For many Americans, Gap Inc.’s (GPS) namesake stores were once a go-to shopping destination for t-shirts and jeans.
But now the Gap brand is in a deep funk that only seems to be worsening because of fashion miscues and nimble rivals that have eaten into its business.
On Monday, Gap’s parent company provided the latest evidence of the chain’s struggles by reporting that comparable sales fell 10% last quarter. It was the fifth straight quarterly decline, and the worst performance since late 2011.
In April, the last month of the quarter, same store sales fell 15%. Part of the slowdown can be blamed on this year’s early Easter, which pulled some sales from April to March. But the poor results also show how deeply rooted Gap’s problems are. Wall Street analysts had expected a drop of only 7.2% last month, according to Consensus Matrix.
What’s more, some of Gap’s rivals avoided the big drop in April sales. For example, L Brands (LB), parent of Victoria’s Secret, reported only a minimal decline, suggesting that Gap can’t really use Easter’s timing as an excuse.
Earlier this year, Gap Inc CEO Art Peck, a company veteran who took the helm in February, shook up the brand’s top management, hiring a new president and letting star creative director Rebekka Bay, a former H&M executive, go. In February, he said that fixing Gap was his “No. 1 priority,” with a particular focus on improving its women’s wear.
Fixing Gap’s problems won’t be easy or quick for Peck. Gap has long since bought merchandise for the spring and summer seasons, so the influence of the brand’s new leaders won’t be felt until the fall.
Gap has also created its own problems in other ways. The retailer was slower than its sister brands, which include Old Navy and Banana Republic, to speed up its supply chain, handcuffing it when it comes to responding to fashion hits or misses and reacting to what rivals H&M and Uniqlo do. In response, Peck is trying to shorten the production calendar at Gap.
Last quarter, Gap Inc failed to get relief from Banana Republic, whose comparable sales were similarly weak last quarter in falling 8%. On the bright side for the company, its biggest brand, Old Navy continues to do well, with comparable sales rising 3% for the full quarter. The company will release full quarterly financial results, including its profit, on May 21.
Peck, who was president of Gap North America from February 2011 to November 2012, has pointed to his own experience as evidence that the Gap brand can rise again. Gap had struggled for a few years, closed 200 stores, but then had a massive home run in 2013 with bright-colored jeans.
One thing is clear: Gap Inc. Cannot afford to have its $6.2 billion-a-year namesake brand falter for very long. It generates 38% of the parent company’s sales and is expanding overseas.
“None of us are satisfied with the performance that we’re seeing at Gap,” Peck told investors in February. “2015 is going to be a year of hard work and getting back on track.”
The holiday season — still several months off — can’t come soon enough for Peck.
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