Gap plans to close 175 stores as it struggles to stay relevant

Gap plans to close 175 stores as it struggles to stay relevant

US clothing retailer Gap Inc is to shutter 175 of its namesake stores in the US and axe 250 head office jobs as it tries to increase profitability and speed decision-making at the struggling brand.

The San Francisco based retailer, which also owns the Old Navy and Banana Republic brands, will close around 140 Gap US stores during the current fiscal year, which runs to 31 January, along with a "limited" number of European stores. But it says the changes will not impact Gap Outlet and Gap Factory Stores.

The stores that will be closed have around $300m in annual sales - out of the group's total $16.44bn during its last financial year - while Gap Inc estimates one-time costs linked to the changes will be between $140m and $160m.

The retailer said the moves are part of ongoing efforts to deliver more consistent and compelling product collections and engage customers across all its specialty, outlet and online channels.

"Returning Gap brand to growth has been the top priority since my appointment four months ago," said Art Peck, CEO at Gap Inc. "Customers are rapidly changing how they shop today, and these moves will help get Gap back to where we know it deserves to be in the eyes of consumers."

Following the changes, Gap will have around 800 namesake stores in North America, including 500 Gap specialty locations and 300 Gap outlet stores. The brand will also have about 1,600 company-operated and franchise locations globally.

"We’re focused on offering consistent, on-brand product collections and enhancing the customer experience across all of our channels, including a smaller, more vibrant fleet of stores," added Jeff Kirwan, global president for Gap.

The job cuts are intended to speed decision-making and responsiveness by potentially reducing layers as it moves to a new product operating model, as well as improving cross-channel cohesiveness.

Ongoing efforts to build a more responsive supply chain at Gap were detailed by Peck during a first-quarter earnings call last month. These include fabric platforming, vendor-managed inventory, rapid response, and test and respond, all of which are already paying off at Old Navy.

Analyst Susan Anderson at FBR Capital Markets views the changes announced by Gap as "indicative of the significant ongoing transformation in specialty retail," and believes they are "necessary and positive, likely allowing Gap to stabilise its store productivity over time and to better compete in an omni-channel world."

But she also suggests the Gap segment "may continue to be under pressure near term as it transitions its assortment; it still has a significant amount of work ahead to regain its core consumer, improve supply chain processes, and consistently produce on-trend product that can drive price acceptance at its targeted price point."

During the first quarter to 2 May, Gap Inc reported a 3% fall in total net sales to $3.66bn from $3.77bn . Comparable store sales were down 4%, with a 10% decline at Gap and an 8% fall at Banana Republic, partially offset by a 3% rise at Old Navy. Earnings were down 8.1% to $239m from $260m a year earlier.

Central to the problems at Gap is what Peck calls an "aesthetic issue", which he says the company is now working on "with urgency" – especially when it comes to the women’s business.

Since taking on the role of global president of the Gap brand last December, Kirwan has focused putting together an experienced team to deliver more consistent and compelling product collections going forward.

Wendi Goldman has rejoined as head of design and product development for Gap, and two industry veterans have joined the retailer this month: Steven Sare as senior vice president of global merchandising, and Alessandra Brunialti as vice president of women’s design. Sare was previously chief merchandising officer at Uniqlo, while Brunialti was most recently creative design consultant at Alice + Olivia.

Click on the following link for further insight: When will Gap get back on track?