We went to Banana Republic and saw why sales are plummeting

source
Mallory Schlossberg/Business Insider

Banana Republic is struggling.

Sales plunged 11% in the first quarter of fiscal 2016, marking yet another dismal quarter for the brand.

“More than any other brand in the Gap stable, I think Banana has lost its way,” Neil Saunders, CEO of consulting firm Conlumino, wrote in an email to Business Insider.

The company is forced to resort to incessant discounting to clear itself of clothes left behind – a cycle that’s proved difficult to escape.

A visit to the store proves why consumers do not have a reason to pay full price anymore:


The first thing you see when you walk in? Promotions. You can say “hello” to summer by getting 40% off your purchase.

source
Mallory Schlossberg/Business Insider

You can even get an extra 40% off all sale items. Make no mistake: Sales are fun for the consumer, but they can spell trouble for a retailer.

source
Mallory Schlossberg/Business Insider

Even the clearance items are on display shortly after you enter the store.

source
Mallory Schlossberg/Business Insider

There are reminders all over the store that you can get that sharp discount off your purchase.

source
Mallory Schlossberg/Business Insider

The constant reminders are at first friendly, but then feel a little ominous – as though the company knows that it has to work to get people to stay in the store.


Banana Republic is known for its “updated classics with a twist,” as Gap Inc. CEO Art Peck said on an earnings call in November: They’re timeless, but stylish.

source
Mallory Schlossberg/Business Insider

The store has long been known as a superior destination for professional women who want to wear a little more than the staid workplace uniform of yore.


Still, these “twists” haven’t resonated with consumers.

source
Mallory Schlossberg/Business Insider

It’s important to note that Banana Republic hired Marissa Webb to turn the company into a stylish brand, but then she was ousted when sales lagged. She’s still on board part-time as a consultant, and she she styled a summer 2016 collection.


On that note, some of the older apparel in the clearance section looks like it belongs at Forever 21.

source
Mallory Schlossberg/Business Insider

We at Business Insider know that retailers are obsessed with millennials, but not every grown woman wants to wear a flouncy mini skirt to work.


The apparel selection has been looking moderately better than it has in previous seasons, but it’s not particularly fashion-forward. It’s a lose-lose situation.

source
Mallory Schlossberg/Business Insider

And still, there’s no incentive to pay full price.

source
Mallory Schlossberg/Business Insider

The men’s section also has the same promotions going on.

source
Mallory Schlossberg/Business Insider

The clearance section shows how the company is still struggling to get rid of its old inventory.

source
Mallory Schlossberg/Business Insider

Banana Republic has been working to wean its customers off of buying discounted apparel, but therein lies the challenge. When the company backs off, consumers don’t bite.

source
Mallory Schlossberg/Business Insider

“Same is really true on Banana, where we have backed off. And I will be the first to say that when you start tightening up in promotion, you are playing a game of chicken with your customers, and they try to wait you out,” Peck said on a recent earnings call.


In November, we saw how the company was making many fashion misfires. Now, that apparel has been relegated to the massive clearance section.

source
Mallory Schlossberg/Business Insider

Huge clearance sections are indicative of two major problems: poor inventory management and styles that failed to resonate with consumers.

source
Mallory Schlossberg/Business Insider

That speed Peck is talking about is crucial, particularly given the rise of fast fashion.

source
Mallory Schlossberg/Business Insider

Banana Republic recently dabbled in an experiment that took cues from Zara. During February’s New York Fashion Week, the company sold some of the apparel that appeared on the runway online immediately.


And it’s important to remember that while fast-fashion stores were built to sell clothes cheaply, Banana Republic wasn’t necessarily structured that way.

source
Mallory Schlossberg/Business Insider

This has been an ostensible problem in teen retail, too, where stores like PacSun and Aeropostale have floundered amid teens’ demands for clothes that are fast and cheap.

“I think back to when I was young, if you had $50 you wanted to buy as many units as possible,” Gabriella Santaniello, founder of consulting firm A Line Partners, told Business Insider earlier this month. “‘How much can I get for $50?’ And at some point, it’s not sustainable for these large retailers who have hundreds of stores to provide product that’s that cheap.”


The company says that it is working to fix quality and fit issues amid the sales decline.

source
Mallory Schlossberg/Business Insider

Consumers today are inundated with so many options that a company needs to give them a real reason to shop at a store.

source
Mallory Schlossberg/Business Insider

Until then, Banana Republic may be viewed as something of a discount retailer …

source
Mallory Schlossberg/Business Insider

… and it wouldn’t be alone in that regard. J. Crew has been suffering a similar fate, as have many department stores. The entire retail industry is facing a conundrum.

Gap Inc. has made some strategic moves to fix business, such as closing up to 75 stores, mostly outside of the US.

A recent note from Morgan Stanley highlighted that the firm was “encouraged by management’s financial discipline to cut costs and close stores.”

Still, Banana Republic needs to win back its lost consumers in a time that’s tougher than ever to get people to buy clothing at all.


In the meantime, Banana Republic’s location in New York’s Flatiron District has something going for it: It’s in a nice location …

source
Mallory Schlossberg/Business Insider

… and it’s not as bad as some other retailers. Have you seen Macy’s?