A retail brand with comparable store sales that drop by double-digit percentages reminds industry experts of the J.C. Penney Co. Inc. (NYSE: JCP) disaster three years ago. As a reminder of how bad things can turn at a major retailer, Banana Republic sales dropped 10% in September. The division of Gap Inc. (NYSE: GPS) faces extraordinary weakness as the holiday season quickly approaches.
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Overall, Gap faces challenges over the rest of the year. Management disclosed:
Gap Inc. (GPS) today reported that net sales for the five-week period ended October 3, 2015 decreased 1 percent to $1.46 billion compared with net sales of $1.48 billion for the five-week period ended October 4, 2014. … Gap Inc.’s comparable sales for September 2015 were down 1 percent versus flat last year.
At least one division of Gap did well. Comparable store sales at Old Navy rose 4% in September. The president of the division was recently cherry picked by Ralph Lauren Corp. (NYSE: RL) to be its CEO. The Gap’s flagship division barely held its own. Its comparable store sales were flat. Dozens of Gap stores are scheduled to be closed as customer attraction to the brand falters.
The trouble with Banana Republic is extensive. It has 700 stores worldwide, which makes it hard to close or be jettisoned.
In theory, Gap is a three-legged stool, which is a system many other companies covet. When one division falters, the other two protect the company in general. But Banana Republic is so ill that the model in this case is broken.
ALSO READ: Can JC Penney and Sears Survive Weak Holiday Sales?
According to MarketWatch, one research firm summarized the problems:
“While we had anticipated that trends at Banana Republic would remain challenging at least until holiday, the decision to remove Marissa Webb as creative director after only six months of her product selling not only reflects CEO Art Peck’s quick decision-making and sense of urgency to improve the business, but likely also reflects a downtrending business into 2016 from both a comp and margin perspective,” MKM Partners analysts wrote in a note.
Gap will be lucky if things happen that quickly.
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