themselves, their brands, and their customers’ preferences and habits. How does the public consumer eye see them, and how can they strengthen this identity through their new assortment?
Has Gap figured out who its loyal customers are and what they want to purchase? Adding additional items without having a clear answer to this question will not save them.
I fear for them. I wish them the very best.
I am not a brilliant man, however, I am not stupid either. Fix yourself. Pay attention. Focus. I can’t sell a boring unimaginative merchandise mix to uninterested customers, so let me expand into goods where I have never competed previously and where people who are supposed to know the business are failing? I hope they pull it off and prove me wrong!
If your company focus is on apparel and you decide to move into a new category in a period when consumer spending is decreasing, this isn’t a strategically wise move. Not only is home decor an extremely competitive category, but this move will require additional investment and resources that a company like Gap has limited access to. If this is their idea, however, they should make their consumers aware of this new move. They should test their product category online first to avoid supply chain stress, and see if this picks up with their existing consumer base.