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Gap result ‘as predictable and boring as its ranges’

Gap has once again posted a set of very dismal numbers, as predictable and boring as its ranges.

Rather worryingly the total sales decline has accelerated since last quarter, with a particularly sharp deterioration at Gap in the US which saw sales plunge by almost 10 per cent.

If this was a one-off event, the numbers might be excusable – but it isn’t. This is the latest in a long line of terrible Gap results which, tellingly, have resulted in the Gap division’s US revenue declining by 21 per cent over the past three years.

The story is repeated at Banana Republic where global revenue fell by 7.5 per cent over last year and US sales collapsed by a sharper 7.9 per cent. Over a three-year period the US part of Banana has declined by 16 per cent in sales terms.

This is a company in a tailspin with no real clue how to pull out of it. Management claims that it is putting right the errors and is rebuilding the business, however, this is an old narrative which shows very few signs of being put into action.

CEO Art Peck proudly proclaims that as the company moves into holiday season, “teams are sharply focused on execution and delivering great experiences across the portfolio”. If a bland selection of lumpy sweaters thrown on a rail is his definition of a great experience, then Gap is certainly delivering. It may sound facetious, but this is the reality that greets shoppers; and it is a reality that makes one wonder whether management ever ventures forth into its own stores.

If profit were holding up, then the company could, perhaps, be excused for taking its time. However, for the latest period net income dropped by almost 18 per cent, and year-to-date it is down by 35 per cent. Over a two year period, third-quarter net income is down by 40 per cent. These are serious declines which puts Gap on a trajectory where it will eventually run out of financial headroom to engineer changes and reinvent its business.

If the problems at Gap were conceptually difficult then some sympathy could be afforded to management. However, they are far from hard to grasp: products are dull, prices are wrong, and there is little innovation. Equally, if Gap were actively testing and trying new things and failing, then our judgement would be less harsh. However, from stores it looks like very little, if anything, is being done to create change.

The one bright spot in Gap Inc’s portfolio came from Old Navy where sales increased 4 per cent in the US and 5 per cent globally. After a series of missteps over the summer, a much more focused fall range has helped to generate an uptick in sales. Old Navy remains, by some margin, the company’s star brand. It now needs to use the thinking it employs here in its other two main brands.

Neil Saunders is CEO of retail analyst Conlumino.

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