- Mallory Schlossberg/Business Insider
Gap is falling apart.
The apparel company has reported yet another quarter of dismal results for both the parent company and its subsidiaries Banana Republic and Old Navy.
For the first quarter of fiscal 2016, Gap Inc.’s comparable sales were down 5%, compared with a 4% drop in the first quarter of 2015.
Gap Inc. CEO Art Peck said the company had continued to resort to heavy promotion – to get people into stores and also to rid itself of inventory and fashion misfires.
“If we just think about promotion, I think it depends on the brand, because we’re in very different positions on each brand,” Peck said Thursday in an earnings call.
Now the company is seeing the downside as it tries to wean its customers off of the heavy discounting and promotions.
“Same is really true on Banana, where we have backed off” on promotions, Peck said, adding (emphasis ours): “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 so we’ve been playing that now for really the last quarter. And we’ve seen more effects on this quite honestly.”
Chicken is a game in which two drivers speed toward each other to see who can go the longest without veering away to avoid a collision. Ultimately, it spells disaster.
“It will be easier in Gap, where we’re seeing the numbers move more consistently in the right direction, a little more sporadic inside of Banana,” Peck said.
- Business Insider/Mallory Schlossberg
When we visited Banana Republic in February, we saw that lots of the clothes were on sale; in fact, in the Flatiron location near Business Insider’s headquarters, there was nearly an entire room dedicated to discounted apparel. Some of the clothes relegated to the sale section seemed better suited for a Forever 21 than a store that is supposed to be selling “updated classics with a twist,” as Peck put itlast fall.
But most important, promotions ran rampant even for in-season clothing. It prompts the question: Why bother to ever pay full price at Banana Republic?
And even though things looked better at Gap’s namesake store, the brand is still resorting to very heavy discounts. In fact, in early April, the company had a promotion sign outside its Flatiron store, as if a sale were the only way it could get customers to come inside.
- Mallory Schlossberg/Business Insider
It’s indicative of a trend that is troubling for the retail industry; many other stores, including J. Crew and Nordstrom, have also resorted to heavy promotions and discounts. And sometimes even promotions aren’t enough to win over customers, as in Nordstrom’s case.
“Everyone finds themselves in a tough environment, and they’re doing what they can to stimulate sales,” Nordstrom’s president of merchandising, Peter Nordstrom, said on the company’s earnings call last week. “And I think it just depends on your customer. For some, I guess that means price promotion is a lever that’s going to really compel their customers. I think what you’re hearing from us is that’s not the most compelling lever for our customers. So what can we do about that?”
One bright spot in Gap Inc.’s business remains Athleta, the company’s Lululemon competitor. The company doesn’t disclose much information on it yet, but judging by Peck’s comments, it appears to be doing well.
“So included in the other column is Piperlime, Intermix, and Athleta,” Peck said. “And Piperlime, we wound down in Q1 of last year, so the number looks a little bit funny because of the lack of Piperlime sales this year when we had them last year. If you remove that, we’d have a double-digit increase in other, and that gives you a sense directionally since Athleta is much larger than Intermix. That gives you a sense directionally of that business.”
Also on its earnings call, the company highlighted some strategies to fix its business. It will be closing up to 75 stores, though most of these closings will not be in the US.