The Gap has faltered for several quarters, with slowing earnings growth and an increasingly obscure brand identity. Younger buyers flock to cooler competitors like Abercrombie and American Eagle, and Gap’s Forth & Towne brand failed to win its target market of middle-aged women. Some key executives, including the company’s vice president of operating strategy, have left to join other clothing retailers. By all accounts, the company is in need of a potent turnaround strategy. Analyst Markham Lee has a great blog post on Seeking Alpha that digs into Gap’s problems and highlights the road to recovery — easier said than done:
The Problem:
- The parents of the consumers Gap desires often shop at their Gap and Banana Republic stores. You can’t be an edgy clothing retailer when you’re selling large volumes of goods to your desired market’s parents.
- People in their 30s primarily buy their work clothes at the Gap & Banana Republic and their casual clothes somewhere else. From a brand perspective, this positions Gap as the provider of “Uniform Clothing”, your standard khakis, suits, skirts, dress shirts, slacks and sweaters that you wear to the office. From a young person’s perspective, it makes Gap and Banana Republic a place they’re not interested in shopping for their “fun fashions”, unless they need to wear professional clothing to work.
- Old Navy has been positioned as a discount retailer. As a result, young consumers are more likely to aspire to shop at Abercrombie, American Eagle, Guess (GES) and the like. Building a strong clothing brand means that shopping at your store needs to be an aspiration, as opposed to being a form of utility due to low prices.
- Lack of a brand identity: Whether you’re talking about the company as a whole or its individual brands, there isn’t a clearly defined brand identity, that’s backed up by their advertising, the look and feel of the stores and its products. A few years ago, the Gap went from using Sarah Jessica Parker as a pitch woman to Joss Stone, which begs the question: Who are you marketing to this week? Women in their late 30s or teenagers?
The Turnaround:
- Reestablishing the brand, with the first key being the company behaving as if it’s in touch with the customers it wishes to court.
- A new attempt to court the female shopper in the 35-45 age range, only with them sticking with it this time around and getting the job done.
- A stronger and more stable product mix that appears in tune with the Gap’s efforts to rebuild its brand.
- Breaking of their pattern of selling “uniform” clothing and offering a wider and more diverse product mix.
The Gap is different from other big turnaround stories because it doesn’t suffer from what Lee calls the “pernicious combination” of bad management, a red bottom line, high debt load, weak balance sheet, stronger competitors, and weak product mix. Rather, the company is still profitable (but won’t be for long unless something changes), has a strong balance sheet and workable product mix. The management just has to get their act together.
(Image of Gap Store by ..:.: OP :.:.., CC 2.0)
