Gap Inc.’s chief executive officer Arthur Peck believes that his company has made “radical progress” toward demand-based buying.
At the Goldman Sachs Global Retailing conference in Manhattan on Wednesday, Peck said that by the time the company gets to the beginning of next year, a significant percentage of the assortment would be on a responsive demand-based platform. As a result of the improvements, he told investors, “We’re already having very substantial proof points in the business where we see both share opportunity and margin improvement.”
Peck noted that if the group has fabric close to vendors in the Dominican Republic, then the product could be in stores in six to 10 weeks. He also said the firm could go from design inspiration samples to vendor orders with a 24-hour turnaround. These items could go into production and then be in the stores in weeks.
Ultimately, Peck said that it all starts with having the right product. Old Navy managed to back off its promotional pressure while growing the business because the collections were on trend. It demonstrates that with the right product and storytelling, a brand can avoid deep markdowns, the ceo said.
With regard to Banana Republic, which has seen its comparable sales fall by double digits, Peck said there were several things going on under the covers that are encouraging, but he didn’t elaborate. He did say the brand had tried to be less promotional and while it impacted the top line, there was nice margin expansion.
Peck gave more specifics on Gap Global, which he called a more complicated business. He said there had been consistent season-over-season improvement and an average unit retail lift. He said there has also been margin expansion. The retailer also is seeing a rebound of performance in the digital channel.
Analysts wanted to know whether Gap was worried about Macy’s Inc. closing stores and Peck saw it instead as an opportunity. “Macy’s hasn’t released all the locations yet, but we’re watching that carefully to see if we have a co-tenancy clause issue, which gives us a rent opportunity,” he said.
He also suggested there was an opportunity for Gap to take share in the markets that Macy’s was abandoning. “That is not demand that is going away,” said Peck. “That is demand that is going to get placed into other businesses.”
Peck feels that there isn’t much of a compelling trend in the marketplace right now and that there is little differentiation in apparel. He also spoke at length about falling customer traffic, specifically that tourist-related stores continue to experience weakness. He reiterated that Gap is not selling clothes on Amazon.com.
Peck did concede that Gap wasn’t doing a good job of storytelling and was slow to get stretch jeans for men. He did say he was somewhat positive about the back end of the year and that there may be some lift in the marketplace in the back half.