"One of the primary factors driving migration is the planned separation of Old Navy from Gap Inc. and its brands, which include Gap, Banana Republic and Athleta. The separation will enable each of these brands to maximise their focus, align their investments to meet unique business needs and to optimise cost structures to deliver profitable growth"
Even as it deals with problems like store traffic, sluggish retail and the complications of splitting off Old Navy into a separate company, Gap Inc plans to limit its exposure to sourcing from China. The company recently released its first quarter results that clearly stated the topic currently impacting the entire industry is US’ intent to impose more tariffs on clothing manufactured in China
Separation of Old Navy fuelling China exodus
To dodge the impact of these potential tariffs, Gap has been migrating its sourcing out of China for the last several years. Three years ago, the brand manufactured around 25 per cent of its products in China. However, now this has declined to 21 per cent. Of this, apparel manufacturing constitutes only 16 per cent which is significantly lower than the relevant portions of the industry.”
One of the primary factors driving migration is the planned separation of Old Navy from Gap Inc. and its brands, which include Gap, Banana Republic and Athleta. The separation will enable each of these brands to maximise their focus, align their investments to meet unique business needs and to optimise cost structures to deliver profitable growth.
Brands adding new stores
During Q1 that ended on May 4, Old Navy recorded a flat traffic at its stores with its market share gains also being modest. The brand added six new stores during the quarter while it plans to open another 20 units in the second quarter. Besides offline operations, its e-commerce operations are also growing in double digits. The brand’s buy online pickup-in store program continues to help it to understand the intersection of offline and online shopping behavior for the Old Navy customer.
On the other hand, Gap Inc aims to regain its profitability through improvements in inventory, product assortment and cost structure. The brand closed eight stores primarily in North America in the first quarter, ending the period with 3,335 company-operated stores. It now expects to close about 230 specialty stores over the next two years.
One of North America’s fastest growing athletic brands, Athleta plans to add roughly 25 new stores in 2019 versus its historical average of 15 to 20 openings per year. Part of Athleta’s success is its brand identity and commitment to sustainability. The brand just celebrated its first year as B Corp by announcing progress against its sustainability goals, including 60 percent of materials now being made from sustainable fibers.
From product perspective, the design and merchandising teams of Gap Inc were able to significantly redesign the fall season, with even more ability to influence the holiday period. The brand focused on establishing its strength in denim, with improved quality fit and silhouettes. It now aims to focus on a better product assortment, leaner inventory and an effective cost structure.