By  on June 11, 2008

Gap Inc.'s efforts to streamline its real estate holdings will result in the incorporation of its Gap subbrands — GapKids, babyGap, GapMaternity and GapBody — into its full-line Gap stores.

Glenn Murphy, chairman and chief executive officer of the San Francisco-based specialty retailer, told the Piper Jaffray Consumer Conference in New York Tuesday that the company plans to close, consolidate, remodel and relocate stores in an effort to optimize its 40 million square feet of real estate and beef up disappointing profits.

Over the past six months, management has visited stores and met with field leaders and regional real estate executives to evaluate the company's real estate portfolio and decide which of its 3,100 stores to reposition, relocate, remodel or right-size. Of its corporate total, about 1,100 of its U.S. stores bear the Gap brand, as do more than 250 stores in other countries.

Murphy indicated that about 10 stores will be affected by the consolidations this year. The moves will be completed in the next two months, with financial benefits beginning to be realized next year.

He didn't specify how many stores operate under the secondary Gap nameplates and calls to the company's offices seeking that information weren't returned at press time Tuesday.

"We have always viewed real estate as a cost," Murphy said. "And more and more, we're spending time saying, 'This is an asset the company has. How are we going to monetize it and maximize it?'"

Gap North America stores range from less than 6,000 to more than 12,500 square feet for flagships, with its sweet spot in the range of 6,000 to 10,000 square feet.

"We got carried away," Murphy said. "Because we were doing so well, and confidence sometimes turns into another word, and next thing you know we have larger stores than you need."

Stores that are less than 6,000 square feet tend to be kids, baby, maternity or body units.

"We want to put those together with the adult store, unless there is a certain location where it makes sense for those stores to be there," Murphy said. "It is easier to run; one management team, one lease to deal with. The variable expenses make more sense, the coverage between people in the stores makes a lot more sense."Years ago when we decided to embark on the strategy of splitting the brand and diluting it, there were reasons behind that," Murphy said. "Today, it's very clear to us this brand has got to come back together."

Cutting out 5,000 square feet can save the company $225,000 in rent alone, the ceo said.

At Old Navy, management plans to focus on stores in the 14,000- to 16,000-square-foot range.

It is also highly unlikely management will invest in opening new stores unless the right location in the right market presents itself, Murphy said. The ceo said the company will continue to focus on inventory control and cost-cutting initiatives to strengthen gross margins. It's looking to improve customer service and will this summer install a computerized scheduling system to optimize staffing levels in stores.

As of May 3, Gap planned to open about 115 stores and close the same number this year, leaving it with a flat store count.

Shares of the specialty retailer shot up 70 cents, or 4.1 percent, to close at $17.69 in New York Stock Exchange trading Tuesday.

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