Gap Inc. just received a major blow to its saving grace
The retailer, which has been fighting to repair itself for some time, reported dire January results. Comparable sales for the company's major brands were down, too.For the month of January, Gap's comparable sales were down 6% versus 9% this time last year, which is somewhat good news for the company's namesake brand. Banana Republic's comparable sales were down a staggering 17% as opposed to up 2% this time last year. And Old Navy's sales were down 6%. They were up 3% this time last year.
Gap and Banana Republic have been struggling for the past few quarters, but Old Navy had long been hailed as Old Navy's saving grace. It was previously outperforming its parent company's namesake brand, and seemed to be the only retailer under Gap Inc.'s umbrella that was in step with America's cash-strapped consumers.The retailer was lauded for its prices, its speed, its family-friendly atmosphere, and its smart marketing campaigns.
But that's changed.
AP Photo/Ed Betz
But an unusually warm winter hurt Old Navy - as well as many other retailers - and incidentally forced the retailer have to resort to more promotions than it is used to.
"Firstly, Old Navy's model is very reliant on promotions, discounts and flash sales. Those things are still relevant to consumers, but given that the holiday period was far more promotional because of the weather and slow sales, Old Navy's position was somewhat undermined and it just did not have as much traction with consumers as it otherwise may have done," Neil Saunders, CEO of research firm Conlumino, wrote in an email to Business Insider."Secondly, the weather itself affected Old Navy like it affected every other apparel player: there was a lack of interest in the winter product and this eroded growth," he wrote.
But Old Navy has bigger problems than just the weather."The first two issues are transitory, but the third is more of a concern - namely that Old Navy is coming up against some tougher comparatives but does not seem to be innovating or inspiring customers. While [Old Navy] has never been on the leading edge of fashion, it has previously put out some good edits and stories in terms of merchandise. However, the last few seasons have seemed rather bland by comparison and that has likely weakened consumer interest. I think this especially true of the men's product, but also applies to the women's," Saunders wrote.
This was concerning, considering that Larsson was largely responsible for Old Navy's resurgence."Larsson is largely credited with leading the cultural and process improvements that have contributed to Old Navy's success," RBC Capital Markets analyst Brian Tunick said in a note reported by Bloomberg in the fall.
"Old Navy is the concept that's been holding up the underperformance of the other concepts, and Stefan was the captain of the ship," Nomura Securities analyst Simeon Siegel said to Bloomberg at the time that Larsson's departure was announced. "It's easy to look at that and say there's now a big hole in the only thing that was working at the Gap.""The biggest concern is that he's been orchestrating the entire turnaround at Old Navy, and without him it's going to fall into the same rut as the Gap," Siegel added when speaking to Bloomberg. "That remains to be seen."But now, it seems like this fate that analysts worried about will, in fact, be seen.
"In terms of the wider picture, if the problems at Old Navy continue it is very worrying," Saunders wrote. "Gap Inc. was previously an aircraft flying on one engine, that of Old Navy, if that fails then it will have virtually no forward momentum."
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