Gap, Inc. Refocusing Means “Fewer, Better” Gap Stores

Times have been tough for Gap, Inc. in recent years, as an almost quintessentially mall brand finds itself scrambling as malls nationwide struggle.

And Gap, Inc. CEO Art Peck says many of its 3,000 brick-and-mortar stores — hundreds by his count — need to close because there is nothing they can do to save them.

Specifically, Gap and Banana Republic locations are failing. Same-store sales are down 13 out of the 14 quarters at the Gap, while Banana’s has seen 10 consecutive quarters of decline.

So, 200 “terminally ill” Gap and Banana Republic brick-and-mortar locations are closing, and Gap, Inc. is refocusing on its newer brands more successful lines: Old Navy and Athleta.

Peck says they are not giving up on the Gap or Banana Republic, but they are being realistic about their places in a changing retail atmosphere.

“We’re certainly not giving up on Gap or Banana, but we’re acknowledging the world continues to change,” Peck, 62, said in an interview. “And those are the two most mature brands in the portfolio.”

Peck referred to the move as “drawing a line in the sand,” premised on focusing on growth areas instead of on rehabbing older business lines.

Old Navy — with its lower prices — is believed by the experts to have cannibalized Gap, said Liz Dunn, head of consulting firm Talmage Advisors. “It’s been a smart trade over the long term,” she said. “While they didn’t initially envision that being Old Navy’s role, it’s probably better than the alternative.”

Old Navy now contributes about three-quarters of the company’s profit, compared with Gap’s 7 percent, according to Jefferies LLC Analyst Randal Konik. He further estimates that Old Navy accounts for about 30 percent of the retailer’s enterprise value.

Investors seem to be cheering on the refocusing, as stock ticked up 7.4 percent following Peck’s announcement of the end of poorly performing Gap and Banana Republic stores. Those closures will make room for the opening of 270 Old Navy outlets and Athleta locations in their stead.

As part of the push, Gap expects Old Navy’s sales to top $10 billion in the coming years, with Athleta exceeding $1 billion.