Life isn’t getting much better for US retail institution Gap. Despite its supposed digital-first shift, when diginomica last checked in on the firm, this wasn’t delivering the transformative impact that was intended. Flash forward a few months and there’s still plenty of red ink to be seen.
For the quarter to the end of April, Gap turned in a loss of $162 million, compared to a profit of $166 million for the comparable period a year ago, while revenues fell 13% from $3.99 billion this time last year to $3.48 billion. The collapse in revenues is across the board - Gap itself is down 11% year-on-year, while Old Navy, previously the bright spot in the portfolio, is down 22%.
And perhaps most alarmingly for a supposedly digital-first retailer, online sales are down 17% year-on-year.
CEO Sonia Syngal was quick to point to what she termed “industry-wide headwinds” as being a critical factor in the (latest) poor performance:
While we're disappointed to deliver results below expectations, we are confident in our ability to navigate the headwinds and restabilize the Old Navy business in order to deliver on our long-term strategy. This current period of acute disruption has clarified the urgency of improvements necessary to put us back on track.
Inflation is eating away at consumer confidence at the lower-priced end of the Gap empire, she added:
We began to experience a more profound weakness during the quarter at Old Navy, and to a lesser degree at Gap North America, as those brands were most exposed to the rising inflationary environment impacting our lower-income customer.
Add to that supply chain challenges, she went on:
Historically, speed and agility have been strong levers at [Old Navy]. However, supply chain challenges and persistent delays significantly limited the brand's responsive abilities. Twelve week pipelines for core categories have been critical to the success of Old Navy over the years. Reverting to a longer inventory push model, not only diluted economic value, but meant we were defining customer trends too early in the process and we're unable to chase into the right fashion choices closer in. This resulted in excess inventory and less relevant styles that will pressure sales in the short-term while we rebalance the assortment going forward.
What I found interesting on the post-results announcement conference call yesterday was the almost total absence of any boasting about the digital-first mindset or the ‘we’re really a tech firm’ stance that has been seen in the past.
There were a few bright spots - Athleta continued to grow and Banana Republic, so long the problem child, saw its revenues rise by 27% year-on-year, but that’s from a troubled base.
On the subject of Banana Republic - and from a purely personal perspective - I was dismayed when Gap decided to shutter its stores in the UK, where I live, but consoled by the fact that the firm maintained an e-commerce operation here. No more! The latest withdrawal to ‘Fortress America’ is to shut down the Banana Republic website outside of the US! (To add insult to injury, the last day of operation is my birthday!).
It used to be the case, before the firm opened a store in London a few years back, that shopping trips to Banana Republic in the US were always accompanied by puzzled store assistants commenting on how much stuff British tourists would buy. That’s because you don’t have a store in the UK or an online offering, would be the reply.
Then the firm had both.
Now it has neither.
This is not a brand that’s moving forward as it should, digital-first mindset or not.