“I’m obviously disappointed that we’re going to be discontinuing operations,” said Gap chief executive Art Peck on a conference call with investors. “But I view it as a sign of a good company that you acknowledge when a business isn’t going to deliver.”
The company also said Thursday that it is moving to streamline its operating model so it can more nimbly react to customer demands. Together, it expects these efforts will save about $275 million a year.
This latest round of store closures, which is set to be completed this year, follows a decision in 2015 to get rid of about one-quarter of Gap’s of North American outposts. The latest move doesn’t materially dent the overall size of the Banana Republic and Old Navy chains; Banana Republic has about 679 stores worldwide and Old Navy has more than 1,000.
Peck said that the company’s plans for international Old Navy stores will now be centered on Mexico and China.
Gap is under pressure to reposition itself in a challenging shopping environment. In addition to grappling with tough competition from fast-fashion retailers like H&M, it has struggled to connect with consumers who increasingly opt to spend on experiences and dining out. Plus, many of its stores are located in the kinds of malls that lately have seen dwindling foot traffic.
Gap reported Thursday that its net sales for the first quarter fell about 6 percent to $3.44 billion. Profits were $127 million, or 32 cents per share, a decline of 46.9 percent.
In a conference call with investors, Peck was blunt about the results: “Top line and bottom line: unacceptable,” Peck said.
Gap has largely been attacking its problems by trying to offer better products with a more consistent fit and reliable quality. And yet the work doesn’t seem to be boosting sales. In the quarter, sales sank 3 percent at Gap stores open more than a year and 6 percent at Old Navy. Banana Republic saw the steepest decline in comparable sales, 11 percent.
Peck said the problem at Old Navy seemed largely related to the mix of products. It leaned too heavily on fashion pieces instead of basics, and it had too many duplications in its assortment of clothes.
At Banana Republic, the company is trying to win back its reputation for creating versatile pieces that work just as well for casual dressing as for a day spent in a cubicle.
And yet the strategic moves revealed Thursday indicate that the company believes that revamping its clothes alone will not be enough to gird itself for a retailing climate that is being upended by digital commerce and changing consumer preferences.