By  on February 5, 2007

Banana Republic may be the Gap's healthiest retail concept right now, but that doesn't mean it's immune to cost-cutting.

The company is said to be exploring options to leave several key locations in an effort to "right-size" its stores, which may now be seen as being too large.

"It wouldn't be a bad idea from a profit perspective," said Mark Montagna, analyst at CL King & Associates. "Some leases, such as the Rockefeller Center [flagship], lose money."

Montagna wondered whether it's worth "just having a trophy location. In Paramus, N.J., their Garden State Plaza store is enormous. Those leases were probably done in more profitable times. Now they've got the squeeze on. If they deem those stores not to be profitable enough, Wall Street would endorse this."

One space that is apparently on the block is Banana's unit at 17 West 34th Street. Ripco Real Estate Inc. is said to be marketing the property. Peter Ripka, founder of Ripco, declined to comment on the space.

"Banana Republic is leaving its 40,000-square-foot store on West 34th Street," said a real estate executive, who requested anonymity because he may do business with Gap Inc. in the future. "It's [one of] their largest stores in Manhattan. It's an easy economic decision."

The cost cuts come as Banana Republic copes with the departure of its president, Marka Hansen, who was recruited to Gap North America, succeeding Cynthia Harriss. Jack Calhoun, executive vice president of marketing and merchandising at Banana, is leading the division as interim president.

When Banana Republic opened its 34th Street store, the unit was the first in Manhattan to gather all of the product categories under one roof. At that time, Banana had more product categories; home, for example, was discontinued.

For years, West 34th Street has been gaining strength with the arrival of stores such as H&M, Victoria's Secret and American Eagle Outfitters. The Gap unit at the corner of Sixth Avenue and 34th Street is said to be one of the highest-volume stores in the chain, with about $100 million in annual sales."The Gap understood early on how great Herald Square was," said Ripka. "Besides the Gap and Banana Republic, there's an Old Navy on 34th Street."

Gap Inc., which was at one time the largest nondepartment-store tenant in malls, downsized several years ago, closing units in smaller malls. Then, in 2002, Gap said it was curtailing its expansion.

"I hope Gap can return to the days when people jumped to do business with them," said a real estate executive. "They have strengths. They know how to manufacture."

While Banana Republic may be looking to exit stores considered too large, it traded up in July when it closed a unit at 215 Columbus Avenue in favor of a larger space on Broadway and 67th Street.

"Banana's departure won't change the character of the area," Beth Greenwald, director at Newmark Knight Frank, said of the 34th Street unit. "In a sense, there may be more traffic, because Banana Republic's prices are a little higher relative to the other apparel tenants on the street."

Evidence of the power of 34th Street, where the asking price for ground-floor space is $500 per square foot, is the fact that retailers, such as H&M, have more than one store there.

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