Analysis: The Gap, Art Peck, and store closures

Retail consulting firm McMillanDoolittle has posted an interesting blog on Gap Inc.’s ongoing efforts to turnaround its troubled namesake brand. Here is the full posting:



Art Peck is having a busy week. Mr. Peck, the CEO of Gap (Inc.), just announced plans to shutter a quarter of Gap’s U.S. stores. Could this be the canary in the coalmine warning of yet another great American brand’s downfall, or rather is it the strategic repositioning of a brand that is responding to consumer shifts? I think several dynamics have long been at play forcing Gap to this place.

Issue 1. Location, Location, Location.



Always the staple of any shopping mall, The Gap has certainly been feeling the effects of unproductive stores locked in long term leases negotiated decades ago.



Unfortunately for Gap, consumers have slowly migrated away from these malls, which appear on every retailer’s C- and D- list and face diminishing rates of occupancy. Gap is making the tough but rational decision to exit this unproductive real estate and re-focus energies on higher performing centers with a more focused store base.



Issue 2. Channels Continue to Shift.



Gap has made strides to develop a “seamless retail” experience for its customers by working to develop a singular view of inventory, and providing customers with the option to buy and reserve in store – certainly no small feat. However, this visibility likely only magnified the unproductive stores and margin draining stocks.



The shift to online has continued to be dramatic; depending on your survey of choice, retailers currently can attribute about 10% their overall sales to e-commerce, and the apparel category share is even more dramatic, over 25% currently, and projected to be at 37% in 2018 according to Kantar Retail. Continuing to develop a “seamless retail” experience should be a strategic priority for The Gap.



Issue 3. The Gap Misunderstood the Millennial Shopper.

Forever the headquarters for the ’90′s uniform, Gap’s merchandise lineup missed the mark with Millennials, who were looking for something more individualistic, and not acting as a billboard to any brand. Pricing has also been an issue which explains why the Old Navy banner has fared somewhat better of late. Today’s news will help the balance sheet, but can Gap quickly learn from this customer and adjust the merchandise mix? The clock is ticking.

Issue 4. International Opportunities Should be Revisited.

Retailers have learned the difficulty of overseas expansion, sometimes very painfully. However, this is an area Gap is certainly eyeing for growth. Gap and Banana Republic are already well positioned within Liverpool stores throughout Mexico. Asia is certainly the largest market, but perhaps Gap should consider expanding Old Navy and Banana brands in Europe or LATAM regions, currently areas with minimal presence for either brand. Gap Inc. has the brand equity to reach multiple customer types, and should be actively developing partnerships to reach this global customer.



Back to our earlier questions – is this the bell tolling in advance of another great American retailer’s eventual demise? I don’t believe so….yet. They did not have a choice here but to make this move, but so much more needs to be done and Gap must move quickly to build a strategy for growth. These are not easy decisions, but shuttering unproductive stores is necessary if the core customer has left and the balance of the business has tipped and shifted to other channels or locations.



Will it work? Time will tell. The future of The Gap depends on it!



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