What lies behind the Gap sales decline
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That the overall pace of the Gap sales decline has moderated since both last quarter and last year is the only – very small – crumb of comfort for Gap Inc in its latest set of results.
Gap last week reported a profit of US$125 million for the quarter, down from $219 million a year earlier. Total revenue declined 1.2 per cent to $3.85 billion.
The total sales decline in the US is actually worse than last year with much heavier declines at Banana Republic and flat growth at Old Navy dragging down performance.
Looking in stores it is not hard to see why this is the case. The Gap brand has no sense of newness and heavy discounting and constant promotion still appear to be the only tools the company has to drive trade. From Conlumino’s data it is clear that in the US Gap is not only losing customers but the customers it has retained are visiting less and spending less – mostly thanks to taking advantage of offers and deals. This is a dangerous position that erodes sales and profit, and suggests Gap has not even begun to remedy its underlying problems.
“Customers are confused and, of course, increasingly unwilling to pay the premium that Banana Republic once commanded.”
Although it is clear the company is serious about creating a step change at its main brand, and while the autumn “#DoYou” campaign and its associated merchandise represent a small step forward, Gap has failed to convince it has done enough to correct the problems in its business.
While Gap has troubles, Banana Republic is even more problematic. Over the quarter total sales in the US fell by 7.1 per cent, and on a global basis comparable sales for Banana shrunk by 9 per cent off the back of a 4 per cent decline in the prior year. The assortment is at the heart of Banana’s issues and symbolises a brand that has simply lost its way. The spring and summer collection is best described as predominantly bland with a generous sprinkling of oddness thanks to garments with strange cuts and patterning. Customers are confused and, of course, increasingly unwilling to pay the premium that Banana Republic once commanded. As a consequence the brand is falling into exactly the same trap as Gap as it resorts to discounting and deals to shift merchandise.
Banana Republic is a smaller part of the group, but it is one in which a turnaround will be difficult to engineer. For this reason, it is getting set to completely shutter its UK, and possibly European, operations. As much as this retrenchment is an admission of failure, it is a necessary contraction given the parlous state of the business.
Old Navy, which once delivered consistently positive numbers, spluttered again this quarter with flat growth in the US. While this brand is in a much better position than its siblings, it has become much less consistent in its marketing and instore merchandising, something which is reflected in its choppier sales numbers.
Gap Inc is a troubled retailer without much of a plan – a plan that is desperately needed as its net profit decline of 43 per cent in this quarter aptly shows.
Questions & Answers
Q.Which of Gap Inc's brands is performing the worst and why?
Which of Gap Inc's brands is performing the worst and why?
Banana Republic is the most problematic brand, with US sales down 7.1 per cent and global comparable sales down 9 per cent. Its assortment is described as bland with odd cuts, confusing customers and necessitating discounting.
Q.What is the primary cause of the Gap brand's declining sales?
What is the primary cause of the Gap brand's declining sales?
The Gap brand lacks newness, and its main strategy is heavy discounting and constant promotions. This has led to customers visiting less and spending less, primarily taking advantage of offers rather than paying full price.
Q.What actions is Gap Inc taking regarding Banana Republic's international operations?
What actions is Gap Inc taking regarding Banana Republic's international operations?
Gap Inc is preparing to completely close Banana Republic's operations in the UK. There is also a possibility that its European operations may be shuttered as well, due to the brand's difficult situation.
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