Gap Faces Brutal, Slowing Retail Market

With its sales already on the ropes, Gap faces a slowing U.S. retail market as the holiday shopping season begins. The National Retail Federation (NRF) has issued research that covers retail activity from November 1 to December 31. The pace will be much slower than in 2021. This year’s forecast is a 6% to 8% growth, which would push the total to $4.68 trillion. The increase was 13.5% last year. Weak retailers, including Gap, will need to increase market share to show that they are viable, even in a troubled period.

NRF Chief Economist Jack Kleinhenz commented about the industry challenges, “The holiday shopping season kicked off earlier this year – a growing trend in recent years – as shoppers are concerned about inflation and availability of products.” Retailers will respond with discounts and promotions. Gap and other weak retailers need to post improvements in an environment of cutthroat competition.

In its most recently reported quarter, Gap’s revenue dropped 8% year over year to $3.86 billion. Comparable sales fell 10%. Interim President and CEO Bob Martin is strangely optimistic. He said as earnings were released, “Our team has the capabilities to deliver what our customers, and our shareholders, expect — what’s needed for profitable growth. Importantly, as we adopt behaviors that enable sustainable change, I’m confident we will unleash our potential and drive value creation over the long term.”

Gap management said it was “cautiously optimistic” about the rest of the year but did not give guidance. Most of its discussion was about cutting into excess inventory. While this may be a good goal financially, it does not get to the heart of the problem. Revenue will continue to fall.

Gap’s most difficult challenge is that the sales of its largest brand are falling apart. In the most recent quarter, Old Navy’s revenue dropped 13% to $2.1 billion. Comparable store sales were off by 15%.

Gap is not built for headwinds. However, it is entering a period when sales strength is essential.

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