Gap Japan to axe Old Navy
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Gap Japan will close its 53 Old Navy stores as its parent narrows its focus in Asia.
But CEO Art Peck says the company “remains committed” to growing its brands in regions where it has a structural advantage.
The relatively down-market Old Navy brand will focus on the Mainland China market and the Gap brand will remain in Japan, he announced, at the time of revealing a first quarter sales decline of US$$3.44 billion, down 5 per cent.
“Japan remains an important market for Gap Inc’s portfolio, with a continued strong presence of more than 200 Gap and Banana Republic stores,” said Peck.
A further 22 international stores will close, but the company has not revealed where or which brands.
“As the pace of change across the apparel industry increases, now is the time to accelerate our
transformation by scaling our product and operating capabilities across our global portfolio,” said Peck.
Asia accounted for 11 per cent of Gap’s global sales, 1 per cent more than during the same quarter of last year. Across the region it no has 312 Gap-branded stores (up seven), 69 Old Navy stores (up four) and 51 Banana Republic stores (no change).
Globally, Gap stores sales decline 3 per cent – which was better than last year’s 10 per cent; Banana Republic sales fell 11 per cent compared with 8 per cent and Old Navy fell 6 per cent, compared with 3 per cent.
Neil Saunders, CEO of Conlumino, described the quarter as “disastrous” for Gap, “ one during which all of its main engines stalled and went into reverse”.
“Gap Inc is now retailer without any star brands and with seemingly little vision to move itself forward. Unless it takes radical action to overhaul its businesses the outlook will only darken still further,” said Saunders.
“Japan remains an important market for Gap Inc’s portfolio, with a continued strong presence of more than 200 Gap and Banana Republic stores,”
“Most worryingly, while the latest April numbers are likely impacted by the earlier Easter, they nevertheless show that all brands failed to gain any momentum as the quarter progressed. Indeed, in the case of Old Navy the sales slip accelerated.”
Saunders says the central issue for Gap is that it is “creatively dull” and does very little to change collections from season to season or year to year.
“As a result it has become increasingly reliant on customers buying on a replacement cycle rather than being inspired to buy new products. This, in turn, leads to it stimulating sales by the use of extensive discounting which then discourages consumers from buying at full-price. Gap shows no signs of getting out of this viscous cycle.”
He said its Banana Republic brand has gone into reverse since the departure of Marissa Webb.
“While Webb’s attempts to revitalise the chain did not bear immediate fruit, that she was not given sufficient time in the job and, much like the departure of Rebekka Bay, her leaving signifies Gap has both a problem with change and with giving competent people the scope to get on with the job in hand.”
Old Navy’s decline is more recent, he argues.
“While the brand has been the star of the show for many quarters, the past few collections have been dull and uninspiring. Stores are also looking more fragmented with no clear merchandise or brand story to entice shoppers. Coupled with excess inventory this has made for a less than pleasant shopping experience – something that has diluted the impact of the various flash sales and offers Old Navy has traditionally relied on for growth.
“As problematic as sales are, there is no doubt that margins are equally troubled. All Gap brands have resorted to heavy discounting in order sales and, even so, the company still has an excess of inventory. The final profit position for the quarter is very poor with net income down by a sharp 47 per cent over the prior year.
“All of this bodes badly,” Saunders concluded.
Questions & Answers
Q.How did Gap Inc.'s global sales perform in the first quarter?
How did Gap Inc.'s global sales perform in the first quarter?
Gap Inc. Reported a first-quarter sales decline of US$3.44 billion, down 5 per cent overall. Globally, Gap stores saw a 3 per cent decline, Banana Republic sales fell 11 per cent, and Old Navy sales dropped 6 per cent.
Q.What is Neil Saunders' view on Gap Inc.'s current business strategy?
What is Neil Saunders' view on Gap Inc.'s current business strategy?
Neil Saunders believes Gap Inc. Lacks star brands and vision, making the quarter disastrous. He suggests the company is creatively dull, relies on discounting, and needs radical action to overhaul its businesses.
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