Face masks are all the rage at Gap, but can't cover up a decidedly mixed omni-channel picture

Profile picture for user slauchlan By Stuart Lauchlan August 28, 2020
Summary:
The offline declines have not been offset by the online rises across the Gap group.

FACEMASKS
(Gap)

It’s a sign of the times when one of the highlights of the past few months for retail institution Gap is the boast that Google ranks the firm as number one search result for face mask style guides. Around $130 million of masks were sold over the past three months, it seems, according to CEO Sonia Syngal, who goes on to claim: 

Our omni-capabilities are helping us win now and will position us well for the back half and will support this company in any environment going forward.

Well, any port in a storm, I suppose. As expected, Gap yesterday turned in another set of numbers that do little to reassure about that supposed omni-future’s longevity, although there are some signs of improvement. For example, while net sales overall were down 18%, they were better than the previous three months. And there was a 95% year-on-year uptick in online sales activity. 

But for every ying there’s a yang. Store sales were down by 48%. And the boom in online comes with a price tag of higher shipping costs. This issue is exacerbated when “a meaningful portion” of online orders are serviced through the stores, a more expensive fulfillment model. 

But Syngal is relentlessly upbeat about the saving graces of the digital aspect of the current operating model: 

We are positioning our brands to be digitally led and we are seeing that play out in our results even as stores re-opened. In fact, during the quarter, we are proud to say that we added 3.5 million new online customers. And in the midst of strong online growth, our stores matter, serving as an extension of our e-commerce experience and key to building customer relationship and community.

It’s certainly true that there has been some much needed omni-channel catch-up in view in recent months. The firm has now (finally!) rolled out curbside pickup and Buy Online, Pick-up In Store across  more than 1,500 Old Navy, Athleta, Banana Republic and Gap stores. And there are some positive stats to be trotted out, such the fact that of the 1.8 million multi-channel customers over the past few months, 30% of them had previously only shopped via one channel. 

But right across the main brands in the group, it’s a mixed story of swings and roundabouts. At Gap itself, there was a 55% decrease in store activity and a 75% increase online, so down 28% overall. For Old Navy, the sweet spot of the fleet up until now, there was a 5% overall decline, with 136% online growth countered by a 36% fall in store. As for Banana Republic, still the problem child, overall sales dropped a hefty 52%, a 71% decline in store business unable to be helped to any extent by a 26% rise in online. 

Next steps

For Syngal, the next key update comes in October as the group rolls out its latest plan for recovery in more detail. This will inevitably reflect the changed models of consumer engagement created by COVID as well as the shifts in purchasing choices, away from high end fashion and towards what she calls “the casualization of American style” and a “purpose-driven lifestyle brand”.

So, for example, she hints that at Old Navy, which still accounts for more than half of total group sales, the strategy is all about “democratizing style” in the “value space”. That’s sweatshirts and t-shirts and hoodies and fleeces to you and me.  Gap will most likely be all about the higher end of that space, with the focus on jeans and casual wear. As for Banana Republic, it’s been the higher end option of portfolio and as such has been most impacted by the consumer shift. Syngal is still hopeful of a re-categorisation push here: 

Banana Republic has had the potential to take share in a rapidly evolving marketplace by delivering acceptable luxury. While disadvantaged in the short-term due to the shift towards casual fashion as people are working from home, the team is adjusting assortments quickly and pivoting storytelling with elevated product photography to drive online improvements. Longer term, we believe Banana Republic has a place to redefine workwear or work leisure in a post-COVID work environment.

That remains to be seen - more to come in October on the details of how the vision can translate into reality. For now, Syngal is keen to play up the digital track record, citing Old Navy - her own old stomping ground - as a prime example of what can be done: 

We have been in the e-com business for 20 years, and that has given us the ability over that time to build differentiated capabilities. We have a lot of automation, we have a lot of scale and in the value stays is the big advantage for us. And because we are a category killer in apparel, we have fine-tuned and honed our fulfillment and logistics supply chain to optimize and lower costs. And so we feel poised and differentiated there, as we fuel this e-com business in the value phase and couple that with a strength level, maybe product margins, and the advantage of the real estate format and cost of real estate. We think that the economic model for Old Navy gives us a lot of confidence.

The Gap pedigree also gives it a strong brand connection to customers, she adds: 

We have 50 million known active customers and a total customer file of 170 million, which we use to connect with our customers everyday to increase our ability to tailor experiences, content and product through a personalized journey. We are excited to extend our loyalty program in September, a capability that will enhance and build over time and one, that is key to deepening our customer relationship and in buying more loyalists to fall in love with our brand. 

She concludes: 

The advantage we have with this massive customer file that’s growing in a differential way in e-commerce, you couple that with value-centered brand management and really owning these brands that have greater purpose and connect to customers in a time of complexity, a very uncertain time. Our brands are connecting even more greatly and we are telling stories with greater focus on that connection, it’s that combination, it’s that intersection that we are finding that we can differentiate.

My take

As I said earlier, time will tell. Syngal has been in situ for 6 months now and it’s clearly been the worst possible 6 months that any new CEO could have faced up to. During that time, she’s been relentlessly upbeat - lots of talk of “digital sunshine” - which is, of course, part of the job description. But there’s also been a ton of expectation heaped on her shoulders that her experience at driving the Old Navy e-commerce arm in her previous role would somehow translate into instant results elsewhere. 

As I noted yesterday, Gap has not been a digital laggard - in fact, Syngal’s predecessor Art Peck at times seemed to see himself more as an unappreciated tech CEO than a retail one. But events have conspired to make a bad situation worse. What emerges in October from the strategic update will be crucial in terms of restoring confidence. Back in June, I opined

Spreading digital sunshine soundbites will have to suffice for now, but not for much longer. That said, [Syngal’s] proven track record at Old Navy bodes well and she knows Gap as a whole inside out, for better and for worse. Once the macro-turmoil of recent months has subsided a bit more, then a clearer picture will emerge of how she plans to deal with the self-inflicted turmoil Gap has imposed on itself in recent years. 

Roll on October.