What was once the hottest retail store for junior high students looking for uniforms and elderly citizens in search of a hooded sweatshirt for their grandson’s next Hanukkah present is now at risk of shutting down hundreds of its brick-and-mortar locations. Gap Inc. (GPS), known by consumers as “The Gap,” operates several brands outside of its namesake brand, including Old Navy, Banana Republic, and Athleta, each of which doing relatively well in the global marketplace. Gap (GPS), however, has been the weakest of the companies brands over the last few months.
The Gap (GPS) brand used to be a desired brand for apparel, but over time, young consumers have switched over to rival companies like H&M, Forever21, and TopShop, brands quick to react to the trends of fast-fashion while Gap (GPS) still believes every social outing deserves a fresh pair of khakis. I digress, I have and always will be a fan of Gap (GPS) clothing, because I trust in the quality and have worn clothes from the store for as long as I can remember. Having said that, Gap (GPS) can’t bank on customers like me to keep the namesake brand alive.
One of the key issues for the Gap (GPS) brand’s struggle to stay in the green has to with inventory-related issues. If you’ve ever walked into a Gap (GPS) retail location, or simply strolled past the front entrance, have you ever not seen a sign advertising heavily discounted prices? As consumers have shifted from Gap’s (GPS) older styles to other more fashionable brands, Gap (GPS) has in r recent quarters faced a large spike in inventory.
Gap Inc. (GPS) released its third-quarter earnings report on Tuesday, and while the report indicated Old Navy, Banana Republic, and Athleta performed relatively well, same-store slates at the Gap (GPS) brand were down 7%.
CEO Art Peck expressed his frustration with the namesake brand’s poor performance during the earnings call, discussing that he is looking into shutting down hundreds of Gap (GPS) stores worldwide, including flagship locations:
“We are clearly not satisfied with the performance of Gap brand. We know this iconic brand is important to customers, and we are committed to taking the bold and necessary steps to ensure that it delivers value to shareholders. We have had a lot of stores that are in the bottom half of the fleet that have continued to deteriorate over time. And it is my strong belief that we’ve kicked the can down the radon this and offered a deteriorating customer experience…”
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Art Peck, Chief Executive Officer, Gap Inc.
When others participating on the call asked why Peck plans on closing hundreds of Gap (GPS) brand retail locations, he said that many of the stores no longer fit the company’s “vision for the future, whether in terms of profitability, customer experience,” or “traffic trends.” Given that the company’s stock has fallen more than 25% this year, it’s not surprising that Peck is looking into every option possible to revive the brand.
Peck’s announcement, while shocking to some on the call, catalyzed a small boost in Gap (GPS) shares in the market Wednesday morning, with Gap (GPS) stock up 3.5%, trading at $25.83 per share.
Personally, I think it is a very risky decision on Peck’s part to announce the potential closing of hundreds of Gap (GPS) retail locations right before the busiest shopping weekend of the year. As has become the custom in American retail, the Friday after Thanksgiving, known as ‘Black Friday,’ is a day where stores across the country offer impressive discounts to incentivize customers to make purchases for the upcoming holiday season.
Given retail’s steady migration to e-commerce sites like Amazon (AMZN) and Wayfair (W), perhaps the news about Gap’s (GPS) possible sweet of store closings is an indication that the brick-and-mortar retail experience is slowing losing ground to stand on. The ease of shopping from your dining room table, without the hassle of long lines and inventory issues, is becoming the new normal for purchasing apparel.
It would be a shame if Gap Inc. (GPS) were to go out of business. Where would I buy my khakis?
