Gap continues to struggle.
In a call with investors yesterday, Gap. Inc. reported that comparable sales increased by just 1 percent in the first quarter of 2018, missing forecast expectations from analysts. The stalled growth was attributed largely to challenges involving the Gap brand, which experienced a 4 percent drop in comparable sales from the first quarter of 2017. The company also took a hit from the slowed growth of its top performer Old Navy, which posted a sales increase of 3 percent, down from 8 percent the previous year.
To mitigate slumping sales at Gap — the hardest hit on its mall-brand roster, which also includes Banana Republic, Old Navy and Athleta — the company is investing heavily in digital technology such as in-store resources that help associates better manage inventory and use data to anticipate foot traffic. The program, which also includes a mobile app that helps with shift scheduling, was announced in April and will continue to roll out to select stores over the year. Though the infrastructure is nascent, in early experiments, it was proven to reduce loss and streamline efficiency.
“Gap brand has been undergoing significant operating model improvements over the past year, and there have been changes to both processes and people over that time,” Gap CFO Teri List-Stoll said on the call. “The root cause of the challenges is not significant product acceptance issues, but rather operational missteps around timing of inventory received, breadth of the assortment and lack in some categories.”
However, such shifts are intended for long-term impact and will take significant time to take effect. Even with these forthcoming shifts, Neil Saunders, managing director of GlobalData Retail, remains wary: In a statement, he said Gap remains plagued by larger issues involving an antiquated aesthetic and failure to deal with excess inventory.
“The blunt truth is that on the ground little seems to have changed at Gap. The product mix still consists of the same boring basics, there is an absence of fashion trends, base prices remain out of kilter, and discounting is rife,” he wrote. “While Gap’s management notes that the brand is in transition, and discounting is necessary to sell down excess inventory, we are not confident the strategy is anywhere near optimal. In short, Gap is still a brand struggling for relevance.”
Still, Peck said the company will remain focused on “balanced growth.” In the immediate future this will include a focus on Gap Inc.’s activewear business, particular at Athleta, which continues to deliver impressive growth: In the first quarter of 2018, Athleta posted a double-digit increase in sales, and also became one of the first retailers to achieve B Corps certification for meeting high standards in social and environmental performance.
“I believe that this gem in our portfolio, which is becoming a very nicely sized gem, remains under-appreciated,” Peck said, regarding Athleta, on the call.
Stoll added that the company intends to find opportunities to capitalize in the value arena, such as strategic outlet mall and discount store partnerships that help move over-indexed product.
“During the quarter, we made some strategic decisions to aggressively clear inventory through sell-off,” said Stoll. “While these actions negatively impacted margin rate in the quarter, it does set us up for cleaner stores in Q2 and better inventory positioning for the back half.”
