Sales at Gap Continue Downward Trend
Three years after former Disney executive Paul Pressler took charge at Gap Inc., the nation’s largest specialty apparel retailer is once again stuck in a sales slump.
The San Francisco-based company reported Thursday that sales at stores open at least a year fell 5% in October, marking 12 straight months of flat or negative same-store sales.
Gap’s numbers looked particularly gloomy as other chain stores across the country posted better-than-expected sales last month and some of its fiercest competitors delivered strong results -- notably Abercrombie & Fitch Co. and American Eagle Outfitters Inc., which posted increases of 31% and 17.3%, respectively.
Gap’s same-store sales, a key measure of growth, could fall 10% for the year, which would translate to about $900 million in lost sales, analyst Jeffrey Klinefelter of Piper Jaffray & Co. in Minneapolis estimated.
With the stock down 19% year to date, analysts -- and investors -- are getting testy.
“I don’t see anything positive going on,” said Rob Wilson, an analyst with Tiburon Research Group in San Francisco.
The vexing trend at the store level has some analysts speculating about the boardroom and whether Chief Executive Pressler’s days are numbered. Pressler, 49, declined to be interviewed, and the company said it would not comment on speculation.
“We’re confident in our long-term strategies and the direction we have set,” spokeswoman Kris Marubio said.
The crux of the problem, analysts say, is that Gap’s fashion focus is fuzzy and that the company seems confused about who shops at the namesake chain.
After roaming Gap stores across the country, analyst Robert Buchanan of A.G. Edwards & Sons in St. Louis pronounced: There’s no “punch in the assortment.”
“To me, it’s dull, it’s unfocused, and I think that’s why it’s failing,” he said.
Analyst Klinefelter noted: “People aren’t buying the product. It presents a particularly difficult challenge to the company, given the overall environment for apparel is healthy.”
Some customers gripe that the quality of the clothing has slipped, said Christine Chen, an analyst with Pacific Growth Equities in San Francisco.
“I hear a lot of complaints from customers that the quality is down; stuff doesn’t fit quite right,” she said.
Even as the company, parent of more than 3,000 Gap, Old Navy and Banana Republic stores, is missing the mark, some of its competitors are hitting bull’s-eyes, analysts say.
Gap has been trying to woo back young shoppers from chains that are considered cooler -- including Abercrombie & Fitch, American Eagle Outfitters and Urban Outfitters -- even offering customers free iPod downloads for trying on a pair of jeans.
In a racier approach, the retailer launched a website -- www.watchmechange.com -- this year that allows visitors to create a digital version of themselves, select an outfit and then watch the image strip down to its underwear. The website is meant to connect with customers and let them know “Gap is changing,” Marubio said.
Wall Street’s reviews were mixed.
“We admittedly thought this was a hoax when we first heard about it,” retail analyst Gabrielle Kivitz of Deutsche Bank North America in New York said in a report.
Although she was “intrigued and encouraged” by the attempt to create a buzz about the brand, Kivitz said the company would see greater benefit if it focused instead on improving its products.
Although each of the chains has struggled, much of the attention has been on the Gap division, which last year accounted for 44% of the company’s $16.3 billion in sales.
After Pressler took charge, the company hired Pina Ferlisi, a former designer for Marc Jacobs, a hot brand with hip, well-heeled shoppers. For a while, sales rebounded. (Gap enjoyed 20 straight months of positive same-store sales before its latest stumble.)
Ultimately, however, Ferlisi proved too “fashion forward” for Gap, analyst Chen said.
Last month, the company announced that it had hired Charlotte Neuville, formerly of women’s apparel retailer New York & Co., to direct design. Its future fashion will center on “fresh, casual American style” with more essentials -- T-shirts, turtlenecks and khaki pants -- and fewer dressy options, spokeswoman Marubio said.
The new campaign sounds much like the back-to-basics program implemented by legendary merchant Millard “Mickey” Drexler before he left the company three years ago.
Products reflecting the shift won’t be in stores until the spring, Marubio said. Holiday products -- which began arriving in stores Oct. 17, a week earlier than last year -- will be “quintessential Gap,” she said, featuring jeans, scarfs and sweaters in bright, crisp colors.
Gap has lowered profit expectations for the current quarter. On Thursday, the company said that sales were off in all divisions in October but that traffic improved at the end of the month. Gap said it expected fiscal third-quarter earnings of 23 cents to 24 cents a share. The company’s shares rose 10 cents to $17.10.
Gap has tried a variety of strategies to improve since Pressler replaced Drexler, who is now CEO at J. Crew Group Inc.
Pressler made his name in consumer products and, at Walt Disney Co., rose through the ranks to run a complex, global organization. Before taking over Disney theme parks, he oversaw Disney Stores, more than doubling the number of locations in three years to 335 in eight countries. Before he left, however, Disney was forced to close many of the stores.
This year, Gap launched a new chain, Forth & Towne, to target women older than 35. There are five stores thus far; Gap plans to open at least five next year and at least 20 in 2007.
The company also has begun remodeling some Gap stores in response to research on gender shopping preferences. Specifically, the stores are designed to help male customers get in and out quickly while encouraging women to take “a wandering approach,” Marubio said.
Gap has overhauled its websites to encourage online shoppers. When a shopper clicks on a velvet blazer, the site might now suggest pants to go with it.
If sales don’t perk up soon, some analysts say, Pressler may soon be history.
“You could argue that Paul Pressler, who doesn’t know a thing about apparel, is in a little over his head,” Wilson said. “I’m going to bet that he won’t be there next year.”
