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The Gap Slashes Stores: What Went Wrong and How They Can Fix It

Daily Ticker

Remember when the Gap was cool?

Neither do we. Perhaps that's why this once great retailer continues to struggle.

The company says it plans to close about 200 stores in the U.S. by 2013, that amounts to one in every five stores in North America, in favor of expanding in international markets.

The Gap -- owner of Old Navy and Banana Republic -- has been plagued for years by falling sales and lower profits as it's been forced to perpetually discount goods in order to move product. Same-store sales fell 4% year over year in September, the worst showing of all 23 major retailers tracked by Thomson Reuters.

"The company targets the middle-income market, which often leaves it stuck between discounters and upscale brands," notes an article in Friday's Los Angeles Times. Howard Davidowitz, president of Davidowitz & Associates and a long-time retail industry insider, says the Gap's problems are far simpler than that. They are not selling fashion people want to own.

There's no fundamental reason why the Gap can't succeed. "Denim is great," he says pointing to successful brands like Abercrombie & Fitch, Lucky Brand and American Eagle to name a few.

The fundamental problem is that the Gap lacks strong fashion sense. Davidowitz blames the CEO. Glenn Murphy is a very competent executive, but lacks the experience needed to right the ship. "Fashion people win in fashion companies," Davidowitz explains in the accompanying clip. "I've never seen a numbers guy come in and be successful in a fashion company. I've never seen one example of it."

The company not only needs to shrink the number of stores, it also needs to reduce the size of stores. "The stores are too big," Davidowitz says. "The stores are over-sized given what's going on with the internet."

Even with all their problems, it's not too late for The Gap. Davidowitz says if they replace the CEO with a great merchandiser, all could be fixed. Many retailers have done it before. In fact, Gap did it once before when they brought in their former CEO Mickey Drexler. Then, Drexler did it again when he took the helm at J. Crew.

"If he went back to the Gap I would put a lot of money on the Gap," notes Davidowitz.