Gap results to be saved by Old Navy
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At headline level, the latest Gap Inc results are not too bad. Overall revenue rose by 1.1 per cent, a respectable increase that is some way above that posted over the last two quarters. Net income also increased by 12.3 per cent compared to the previous year.
Unfortunately, behind the headline, it is the same old story. Old Navy is driving group performance while the other two leading brands are struggling. Admittedly, the 0.8 per cent US revenue decline at Gap and the 2.6 per cent dip at Banana Republic are better than recent reporting periods, but neither demonstrates a fully-fledged recovery.
Management has been keen to emphasise the changes that are being made to revitalize the challenged brands. On the ground, there is some evidence of this happening. At Gap, for example, there have been marginal improvements in quality and greater emphasis has been placed on in-demand products like athletic wear. However, the majority of the offer remains samey, as do things like store environments and point of sale material. In our view, Gap has very little newness to communicate and, as such, is still finding it difficult to inspire customers.
The new marketing campaign, ‘Meet me in the Gap’, is not terrible, but neither is it particularly compelling. As such, while it has helped rather than hindered sales, it has not succeeded at pulling in new shoppers or getting lapsed shoppers to take a fresh look. Given the offer has not shifted very much, perhaps this is just as well.
In essence, the change at Gap is lacklustre – especially when compared to a brand like Abercrombie & Fitch which has ripped up the rulebook and completely reinvented itself. Gap needs to emulate this bravery and do something radical to put the business back on a sustainable growth trajectory.
“Gap needs to emulate this bravery and do something radical to put the business back on a sustainable growth trajectory.”
Stuck in a rut
If Gap has made some progress, Banana Republic still seems stuck in a rut. Despite a change of leadership, the proposition still lacks energy and focus. As such, it is hard to understand who the brand is targeted towards or what needs it is trying to address. Until these things are resolved, Banana Republic will remain on the back foot. To be fair, management always said that the latter part of this year would be about stabilising the brand rather than reinventing it, but this could amount to a tacit admission of not knowing what changes to make or how to make them.
Fortunately, Gap Inc has been able to rely on Old Navy to push up performance. While sales growth moderated this quarter, the brand remains a popular destination for younger and family shoppers. The new winter and fall collections are compelling, which should benefit sales over the holiday quarter.
There has been good progress within Gap’s stable of smaller brands like Athleta and Intermix. Both of these concepts have significant potential, with Athleta in particular positioned to grow its market share. Unfortunately, the revenue contribution of these divisions is insufficient to make a material difference to the group’s overall numbers.
In summary, Gap has become a more stable business and sales declines appear to be starting to bottom out. However, the company has no real sense of direction or ambition for two of its major brands.
Questions & Answers
Q.What was the overall financial performance of Gap Inc. This quarter?
What was the overall financial performance of Gap Inc. This quarter?
Overall revenue for Gap Inc. Rose by 1.1 per cent, which is an improvement over the last two quarters. Net income also saw a positive increase of 12.3 per cent compared to the previous year.
Q.How did the individual brands within Gap Inc. Perform this quarter?
How did the individual brands within Gap Inc. Perform this quarter?
Old Navy continued to drive group performance. Gap experienced a 0.8 per cent US revenue decline, and Banana Republic saw a 2.6 per cent dip, though these were better than recent periods.
Q.What efforts are being made to revitalise the Gap brand?
What efforts are being made to revitalise the Gap brand?
Management has introduced marginal quality improvements and focused on in-demand products like athletic wear. A new marketing campaign, 'Meet me in the Gap', has also been launched to support sales.
Q.Are any of Gap Inc.'s smaller brands showing promise?
Are any of Gap Inc.'s smaller brands showing promise?
Yes, smaller brands like Athleta and Intermix show significant potential. Athleta, in particular, is well-positioned to grow its market share, but their revenue contribution is not yet material to the group's overall numbers.
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