By Neil Saunders
The headline numbers at Gap look reasonably good: a 6.5% rise in total sales and a 9% increase in the U.S. are respectable. However, beneath the headline, the usual story reveals itself: Old Navy is doing all of the heavy lifting, while the Gap brand languishes. The positive news this quarter is that Banana Republic continues to gain ground with a 2% rise in comparable sales.
Old Navy will see around 70 new shops added by the end of this fiscal year. This includes new outlets in Canada and Mexico, where the brand continues to perform relatively well.
When it comes to Gap, the numbers are particularly bad. Sales in the U.S. are down by 1.6% on a total basis, and global comparable sales for the brand slipped by a sharp 7%. Despite protestations from management that improvements to the range and inventory are coming through, we do not buy the story of recovery. One main reason for our reticence is that Gap’s brand image is still lackluster and it is not bringing anything new or exciting to the market. Products are still samey and boring, and they are still being discounted because Gap is unable to sell them at full price.
The sales results testify to the deep-seated problems at the Gap brand, especially when they are delivered against the backdrop of a robust consumer economy in which people are spending more on clothing than they have done for many years. So too does our consumer data, which still shows that shoppers see Gap as bland and increasingly irrelevant in the apparel space. Gap still has an enormous amount of work to do before it can even start down the road to recovery.
Old Navy stays strong, expands
Fortunately, Gap’s lack of performance is more than made up for by Old Navy. We remain impressed by Old Navy’s fashion edits and the ability of the brand to put out well-curated collections that attract the attention and spend of family shoppers. The strong economy is giving consumers more money to spend, and Old Navy is benefitting from this as consumers buy more treats for themselves and their families. The strength of Old Navy’s brand is evidenced by the fact that all categories and channels have benefitted from growth
As well as driving more sales through existing stores, Old Navy has also benefitted from an accelerated pace of opening, which will see around 70 new shops added by the end of this fiscal year. This expansion includes new outlets in Canada and Mexico, where the brand continues to perform relatively well.
New menswear brand shows promise
Although Old Navy has always been a strong performer, the same cannot be said of its sister brand, Banana Republic. However, this quarter it is showing signs of life with a 9.2% uplift in U.S. sales supported by a 2% rise in comparables. The work to re-engineer the brand is paying off. Fall and winter collections were stronger than they have been for many years, and there is now more cohesion between marketing and assortments. The recovery remains in its early phases, but Banana Republic is moving in the right direction.
We remain encouraged by the performance of Athleta and are pleased with the early results from Hill City, the new menswear brand. Our data shows that this has been well received, although it is still very niche and needs improved visibility if it is to speed sales growth.
Overall, the business is in a reasonable state. However, the ongoing issues at the Gap brand are raining on what would otherwise be a sunny parade.
Neil Saunders is managing director of research firm GlobalData Retail.