Old Navy is making 2 huge mistakes that are killing business

Old Navy

Old Navy’s business is hurting.

At the end of fiscal 2015, the company reported dismal results.

Fourth quarter comparable sales were down 8%, when they had been up 11% for the fourth quarter of fiscal 2014. For fiscal 2015, comparable sales were flat; they were up 5% in fiscal 2014.

But it looks like Old Navy’s plight isn’t getting any better.

A recent Wedbush Securities report highlights mistakes that Old Navy made in March.

Here’s what Wedbush says Old Navy is doing wrong:

1. A “lacklustre merchandise assortment”

Perhaps one of the most important parts of getting customers back into stores is to provide stylish clothes that they want to buy.

Old Navy has never been known for its sartorial vision; price has largely been its selling point.

This was a problem when Old Navy’s sales took a hit this past winter, too.

“While [Old Navy] has never been on the leading edge of fashion, it has previously put out some good edits and stories in terms of merchandise. However, the last few seasons have seemed rather bland by comparison and that has likely weakened consumer interest. I think this especially true of the men’s product, but also applies to the women’s,” Neil Saunders, CEO of consulting firm Conlumino, had written in a note to Business Insider at the time.

A poor selection of apparel means that people aren’t going to come into stores — and a lack of store traffic is another issue that Wedbush highlights.

2. Extremely steep promotions

Wedbush points to how Old Navy is promoting more heavily than it did last year; it had sales for specific items last year, and this year, it was giving a store wide discount of 40% to cardholders.

It’s no secret that incessant promotions and discounts had kill a brand. Once already-frugal consumers get used to paying for clothes at sale prices, it’s hard to convince them to pay full price. This is a trend that the retail industry has seen play out at stores like J. Crew and Macy’s. But Old Navy is already known for low prices and sales, as it is.

Sharp, bargain-bin discounts account for the new normal in retail: consumers just don’t want to pay full price for anything, anymore.

Old Navy was previously looked at as Gap Inc.’s saving grace; every ting that Gap did wrong, Old Navy got right. Up until the end of last year, it was outperforming its parent company’s namesake brand.

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