There’s something very wrong at the Gap (GPS) and it has nothing to do with the weather. After a remarkable five year run the San Francisco retailer is running out of steam just as the competition starts to get its act together. Unless the Gap gets back on track it’s not going to be long before customers and investors start looking for better places to shop.
Many had left the store for dead back in 2011 but a fashion refresh that focused less on basics and more on trends helped resurrect the retailer. Then came this past holiday season. Messy stores, a convoluted structure of discounts and a general lack of execution resulted in a lackluster fourth quarter.
There’s evidence of Gap loyalists defecting already. Yesterday afternoon the Gap announced same store sales (that is, sales from stores that have been open one year or more) fell 7% in February with all three divisions - Gap, Banana Republic and Old Navy - posting negative results. In a press release Gap CEO Glenn Murphy conceded that 2014 is off to a rough start but said the company remains committed to its global priorities of international expansion and better execution.
Related: Gap raises its minimum wage, Walmart waits for DC
Gap's apparent loss may end up being Abercrombie & Fitch's (ANF) gain. The youthful retailer (recently plagued by a public perception of being a 'creepy' brand) announced last night that it would be revamping its Hollister brand by adopting a fast fashion model. As pioneered by chains like H&M and Zara, fast fashion is about using better local sourcing and churning merchandise quickly. While Gap and other traditional stores are rolling out seasonal styles every three months Zara is pushing through changes every couple weeks. The means three to five times as much product and vastly improved store traffic.
Abercrombie under new Chairman Arthur Martinez will be converting its 600 Hollister locations into fast fashion shops. Martinez says the company is going to be offering lower priced goods in more current styles. Notably he’s taking aim at H&M rather than concerning himself at all with former arch-rival Gap stores.
Those Gap stores have led a stunning turnaround thanks to CEO Murphy but the Abercrombie news proves he needs to reconsider his priorities. The lesson to be learned from the retail slump this year isn’t that consumers shop less when it’s very, very cold. We already knew that. The takeaway from February is that modern retail is about having the right goods at the right time no matter what’s happening outside. The Gap is simply too slow to adjust to fashion trends, let alone weather.
After spending the winter marking down goods, Gap spent February trying to sell spring merchandise during raging blizzards. Murphy can’t control climate change but he can speed up inventory turns. Until he does the forecast for the Gap is for slowing sales regardless of the weather.
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