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March 10, 2022

Gap Inc expands LatAm sourcing as supply disruption weighs

US specialty retailer Gap Inc will ramp up production in Latin America this year as it looks to recover from financial losses linked to supply chain disruption.

By Hannah Abdulla

Gap Inc has earmarked US$700m worth of CAPEX investments for 2022, with supply chain transformation a key area of focus as it looks to drive efficiencies and eliminate waste.

On an analyst call in the wake of its fourth quarter results, which saw Gap Inc swing to a US$16m net loss, CEO Sonia Syngal said investments would be largely slated against supply chain and technology projects focused on driving automation, speed and efficiency within the fulfillment network, along with enhanced digital loyalty and personalisation capabilities across the portfolio.

During 2021, Syngal said Gap Inc faced headwinds with supply chain issues weighing heavily on performance as a result of longer transit times from the West Coast port delays and sudden and prolonged closure of factories in Vietnam.

  • Q4 net sales of $4.53bn were up 2% from $4.42bn in the prior-year period. Comparable sales were up 3% year-over-year.
  • Net loss amounted to $16m, compared to net income of $234m a year earlier.
  • FY net sales of $16.67bn increased 21% year-over-year from $16.38bn last time. Comparable sales were up 6% year-over-year.
  • Net income amounted to $256m, compared to a net loss of $665m in the prior year.
  • Gap inc expects fiscal year 2022 revenue growth to be in the low single-digit range versus fiscal year 2021 with first quarter net sales expected to be down mid to high-single digits versus the first quarter of 2021.

In the near term, Gap Inc is diversifying port exposure. Beginning with its summer assortment, it is moving the vast majority of products through Eastern and Southern ports, “where delays are materially better than on the West Coast,” Syngal explained.

Gap Inc also plans to optimise manufacturing, including proximate sourcing to enable flexibility and increase speed.

“Specifically, we are growing our Mexico and Central America sourcing in 2022,” Syngal asserted, adding that over the longer term Gap Inc is looking at “de-risking” its supply chain by rebalancing sourcing to rely less on single countries of origin and building deeper relationships with near-shore vendors”.

Syngal told analysts this year would see Gap Inc expand its manufacturing in Latin America and Mexico as it looked to cut longer lead times and create some speed in building some responsive capabilities back into its supply chains.

It is also looking at digital product creation that trims time from the development cycle and saves on overhead and sample costs, optimises shipping logic that reduces split shipments and implementing automated returns in distribution centers that get the product back to inventory in under an hour.

“As always, we remain balanced, taking a comprehensive view of all strategic options that account for and address the evolving macro environment and ultimately deliver the best outcomes for our customers, our employees and our shareholders,” Syngal added.

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