Gap Inc. is falling apart — and Banana Republic is its weakest link.
In the second quarter, the parent company of Gap, Old Navy, and Banana Republic saw sales slip 2%, the company announced on Thursday.
Out of its three core brands, Banana Republic saw sales plummet the most dramatically: -9%, versus -4% in the same quarter last year.
Gap fell -3% and Old Navy was flat.
“While Gap has troubles, Banana Republic is even more problematic,” Neil Saunders, CEO of consulting firm Conlumino, wrote in a note to clients on Thursday, following the earnings announcement.
The company has long pinned spring 2016 as the time it would turn around, but it doesn’t seem like that turnaround ever took hold. Banana Republic’s issues stem from a number of issues, some of which are visible to the naked eye.
“The assortment is at the heart of Banana’s issues and symbolises a brand that has simply lost its way,” Saunders wrote. “The spring and summer collection is best described as predominantly bland with a generous sprinkling of oddness thanks to garments with strange cuts and pattering.”
“Customers are confused and, of course, increasingly unwilling to pay the premium that Banana once commanded. As a consequence the brand is falling into exactly the same trap as Gap as it resorts to discounting and deals to shift merchandise,” he wrote.
Earlier this month, UBS analysts noted that “while July is a clearance month and typically not a clear barometer on the consumer, we would have liked to see traffic improvement continue into July — particularly if fashion at core Gap were better,” signalling that Banana and Gap were both struggling with its merchandise, but more importantly, that things look bad for a month that’s typically characterised by lots of sales.
The problem may be that consumers have been conditioned to shop on sale at Banana Republic and its sister stores. Business Insider has visited the store multiple times over the past few quarters, and every single time, we’ve seen prominent promotions and massive clearance sections. In August, even fall apparel was discounted.
Gap Inc. CEO Art Peck has confessed that the Gap brand itself isn’t in a position to get customers to pay full price.
“So, when Gap gets it right and has quality on-trend, on-brand merchandise, we have the authority to price and deliver value in a way that I’m confident the brand has, but we haven’t seen the brand be able to do for a while,” he said on an earnings call with analysts on an earnings call with analysts on Thursday.
Peck said the company is working on repairing Banana Republic.
“The team and I are relentlessly focused on continuing to make improvement in the business and under the covers, there are some proof points that the work that we’re doing is the right work. Where we’ve restored quality, customers have responded to that. Where we bought deeper into key categories, customers have responded to that. But the results of that obviously are not significant enough to manifest themselves on the topline or the bottom-line. So, we have urgency and we have a lot more work to do,” he said.
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