The Shrinking GapThe ultimate '90s brand slides toward the murky middle.
Posted Thursday, March 9, 2006, at 1:28 PM ET
The Gap is one of the megabrands that shaped retailing and consumer culture in the 1990s. Throughout the decade, city corners, suburban main streets, and exurban strip malls were carpet-bombed with the emporia of reasonably priced denim and cotton. And along with those other megastores of the 1990s—Starbucks, Staples, Barnes & Noble, Home Depot—the Gap became so ubiquitous that consumers all over the country could share common retail experiences. The Gap also imposed itself on the larger culture with its popular ads; the Saturday Night Live parody featuring David Spade, Chris Farley, and Adam Sandler as shop girls; and Monica Lewinsky's stained blue dress.
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StumbleUponThe Gap influenced the way people dressed—remember the unfortunate jeans and light-blue work-shirt period when yuppies outfitted themselves like dock hands?—and surfed the business-casual wave. Parent company Gap Inc. expanded and extended the core brand, adding Baby Gap and Kids Gap. It segmented the market, too, rolling out Banana Republic for upscale shoppers and Old Navy for bargain-hunters. And the company could apparently do no wrong. The charts from the 1999 annual report are stunning, particularly the one on Page 16. Sales rose more than sixfold, from $1.9 billion in 1990 to $11.6 billion in 1999. In 1999, the company opened 299 Gap stores in the United States, bringing the total to 1,767.
But since the millennium turned, it's all gone horribly wrong. For retailers, same-store sales growth is the key metric. And as this chart of same-store sales since 2000 shows, the numbers for Gap stores are ugly: down 12 percent in 2001, down 7 percent in 2002, and off 5 percent in 2005. By my calculation, a hypothetical Gap store that did $1,000,000 sales in fiscal 1999 did only about $830,000 in fiscal 2005. And the trend is continuing. In February, same-store sales for the Gap North America unit fell 7 percent. "In February, traffic worsened versus fourth-quarter trends, which caused lower unit sales velocity. This led to significantly lower merchandise margins," as executive Sabrina Simmons put it. (Translation: People avoided our stores the way Republican politicians are avoiding Jack Abramoff, so we had to mark stuff down or eat the inventory.)
Declining same-store sales at rapidly growing companies can sometimes be chalked up to cannibalization—too many stores opening in close proximity to one another. But in recent years, the chain has been culling the Gap herd, according to the historical store count. (Whatever problems the company has, the Gap's corporate Web site is loaded with great material.) Between May 2002 and January 2006, the number of Gap North America outlets fell from 1,599 to 1,335, a 15 percent decline. Combine the shuttered stores with the lower same-store sales, and it's no surprise the Gap's revenues are shrinking. For the full year 2005, Gap North America's sales shrank from $5.7 billion to $5.4 billion. In Fiscal 2000, as this chart shows, the unit accounted for a whopping $5.9 billion in sales. The parent company's other units, Banana Republic and Old Navy, have fared somewhat better, but they haven't exactly been pictures of health this decade. As a result, earnings at Gap Inc. have generally slumped. And the stock has been a stinker over the last several years.
So, what went wrong? After all, 1990s-era megaretailers that sell staples—like Staples or Starbucks—have been able to forge lasting customer relationships that bring repeat business. Clearly, clothing and fashion—even the most basic clothing and fashion—don't work that way. People's tastes change as their incomes and lives change. The Gap was tailor-made for people like this writer, who, lacking any interest in or knack for fashion, just wanted affordable clothes that would be acceptable in school, at work, or at leisure. But over time, many of the Gap's core customers had to start dressing better for work. Others acquired better or more expensive tastes. Or, as in my case, they acquired spouses with more discerning taste.
It's possible—though hard to imagine in a country with the amount of vacant land and population growth that the United States possesses—that the Gap simply ran out of good shopping sites. And quality certainly has something to do with it. Based on my most recent visit, I can't help but think that the Gap is on the wrong side of the fine line separating cheap (as in low price) from cheap (as in low quality). Or perhaps, pace Jared Diamond, there's some Darwinian cycle whereby a retailing chain that expands recklessly beyond its natural habitat exhausts resources, gets sick, starts to whither, and ultimately faces Collapse.
