Gap shuttering flagship 5th Avenue store in New York

Dive Brief:

The flagship Gap store at 680 Fifth Avenue is set to shutter Jan. 20, Gap Inc. confirmed to Retail Dive in an email. The closure was first reported by the New York Post.
The store is on one of the busiest retail stretches in Manhattan, although recently more vacancies have cropped up, including the space that once housed the Ralph Lauren Polo flagship until about a year ago and Henri Bendel, which is also set to shutter in January, according to the Post report.
Last month Gap Inc. CEO Art Peck told analysts that the company's flagship brand would be shuttering "hundreds" of its 775 global Gap stores, noting that Gap gets 20% of sales (and growing) online and 30% in its more profitable outlet stores, while the remaining flagship specialty stores, with a wide range of productivity, are on balance dragging down profits.

Dive Insight:

Gap is moving swiftly to pare down its global footprint, and the closure of a three-story flagship location in a premier shopping district in a major world city shows how much of a priority that is.

"Closing a flagship store is usually a last resort, and it's most often done strictly for financial purposes," Ray Hartjen, marketing director of RetailNext, said in an email to Retail Dive. "Flagship stores are expensive to operate, but they don't exist to drive transactions in the specialty segment. Rather, specialty flagship stores are more about branding and marketing than sales."

The company likely has concluded that there are better ways to market its founding brand, Hartjen also said. "[B]ut closing the NYC flagship store certainly delivers poor optics."

That move also signals that cost cutting is paramount at the moment and that e-commerce is in focus. The company saw "solid double-digit growth" in third quarter online sales across its banners, which also include Old Navy, Banana Republic and Athleta. But Gap's bigger problem may be underwhelming merchandise at too-high prices, according to some analysts, including GlobalData Retail Managing Director Neil Saunders.

And in order to come up with the right merchandise, Gap must understand its customer — and it hasn't since the early nineties, according to Bob Phibbs, CEO of retail consultancy The Retail Doctor. "Fundamentally, nobody understands who that customer is anymore," he told Retail Dive in an interview. "You can picture the Lululemon customer, you can picture the North Face customer, who can picture the Gap customer? You can't cut your way back to profitably if you don't know your customer."

Until the company answers that — something now in the hands of brand chief Neil Fiske, who was tapped six months ago — expect more cutbacks, Hartjen warned. "Art Peck and his team have a big chore in front of themselves with regard to the Gap brand," he said. "This move signals there are no 'sacred cows' in the organization, and we can expect to see more aggressive moves in the quarters to come."