Gap fails to deliver a retail bounce back despite a digital-first shift

After Macy’s and Nordstrom both appeared to have enjoyed a retail bounce back in the past couple of weeks, it was left to Gap to make it three in a row. This being Gap it failed to do so, instead warning that it had faced disruptions during its Q4 that dampened performance.

Gap turned in a loss in the three-month period ended 29 January of $16 million, compared with net income of $234 million for the comparable year ago quarter. Revenue grew to $4.53 billion from $4.42 billion, up two percent year-on-year and actually down three percent on the 2019 base that most retailers are now using for best comparison purposes.

CEO Sonia Syngal insisted that progress has been on long term transformation of the retail group:, noting that for the full year sales of $16.7 billion were up 21% year-on-year:

Over the last two years, we have undertaken significant restructuring necessary to become a more nimble and focused company. With that, we've completed over 70% of our North American fleet rationalization with 250 store closures, transitioned our European business through capital-efficient partnerships and divested smaller non-strategic brands. All while we leaned into a digital-first mindset. 

She added:

It's also important to note that we have intentionally leaned into demand-generating investments in marketing and technology by redeploying much of the fixed cost reduction. These investments have driven brand health, customer acquisition and revenue growth. Especially in our important $6.4 billion online business, which contributed 39% of sales in 2021 versus 25% in 2019. In 2021, we grew our active customer file to 54 million. And in Q4, our loyalty customers accounted for roughly 80% of our US sales, setting us up to deepen customer relationships and drive long-term value.

Extending this will be a priority for 2022, she stated:

After significant investments in marketing and technology while we restructured, we are focused on extracting maximum value in 2022 from those investments as well as optimizing the core. Specifically, we're looking at three key areas. First, growing our loyalty program and using first-party data to better monetize our customer relationships. We are rigorously focused on increasing the lifetime value of our over 50 million loyalty members, particularly growing our tier members who spend on average more than 2x that of our core level members in Q4.

We will do this through greater personalization at scale, enabled by the rich first-party data we acquired from marketing investments we made last year, coupled with the customer insights we've gained from our fully integrated loyalty program. This is particularly important with the changes happening across the media landscape and in customers' media consumption happens.

Tech transformation will also be used to address the supply chain crisis and boost inventory management capabilities, she said:

This includes digital product creation that trims time from the development cycle and saves on overhead its ample costs, optimize shipping logic that reduces split shipments and implementing automated returns in our distribution centers that get product back to inventory in under an hour…New digital tools are unlocking inventory allocation accuracy using predictive analytics and data to better forecast and making us more agile and precise about where we place product across our 2,800 company-operated stores and creating assortments by location to meet customer demand, in turn, reducing markdown and helping maintain AUR. [Average Unit Retail].

My take

Not so much ‘onwards!’ As we’ve seen with other retailers, but more a case of ‘on and on and on and on and on…’. Even the usually reliable Old Navy brand is set to encounter headwinds in the first part of this year. For all that Syngal says, it all feels like treading water.