Blog: Leonie BarrieGap trims back

Leonie Barrie | 29 February 2008

A continued emphasis on controlling costs and improving margins has helped Gap Inc to a 21% jump in fourth quarter profit, with the retailer promising to be even more thrifty in 2008 to cope with “volatile” economic conditions. Capital expenditures this year will be down 27% to $500m, it said.

Among the measures being planned are fewer new stores (down to 100 shops worldwide compared with 214 last year) and reductions to the size of many existing outlets, as well as cuts to its advertising budget.

But CEO Glenn Murphy understands that growth in gross margin dollars is not enough, and that until the retailer can start growing its sales it will not truly have turned the corner. Significantly, same-store sales – a key measure of a merchant’s health – fell by 5% at both Gap North America and Old Navy North America – the retailer’s two biggest chains.
 
However, to be fair to Murphy, who took the helm of the company in July, he is also trying to rectify a lot of problems inherited from previous management. He is working to simplify what he described as a “very complicated and bureaucratic culture” at Gap, and to put right past fashion missteps at the company which have sent core shoppers running to rivals in recent years.

Cost-cutting helps Gap to 21% hike in Q4 profit


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