Banana Republic RTW Spring 2017

The good news for Gap Inc. is that Old Navy seems primed for growth and appealing to younger shoppers with its value proposition. The bad news is that there’s tons of work to do at Banana Republic.

That’s the word from a new consumer survey and analysis by Brian Tunick, retail analyst at RBC Capital Markets, which polled more than 500 shoppers. Millennials, which the study defined as ages 14 through 34, made up half the sample size.

Old Navy had the highest brand consideration among the company’s main divisions, with 53 percent of respondents in the survey indicating they like/love the chain. That compares with 35 percent for Gap and 22 percent for Banana Republic.

In the second quarter, the company’s comparable-store sales fell 2 percent, with a 3 percent drop at Gap global, while Banana Republic was down 9 percent and Old Navy was flat.

“Old Navy’s market share prospects appear better positioned [than Gap or Banana Republic], with Old Navy registering among the highest brand consideration scores across the group for both Millennials and non-Millennials,” Tunick said. “Millennials in particular appear to be drawn to Old Navy’s value positioning. From a category perspective, the customer appears willing to view Old Navy as a fashion destination.”

Tunick described the value chain as the “linchpin” to the company, accounting for 42 percent of sales and estimated 51 percent of earnings before interest, taxes, depreciation and amortization.

It’s a very different story at the other end of the price scale.

“Looking at the data, our biggest take on Banana Republic is how alienated the consumer is, with 49 percent of our total respondents indicating that they’d rather shop somewhere else,” Tunick said. “This compares to 29 percent at core Gap and 23 percent at Old Navy. Clearly from a traffic/brand-recovery perspective, Banana Republic has the most heavy lifting to do to improve customer consideration. The customer’s alienation from Banana Republic is further emphasized by the 75 percent ‘never’ answer when asked how often survey respondents shop at Banana Republic. While we note that the data is likely skewed by our sample, the negative perception at Banana Republic is clearly directionally far worse vs. core Gap and Old Navy.

“Bottom line, our take is that traffic stabilization at this brand will be extremely hard to achieve given multiple years of fashion misses and pricing architecture issues,” he said. “We think repairing Banana Republic will be a longer battle.”

In the sector as a whole, RBC found that, among Millennials, consumers gravitated most strongly to Victoria’s Secret/Pink (with a like/love reading of 59 percent), Forever 21 (57 percent) and TJ Maxx (54 percent). The weakest chains in the study by that measure were Justice (8 percent), Abercrombie & Fitch (10 percent), Maurices (13 percent) and Zara (13 percent).