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Gap Inc faces challenging times ahead

"Following a strong industry retail report of growth of 6.6 per cent and 6.4 per cent in June and July versus the previous year, and stellar results posted other leading like Urban Outfitters, much was expected from the company Gap Inc. However, the performance of the brand Gap left much to be desired. Gap Inc’s comparable sales increased only 2 per cent as against the expected 1.5 per cent, while comparable sales of the Gap as a brand fell 5 per cent against the expected decline of 2.3 per cent. However, the growth of company was led by Old Navy, followed by Banana Republic as these brands performed in-line with estimates. As per analysis of Forbes, the following factors may influence the brand’s future performance:"

 

Gap Inc faces challenging times ahead 002Following a strong industry retail report of growth of 6.6 per cent and 6.4 per cent in June and July versus the previous year, and stellar results posted other leading like Urban Outfitters, much was expected from the company Gap Inc. However, the performance of the brand Gap left much to be desired. Gap Inc’s comparable sales increased only 2 per cent as against the expected 1.5 per cent, while comparable sales of the Gap as a brand fell 5 per cent against the expected decline of 2.3 per cent. However, the growth of company was led by Old Navy, followed by Banana Republic as these brands performed in-line with estimates. As per analysis of Forbes, the following factors may influence the brand’s future performance:

Accelerating store openings

Gap has speeded up Old Navy store openings. The brand opened over 30 stores in FY 2017, and 28 in H1 2018,Gap Inc faces challenging times ahead 001 along with 85 remodels. The performance of these stores is exceeding expectations and remodels are outperforming the fleet by an average spread of five comp points. The company further plans to double store openings as compared to FY 2017, which should help increase revenues.

Introduction of plus collection

Old Navy will launch its plus collection, which was previously available only online, in 75 select stores. The women’s plus-size market is growing at a higher rate than the overall apparel market. According to NPD, even with just the online business, Old Navy falls within the top 10 women’s plus-size brands and the expansion of the category in the stores represents a significant growth opportunity.

Focus on Athleta and Old Navy

Sales in the activewear category increased 2 per cent, valuing the market at roughly $48 billion in 2017. The brand registered a double-digit growth in its second quarter and the momentum is expected to continue through FY 2018. The company expects its future store openings to be focused on Athleta and Old Navy, with closures weighted toward Gap and the Banana Republic.

Excess inventory impacts margins

The company was saddled with excess inventory in the first quarter, which consequently impacted its sales from this brand as well as its ability to optimise its margins. The overall gross margins of the company fell by 10 basis points in the quarter, after a 20 basis point decline in Q1. Looking ahead, the company has cut 30 per cent styles heading into the second half of the financial year, which should help to improve the performance.

Improvement in online business

The company has one online platform for all its brands, ensuring customers can purchase items for in one place. This also ensures recognition for its new brands which would not have been possible if they had had a separate web presence. An upshot of this is that the company was able to deliver strong growth from its online and mobile channels in the second quarter, and is on track to garner over $3.5 billion in digital sales this year.

Gap Inc. is increasing store count of Athleta, Old Navy, and the factory and outlets at the Banana Republic and Gap. Consequently, in the first half, the company opened 60 stores, largely Old Navy and Athleta, and closed 38 stores, primarily Gap and Banana Republic.

 

 
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