Gap reported that company-wide sales were down 5 percent at stores open more than a year, a worse performance than the 4 percent decrease charted in the same quarter the previous year. And across its three major brands — Gap, Banana Republic and Old Navy — there was little reason for optimism, with each reporting significant declines in sales.
On Tuesday, Gap’s stock tumbled nearly 12 percent after news of the sales results and an announcement about its forthcoming strategic moves.
Gap said it is working on “identifying opportunities to streamline its operating model.” It also said that it was re-evaluating the store portfolio for its Banana Republic and Old Navy chains, particularly overseas locations. However, it doesn’t seem that slashing international stores would do much to reduce the overall size of those brands: Banana Republic has 681 stores in North America and just 61 outposts in Europe and Asia. Old Navy, meanwhile, has 1,027 North American stores and 57 in Asia.
That strategic move would come less than one year after the company announced it would close about a quarter of its North American Gap stores, a move that was aimed at right-sizing its fleet for the era of online shopping.
The underlying message of these latest planned changes is that Gap knows it is badly in need of fresh measures to revitalize its ailing business.
At Gap, the division where Peck had pledged we’d see improvement by spring, sales were down 3 percent. That is indeed better than the 10 percent decrease in sales experienced in the same quarter last year, but it is a weak performance that suggests the retailer has struggled to reconnect with shoppers. Things looked even worse at Banana Republic, where sales slid 11 percent, and at Old Navy, where sales fell 6 percent.
“We believe the most concerning part of this narrative might be that mgmt. was surprised by the weak sales,” wrote Simeon Siegel, a retail analyst for Nomura Securities, in a research note.
In part, Gap’s woes are a reflection of trends seen widely across the shopping mall: Foot traffic has been down across the industry and customers are increasingly choosing to spend their money on experiences such as dining out instead of clothing. Plus, when they are buying apparel, they’re often flocking to fast-fashion outposts for trendy pieces.
But Gap also has acknowledged that it has struggled mightily to deliver fashionable clothes lately, and that failure has been a key catalyst for its recent sales slump. At Gap brand, it has leaned too heavily on simple basics. And at Banana Republic, executives have said they swung the pendulum too far toward trendy pieces and away from sensible office attire. Plus, in both brands, the company has acknowledged that the fit and fabrication of the clothing frequently has not hit the mark.
The troubles at Old Navy are a bit more of a mystery, as that chain lately had been doing a solid job of keeping up with trends such as athleisure and had successfully lured busy millennial moms who turned to the store as a one-stop shop for outfitting the whole family. However, sales began slipping at about the same time as that chain’s global president, Stefan Larsson, decamped to take the top job at Ralph Lauren.
Gap has taken action to address these issues, starting with the leadership team. It pushed out Rebekka Bay, the creative director of Gap. Marissa Webb, once creative director of Banana Republic, only now works with the brand in an advisory role. The company does not plan to fill those creative director positions, instead relying on a team of designers to build the aesthetic of the clothes.
And it just recently appointed a Gap company veteran, Sonia Syngal, to fill Larsson’s leadership role at Old Navy.