The biggest problem for Gap stores is that the chain now occupies the murky middle, even in the parent company's own portfolio. And in the age of mass luxury and two Americas shopping, the middle market is nowhere. People who really need to scrimp on clothes spending will go to Old Navy, or H&M, or Wal-Mart. And those who can afford to spend more will go to Banana Republic, or Barneys, or Nordstrom.
Whatever the reason, the Gap, which once suffused the zeitgeist, now barely registers.
And management clearly feels the Gap has long since reached saturation. The Gap is no longer even Gap Inc.'s flagship brand: In 2005, the Old Navy unit rang up $6.8 billion in sales, compared with $5.4 billion for Gap North America. This year's plans for store openings and closings call for 175 stores to be opened in fiscal 2006, "weighted toward Old Navy." The company is investing in a new concept, Forth & Towne, for older women. Meanwhile, it expects to close 2006 with 60 fewer Gap stores in North America. The lion's share of those closings will be in the United States. In other words, every year the U.S. retail market expands, and every year the Gap shrinks, occupying a smaller and smaller space.
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Remarks From The Fray:
From its position as the main purveyor of reliable yuppie wear that you didn't have to think much about to choose and put on, Gap decided to chase not its own 30s-40s demographic but a younger one-- right at the moment when the younger one, chasing hiphop fashion, got into some seriously ugly shit. Gap didn't go all the way toward being Abercrombie and Crotch, so the kids just looked at it like it was Mom trying to dress young, but they cluttered up their clean lines with enough zippers and pockets one season, logos and whatever the next, so Moms and Dads with any real sense couldn't find anything classy enough for them to feel comfortable in.
Turning around Gap is easy. Burn down everything you're up to right now, cut the crap, and start making clothes for who your customers really are, not for the models in your ads. They won't, though, because they're less afraid of a slumping stock than of being thought unhip. So they'll spend 30 years dying. Gap, the Sears of the 21st century.
--Emsworth
(To reply, click here.)
[...] I can't decipher Gap's target demographic. I don't think The Gap can either. They hired Sarah Jessica Parker about a year ago. At the time, I was happy that the Gap may be skewing towards the 30-something market and would start producing appealing mid-range clothing again, but they quickly jettisoned Parker for generic 'young people' to freshen thier image. I was surprised at the time that they were still able to pull in top-tier celebs to shill for them but they squandered what may have been thier last shot.
Another non-scientific indicator of The Gap's downfall is my wholly superficial and shallow perception of the attractiveness of the staff. When I was in my early to mid 20's, the Gap staff was always attractive and well dressed. Lately I've noticed more overweight and sloppy employees at The Gap that brands like A&F and J. Crew would never allow.
Which brings me to my final point: Advertising.
The TV ads which first brought me to The Gap were the "Khakis" swing dancing ads of the late 90's. These were fantastic ads and the first that ever made me WANT to shop anywhere. I can't remember the last Gap ad that I saw, but it must not have grabbed my attention in the least. The Gap is failing on two advertising fronts: The first is their media ads, and the second their staff, since they are the best indicator of what the clothes look like on a real person.
My advice: Find a demographic and stick to it. Improve your advertising to target that group, and be aware that your hiring decisions have a direct affect on the public perception of your brand.
--boboli
(To reply, click here.)
The Gap used to be the only place to get decent jeans, its bread and butter. But Gap isn't even on the radar in the cool jeans department now, overtaken by high-end denim brands like Seven for All Mankind, and even similarly priced denim like Lucky Brand, which has its own Cali-cool image. So if The Gap's main product isn't where its at, then it better have other things to offer.
It doesn't -- it has held on to its versions of fairly bland t-shirts and other boring clothes, and the result is a bland and boring store. That's Gap's problem. In an era where there are lots of reasonably priced interesting clothes, there is nothing interesting there. Pocket t-shirts do not a company make.
--Catorce
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(3/10)