- Gap Inc. reported that same-store sales of its namesake brand decreased by 10% in the first quarter of 2019 as a result of inventory woes and declining foot traffic.
- After Gap announced plans earlier this year to spin off its Old Navy brand into a separate company, the off-price brand posted its first decline in three years.
- We visited a Gap store to see what’s going wrong.
Three months after Gap Inc. announced it would split into two publicly traded companies – Old Navy as a standalone entity and a still-unnamed company that would include Gap, Banana Republic, Athleta, Intermix, Hill City, and Janie and Jack – the retailer continues to face an uncertain future.
On Thursday, Gap reported that same-store sales of its namesake brand decreased by 10% in the first quarter of 2019. Meanwhile, comparable sales slumped by 4% across all brands in the portfolio during the same period, including at Old Navy, which posted its first decline in three years.
Old Navy splits off from Gap
In a call with investors, Gap CEO Art Peck cited a variety of external factors – including unseasonably cold weather, late holiday schedules, and lower tax refunds -before acknowledging significant issues related to inventory and foot traffic.
In the last quarter, Gap was particularly focused on improving these weak spots and reducing expenses, Peck said. This effort includes shuttering more than 230 stores over the next two years and shifting marketing efforts away from its namesake retailer, with plans to roll out new advertising in coming quarters.
While Gap executives remained tight- glipped regarding updates on the Old Navy separation plan, Peck said that the team is “pushing, in many respects, harder than the comfort level is of the organisation to move forward.” The break-off is slated to be complete in 2020.
We visited a Gap store in New York City and saw why the brand continues to face an uphill battle:
We visited a Gap store in Manhattan’s Financial District. The three-story location sells an assortment of womenswear, menswear, children’s clothing, intimates, and athletic apparel.
Source: Business Insider
There was an extra 50% off sign in the entryway. The sales associates were quick to alert the handful of shoppers to the sale as they browsed at 11 a.m.
The women’s styles seemed fairly stale and uninventive. Part of Gap’s enduring appeal since its founding in 1969 has been its classic denim and simple silhouettes.
However, the the lack of variety, especially compared to Old Navy, has grown staid.
“From a product perspective, the team identified that our product offering was too narrow and lacks diversity in silhouette, print. pattern, and colour,” Peck said on the earnings call.
There was an occasional glimmer of hope throughout the store. Gap made attempts at spicing up its long-heralded denim products with a mix of overalls of various lengths and this denim dress.
Gap executives said on Thursday that identifying innovative denim products will be a priority moving forward.
“As we move throughout the year, we have a particular focus on re-establishing our strength in denim with improved quality fit and silhouettes,” Gap CFO Teri List-Stoll said on the earnings call.
Toward the center of the store was a jumbled mix of clearance items, as well as GapBody and GapFit products. The display was a disorganized assortment of intimates, loungewear, and athletic apparel. The layout felt confusing.
Eventually we found the sale section, butting up against GapFit apparel. This placement also felt confusing.
Rather than having one cohesive sale section, there was a smattering of yellow and red sale signs in random places throughout the store …
… including this one …
… and this one. Baby Gap, on the second floor, was especially overstuffed with inventory, yet it only had one shopper.
“While we entered the year clean from a viable perspective, we were heavier in inventory than we would have liked coming into the quarter, especially given lower than expected traffic trends,” Peck told investors on Thursday.
Baby Gap was also pushing its denim products through vibrant signage and discounting.
Here was yet another big red sale sign, this time downstairs in the menswear section.
The lower level had various tables of haphazardly folded men’s shirts with sale signs, including these polos.
It also featured “The Logo Shop,” an ode to Gap’s classic branded hoodies, which remained untouched.
Looking to the future, Gap will need to make significant changes to stay relevant. How the company will fare without its top earner, Old Navy, remains to be seen.
Meanwhile, the next iteration of Old Navy is still very much under wraps.
“Just because it isn’t necessarily public right now, don’t assume that we’re not doing very, very aggressive work under the covers,” Peck said during the earnings call on Thursday, referring to the company’s work to spin off Old Navy.
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