 Gap Inc is intent on righting its woes, and may have found a strategy that works. The American-based conglomerate is to concentrate on its value-based businesses, grow its online sales and continue to expand internationally.
Last year the Gap launched its website in 90 new countries and opened its first locations in China and Italy—some of which have already become among the highest-performing locations in the firm’s portfolio.
When it comes to its flagship brand, Gap plans to close up to 200 full-line Gap stores over the next two years and cut the square footage at all of its wholly-owned stores by approximately 2 percent, after already reducing the fleet by 2 percent in 2010.
The recent developments are welcome news for a company that served as the poster child for what ailed U.S. specialty apparel chains during the past decade. For a while, it seemed the retailer didn’t know which way to turn as it struggled with design issues, closed hundreds of stores and at one point, contemplated putting itself on the block.
The turning point may have come in 2010, when Gap finally started posting increases in same-store sales and shrinking its Old Navy square footage.
Gap’s new focus on value fits better with current economic environment, where shoppers want affordable prices and value-oriented retailers have been outperforming most other chains, according to David Solomon, president of NAI ReStore, a Narberth, Pa.-based retail real estate services firm.
Gap’s fashion choices have been criticized for being too similar to a number of other specialty apparel chains, according to analysts from Chicago-based Morningstar. That is particularly troubling since the U.S. market has seen the proliferation of fast-fashion retailers, including Zara, H&M and Forever 21. Those firms have gained market share at the expense of Gap.
Forever 21’s share of the U.S. specialty apparel market grew from 1 percent in 2003 to 6 percent last year, according to research from J.P. Morgan. H&M’s share increased from 1 percent to 3 percent. During the same time period, Old Navy’s share of the market dropped 600 basis points, to 11 percent; the Gap’s dropped 700 basis points, to 8 percent; and Banana Republic’s 100 basis points, to 5 percent.
The competition with the fast-fashion chains is likely to be even more fierce in overseas markets like Europe and Asia, where consumers tend to be more fashion-forward than in the U.S., warn Morningstar’s analysts.
Even putting aside fast fashion retailers, Gap has struggled to differentiate itself from its closest peers in the U.S. apparel market. J.Crew, for example, has been “out-Gapping Gap” for some time, says Solomon.
Gap’s problems have been compounded by the fact that it has locations in virtually every mall in the country. “If you have unexceptional product and you have 400 units it’s one thing,” Johnson notes. “But if you have 1,500 units, it s a different issue. Gap suffers more because of its size.”
Image: Gap SS11
Source: Retail Traffic Mag
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