Does Gap have an identity problem? Why the retailer’s sales continue to decline
At the height of Gap’s popularity, the brand’s eye-catching ads begged buyers to “fall into the void.”
Now the clothing company can’t seem to get by.
Gap Inc., the San Francisco-based retailer that defined the button-down khaki culture of the 1990s, has suffered five consecutive quarters of declining sales at stores open for at least a year. Gap’s flagship brand has been beaten for even longer, as its comparable sales have fallen over the past nine quarters. The closing of 175 of its namesake stores last year did not help its results: its profit for fiscal 2015 was $ 920 million, a decrease of 27% from the previous year.
The long-suffering company, which also owns Banana Republic, Old Navy and Athleta, has been slow to identify and roll out new trends. It lost sales to fast fashion chains such as H&M and Zara. And it has struggled to retain its designers and leaders.
Even Old Navy, which has been Gap’s only bright spot, has not been spared recently. Comparable sales fell 6% in March, then fell 10% in April.
Gap declined to comment, citing a period of calm before its first quarter earnings report was released on Thursday.
But investors are not happy. Since August 2013, Gap shares have fallen nearly 63%, closing at $ 17.33 on Tuesday.
Many of the Gap’s issues are faced by other retailers as well, analysts said. Shoppers are reluctant to spend on clothes, and many don’t rush to the mall – this time of year is especially slow for retailers. Last week, Macy’s, Kohl’s and Nordstrom all posted disappointing first quarter results.
But Gap has one problem he can’t blame on the economy: bad fashion. Its clothes have failed to attract shoppers from ultra-trendy basics to boring basics, analysts said, and the company no longer seems to know what sets it apart from its competition.
“It’s almost a brand looking for an identity,” said Neil Saunders, managing director of research firm Conlumino. “Either they try extreme things, and that’s shocking. Or they do it half-heartedly and it loses impact.
Some of this confusion can be traced to top-line revenue, analysts said.
Last year Stefan Larrson, president of Old Navy, left to become CEO of Ralph Lauren. The company got rid of Rebekka Bay, Creative Director at Gap for about three years; it also moved Marissa Webb from the same post at Banana Republic, where she had served for less than two years.
“These people they bring in don’t have the freedom to manage the brands,” Saunders said.
His advertising reflected the creative confusion. In 2014, Gap launched the ‘Dress Normal’ slogan, jumping on the normcore trend that made Birkenstock sandals, plain turtlenecks and mom jeans not only acceptable but trendy among fashionable women. Then last year, Gap released a series of videos on Instagram proclaiming “Spring is weird.”
Those kind of wild swings in the post reflect a deeper problem at the heart of Gap, said Betty Chen, managing director of Mizuho Securities in San Francisco.
“I’m not sure they know who their customer is anymore,” she said. “It has definitely been a tough time for fashion retailers in general. Gap Inc. has had more difficulty than others.
Gap has come a long way since the 1980s and 1990s when its jeans were in high demand and its TV commercials featured various handsome young actors dancing and singing in corduroy and khaki pants.
But Gap has never evolved beyond its reputation as a place for clean basics. While other retailers such as J. Crew (under the leadership of former Gap CEO Mickey Drexler) and Urban Outfitters updated their aesthetics to keep up with the changing times, Gap has never been able to to modernize oneself.
“When you walk into a Gap store, you almost know exactly what’s in it – it’s going to be navy or tan chinos and v-neck sweaters,” Saunders said. “It’s the same old kind of stuff, and that’s why people got bored with it.”
Some shoppers such as Wintila Moreno, 31, said they only come to Gap to take advantage of big promotions – brands often make 40% sales on everything. The La Puente resident said she always associated the brand with a “very Rhode Island, preppy look.” Instead, she prefers prices and fashions at H&M and Zara.
Gap “is not my style and has never been my style,” said the paralegal. “It’s very bland, no color. And it’s expensive for the quality.
If Gap takes a step forward on its fashions, it could also risk alienating longtime fans. When Webb took over at Banana Republic, sales plummeted after the brand introduced more edgy styles.
Client Chris Vi, 32, loves the way things are done in Gap. The brand, he said, fits his own practical style perfectly, and he frequently stops at The Gap in Old Town Pasadena to check out his latest menswear.
“I love it because it’s a classic store and it doesn’t change its fashion,” said the Whittier resident, who had just picked up a pair of Gap jeans for $ 59. “I don’t do fast fashion. I love quality clothes that last.
Last year, newly appointed CEO Art Peck said spring 2016 would be Gap’s “no-apologies moment” as the company focuses on correcting its fashion.
But so far, his efforts appear to be missing the mark. Gap said last week that its first-quarter profits would be in the range of 31 to 32 cents a share, well below analysts’ estimates of 44 cents. He also warned that he had “more stocks than expected” for April due to “lower than expected traffic”. This means significant discounts are likely to continue over the next few months and could also cause problems for its fall and winter collections, analysts said.
At Gap’s annual meeting of shareholders on Tuesday, Peck said the company may consider partnering with companies like Amazon.com to reach more buyers.
In addition to changing its merchandise mix, the company is also looking into its international activities. Gap said it is “evaluating” its Banana Republic and Old Navy brands, primarily outside of North America, to “focus on geographies with the greatest potential.”
FOR THE RECORD
May 18, 11:09 a.m.: A previous version of this story incorrectly stated that Gap was looking to develop Banana Republic and Old Navy outside of North America. The company has in fact said it is evaluating these brands to see which areas they have “the greatest potential.”
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