Gap Inc. is still figuring out how to get its eponymous brand back on track.
Chief executive officer Art Peck noted in March while discussing the previous quarter’s results with financial analysts that the Gap brand is still dealing with some “operational” issues that have it behind on an expected rate of margin improvement.
“Teri and I dug in and we saw what we saw,” Peck said, referring to Gap Inc.’s chief financial officer, Teri List-Stoll. “It’s not a product issue, we’re not having quality or fit issues.”
Peck went on to compare Gap’s issues to those of Old Navy in 2015, marked by some late and “unpredictable” product deliveries that set off issues for selling and markdowns. But that brand has since become a major revenue booster for the company. At the end of 2017, Old Navy’s comparable sales rose 9 percent, while Gap’s remained flat.
“I’m hopeful for getting our legs back under us quickly — it was less than two quarters before we had [Old Navy] back to performing well,” Peck said. “It’s a big opportunity and I’m relentlessly focused on it.”
Peck added that the lag in Gap’s turnaround “did not make me happy” and he alluded to taking action during the first quarter, likely the February exit of longtime Gap executive Jeff Kirwan, who had been president of the brand since 2014. At the time, Peck said Gap had “not achieved the operational excellence and accelerated profit growth that we know is possible.”
For now, however, the strategy is much the same as it has been for several months, in that retail operations at Gap and Banana Republic, which also has a relatively new leader, will continue to be consolidated. The goal is still 200 total store closures this year, equal to about 25 percent of the company’s fleet, but accelerated growth at Old Navy. That brand saw 30 store openings last year and twice as many are planned for this year.
Old Navy is also the testing ground for a new buy-online, pick-up-in-store program, results of which Peck said he’s “extremely encouraged by.” He wouldn’t give any specific sales details, but he mentioned that efforts are under way to “operationalize it” and there are plans to get it to more Old Navy stores by midyear, with the possibility of other brands after that.
And it’s not all bad at Gap. Peck said the brand’s online business is growing, aided by digital investments in things like site speed, and there have been investments in data acquisition and analytics that have allowed “much more surgical” investments. Store traffic is solid, too, but that seems something of a catch-22.
“That’s probably the most frustrating part for me — because of some of the operational difficulties, sometimes we don’t have the product…in stores,” Peck said. “If you have issues with product delivery, obviously that has an impact on conversion.”
Editor’s note: This story has been corrected to reflect the proper source of this discussion, which occurred after fourth quarter results in March. An earlier version of this story attributed the company’s comments to its annual shareholders meeting.
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