Spring was supposed to be a season of renewal for Gap. After acknowledging the retailer’s style misses and disappointing results for the previous quarter, CEO Art Peck was optimistic back in February about the new products hitting the stores. At Gap, there was color and femininity. At the company’s Banana Republic chain, there was a return to the classics.
It would be, Peck said, Gap’s “no excuses” moment, as Fortune reported.
But spring is off to a brutal start for the embattled retailer. March sales at stores open at least a year were down 6% from the same month last year, including a 3% drop at Gap stores and a 14% dive at Banana Republic. Even Old Navy, formerly a stalwart brand for the company, had a 6% decline.
Relief may not be coming soon, either. As a result of slow sales, inventory levels are high, meaning it will probably have to resort to discounting to clear out the excess, pressuring the company’s profits.
The results hit Gap’s stock price, which had somehow seen a 20% gain this year. The shares plunged 9% in after-hours trading yesterday (April 7) after the sales were announced, and haven’t fared any better since markets opened today.
At Old Navy in particular, the drop looks extra bad compared to its 14% gain last year, rubbing a good deal of the shine off what’s been the lone bright spot in Gap’s portfolio. It doesn’t help that Stefan Larsson, who oversaw a three-year run of growth at the low-cost label as its president, recently left to take the role of CEO at Ralph Lauren.
The pressure is coming from all angles. Young shoppers are widely reported to be spending less on clothes and more on experiences, and the ones that are buying clothes are doing more of it at fast-fashion chains.
Gap hasn’t been able to compete. The way H&M and Zara operate makes them faster and more agile, allowing them to capitalize on consumer demand. Gap knows it, which is why it’s shifting its operations toward a similar model.
But Gap’s clothes are a problem, too. They’ve been bland and plagued by fit issues. Peck admitted in February that Banana Republic had made blazers with armholes too small for the “average woman” to fit into. The company has upended its design teams, trying to get back on course.
So far, it doesn’t look to be working so well. Gap is saying otherwise, doing its best to reassure investors that customers are responding. Though as its stock indicates, a lot of people aren’t buying it, kind of like Gap Inc.’s clothes.