Gap CEO: Apparel bankruptcies an opportunity to seize market share

Dive Brief:

Gap Inc. on Thursday reported that fourth quarter profits increased 3% to $220 million, or 55 cents a share, and sales rose 1% to $4.43 billion, landing on the upper end of the apparel retailer's own guidance and meeting analysts’ expectations.
Gap Inc.'s fourth quarter same-store sales were up 2%, compared with a decline of 7% in the same period last year, and same-store sales for the year fell 2%, compared with a decline of 4% last year. The company’s flagship Gap brand showed signs of life for the first time in many quarters: Q4 same-store sales fell 3% globally compared to last year’s 6% decline. Old Navy same-store sales rose 1% compared to flat numbers last year, and fell 7% at Banana Republic, compared to a 10% decline last year.
The recent bankruptcies and store closures of rival apparel retailers like The Limited, American Apparel and Wet Seal present Gap with market share opportunity, CEO Art Peck told analysts on a conference call Thursday afternoon. “[W]e can all pick our favorite company that's no longer in business and when the lights go off and the windows get boarded over, that is market share that is made available to the rest of the industry,” Peck said, according to a Seeking Alpha transcript. “[The customer's] not stopping shopping. She's shopping someplace else.”

Dive Insight:

This is an era in apparel retail when modest increases, flat sales or even ebbing declines might be seen as a comeback story. Peck let analysts in on some of the behind-the-scenes reinvention at Gap over the last two years, which he said have included getting a handle on fit style and quality; speeding up clothing manufacture to more efficiently respond to demand; transforming inventory systems to de-silo merchandise, inventory management and sourcing systems; and leveraging its warehouse network to accommodate both e-commerce and brick-and-mortar fulfillment needs.

Peck said he is pleased with Gap's progress, that its turnaround has taken longer than he thought it would, and that there's still more work to do. But he believes shoppers are on their way back to Gap and that, with fewer retailers to choose from, the brands under his watch have a much greater chance to be noticed.

“[W]e believe fundamentally, there is a significant market share opportunity,” Peck told analysts Thursday. “To read the headlines today, you'll see the words 'dead,' 'dying,' 'sick'… A time of disruption means that market share becomes more fluid. And if we put what we believe are our structural advantages together along with much of the work that we've been doing on product and experience, we believe we have a significant opportunity to consolidate and gain market share going forward.”

But the long-awaited glimmers at Gap can’t be called a comeback just yet, according to GlobalData Retail analyst Carter Harrison, who noted that its dismal numbers in recent years make any progress look good — and even then, advances in the flagship brand are “patchy.”

“While we do not wish to pour cold water on Gap’s moment in the lukewarm sun, it does need to be pointed out that the overall gain is modest and does not necessarily signal a change in the company’s fortunes,” Harrison warned in a note emailed to Retail Dive. “Indeed, the comparatives against which these increases have been recorded are incredibly weak, including the 6.9% dip in total sales that was reported in the final quarter of last year. When put in this context, Gap has still not regained all of the ground it lost over the past 12 months.”

As for Gap's other brands, Peck said that issues at Old Navy (which hampered that brand’s consistent strength for a time last year) were swiftly corrected and noted that the Athleta athleisure brand (for which the company doesn’t provide sales figures) is strong. But Banana Republic continues to be a drag: Peck said the company hasn’t yet named a brand chief to replace Andi Owen, who stepped down last month, and that he personally has been looking under the hood there to see what must be done, admitting “I'm not pleased with the performance.”

Nor should he be, considering that “Banana Republic is still sinking,” Harrison said.

“Despite terrible prior year results which saw comparable sales slide by 14%, [Banana Republic] managed to post a 3% same-store sales decline,” Harrison noted. “This is a brand that has simply lost its voice and is not being heard by consumers in a market that is full of clamorous, and more melodious, rivals. While Gap is right to dial back on the Banana brand across the UK and European markets, it must make a decision as to how it will revive its fortunes in the U.S. On this front we still do not see much decisive action.”

Overall, Harrison suggests that Gap's narrative is not quite yet a comeback story. “We believe that comparable sales will at best be slightly positive and at worst modestly negative,” he said. “For the time being, the much-promised recovery remains elusive.”