Gap Inc. is planning to shutter hundreds of its namesake stores in malls after same-store sales fell 7% at the flagship chain in Q3 2018, according to CNBC. The company will make a decision about closing low-performing stores “with urgency,” which could include closing some of the retailer’s “amazing flagships,” according to CEO Art Peck in a call with analysts.
“There are hundreds of other stores that likely don’t fit our vision for the future of Gap brand specialty store, whether in terms of profitability, customer experience or traffic trends,” said Peck during the call. “The range from the very best to the very worst stores is extremely broad.”
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The retailer operates more than 3,200 stores globally, including nearly 800 Gap stores in the U.S. While Gap locations posted disappointing results, sales at Old Navy stores grew by 4% and Banana Republic stores by 2%.
However, solid growth by the company’s other brands may not be enough to keep the retailer afloat, as Gap accounted for 33% of the company’s sales in 2017, according to Bloomberg. The namesake brand’s results have been steadily worsening this year, from a 4% decline in Q1 2018 to a 5% drop in Q2.
Some analysts are hopeful that cutting the chaff from Gap will help the chain make a turnaround, preventing its poor performance from dragging down the more successful labels.
“We view management’s comment on addressing the bottom half of the Gap’s specialty store base as encouraging if executed right,” said Oliver Chen, analyst at Cowen & Co. in a research note. “Improving profitability of the Gap brand is crucial to making GPS’ performance consistent and healthy.”
The retailer already had been working on a turnaround before the store closings were announced, including the appointment of Neil Fiske as President and CEO of the Gap brand in June 2018. Fiske is a 20-year retail veteran who previously headed up Billabong International, Eddie Bauer and Bath & Body Works.
Gap may garner some hope from international markets: the brand was one of 237 that exceeded $14.4 million in gross merchandise volume during Singles Day, according to Alibaba. The retailer also is seeking to bolster is Black Friday performance by offering 50% off its entire inventory, with an additional 10% off for online orders.
