Gap tries to fix mess it made of its business
By Dina ElBoghdady
Washington Post
WASHINGTON — Shannon Hartnett used to shop at the Gap at least once a month, figuring it was a pretty reliable stop for basic turtlenecks, T-shirts and a good-looking pair of jeans.
Until two years ago, that is, when the jeans became too low-slung for her taste and the sweaters, cropped to expose the midriff, started appearing in "hideous colors."
"I bypass the store now," the 33-year-old Alexandria, Va., resident said. "They're trying to be too hip."
The San Francisco-based chain is the first to admit it has lost its way. And it has the numbers to prove it. Earlier this year, Gap Inc. reported a 16 percent drop in January sales, marking the 21st consecutive monthly decline for stores open at least a year, including those in sister chains Old Navy and the more upscale Banana Republic.
The company also said it posted a loss for last year's fourth quarter, and Gap's stock has lost more than half its value over the past year. Meanwhile, the company has amassed $2 billion in debt.
After two years of soul-searching, Gap officials say they've pinpointed the problem: just about everything.
The mix of clothes. The clothes themselves. The layout of stores. The size of stores. And the company's spending habits.
"We need to fix it," said Stacy MacLean, a Gap spokeswoman.
How did this happen? The company's simple style was such a hit that it inspired copycats. That caused Gap to veer in a different direction with its fashions. Ultimately, it drove away its core customers. Exacerbating matters was the soft economy, which prompted consumers to pinch pennies.
The fix starts with the Gap's spring line, which brings back the classics (think khakis and oxford shirts) that made the brand famous, MacLean said.
"But we're going to update it," she said. "We're going to bring a new flair."
Some industry watchers say the company's weakest link is its low-end Old Navy unit, launched in 1994 as a cheaper version of the Gap with fun clothes for moms, teens and kids.
Already in the Gap family was Banana Republic, a safari and travel clothing company purchased in 1983. The brand was transformed into Gap's higher-end clothing line, aimed at slightly older shoppers.
The three-tiered approach worked for a while, especially in the more casual workplace of the last decade.
But through the boom times, the company expanded aggressively into some of the highest-rent locations in the highest-cost cities, including prime space on Madison Avenue and Broadway in New York, said Burt Flickinger III, managing director of Reach Marketing, a Connecticut research firm.
Sustaining the higher rents at some of the 4,100-plus stores became challenging when sales at all three chains began sliding simultaneously over the past two years, Flickinger said.
Particularly hard hit was Old Navy, which experienced a 20 percent decline in same-store sales in the fourth quarter, compared with a 12 percent drop the previous year.
One reason is that Old Navy faces too many thriving competitors. When the chain was conceived, Kohl's Department Stores was a little-known Midwestern brand. Today, the superstar retailer has cut into Old Navy's bid for the value-and-quality-conscious family, Flickinger said. So has Target.
Meantime, Wet Seal and American Eagle Outfitters, both teen-oriented, cut into Old Navy's appeal to young America.
