Why Gap Still Has Too Many Stores
Gap Inc. (NYSE: GPS) has been through a series of strategic retreats over the past several years, closing hundreds of stores. Its most recent earnings report shows it still may have too many stores, at least for its flagship brand.
The results were fine. Revenue rose from $3.4 billion in the period a year ago to $3.8 billion. The bottom line barely budged at $164 million, up from $143 billion last year. The margins are as thin as they can be.
Sales were uneven across the retailer’s divisions:
Due to the 53rd week in fiscal 2017, comparable sales for the first quarter of fiscal year 2018 are compared with the 13-week period ended May 6, 2017. On this basis, the company’s first quarter comparable sales
increased 1% compared with a 2% increase last year. Comparable sales by global brand for the first quarter
were as follows:
• Old Navy Global: positive 3% versus positive 8% last year
• Gap Global: negative 4% versus negative 4% last year
• Banana Republic Global: positive 3% versus negative 4% last year
While Old Navy sales have slowed, they remain the most critical for the company. If they are still slowing in the next quarter, it may be that customer excitement for the brand has disappeared.
Globally, Old Navy sales were $1.7 billion worldwide for the period. Gap sales were $1.2 billion, and Banana Republic’s were $564 million. Notably, Gap sales overseas were about half of the total, much higher than for the two other brands. Gap North America has 806 stores to Old Navy North America’s 1,066 for the same region. That seems to be a major imbalance based on sales. This is particularly true if Gap sales in its home region continue to fall.
There would be nothing wrong, from a purely business standpoint, if Gap continued to shrink. It is a retail brand caught in the retail trap of e-commerce and too much brick-and-mortar competition.