Dive Brief:

• As part of a restructuring plan, Gap Inc. will lay off 1,800 employees, according to a filing Thursday with the Securities and Exchange Commission.

• The company earlier this week confirmed it is further downsizing, after cutting 500 corporate jobs in September. The latest jobs to be eliminated are at the company’s headquarters as well as management roles in other regions, per the filing.

• In an emailed statement Thursday, interim CEO Bob Martin reiterated the plan could yield annualized savings of $300 million. Shorter term, it will cost about $100 million to $120 million in pre-tax expenses, including $75 million to $85 million in employee-related costs and $25 million to $35 million in costs like consulting fees, per the filing.

Dive Insight:

Gap Inc. is undertaking a massive restructuring effort without a permanent chief executive at the helm.

In his statement Thursday, Martin, who also chairs the board, said the company is “taking the necessary actions to reshape Gap Inc. for the future,” including the elimination of the chief growth officer role and turnover in leadership in human resources and at the Athleta brand.

“This means saying goodbye to friends and team members we care about, and I represent the collective voice of the company in expressing a sincere appreciation to every employee for the dedication, energy, and heart they have given to Gap Inc.,” he said. “As we move forward, we believe these efforts will release untapped potential across our brands, allowing us to show up as a more customer focused, faster, and creative company.”

But the severe cost cuts reflect dire circumstances at the apparel conglomerate, according to GlobalData Managing Director Neil Saunders.

“Gap is not in a good place, financially or strategically, and this is likely to get worse as conditions tighten. These cost-cutting actions are very much a reaction to that," he said by email. “The brutal scale of the cuts underlines the scale of the issues Gap faces.” 

These measures are designed to ease pressure on the company’s bottom line, but they’re being undertaken in the absence of a strategy to grow its topline, Saunders also said. In Q4, all Gap Inc. brands saw sales declines, including its usually better performing Old Navy and Athleta businesses. The once iconic Gap brand has struggled for a while, and its ill-fated tie-up with Ye, also known as Kanye West, ended last year. In 2022, Gap Inc. swung into the red with a $202 million net loss, compared to $256 million in net income in 2021.

“This is not surprising as management has never been good at this,” he said. “The problem is that no retailer ever shrank their way to success. It’s a one way street that rarely has a positive outcome.”

The lack of a permanent CEO only exacerbates that because a key responsibility of a chief executive is to establish a growth strategy. Saunders believes the company may be having difficulties filling that opening. In March Martin said the company was close to finding someone, but there has been no update.

“It’s a big task to take on and most in the industry are aware of the peculiar culture at Gap which is controlling and unwelcoming of change,” Saunders said.