In the face of repeatedly declining performance, the status of the biggest clothing giant GAP is becoming shaky.
GAP’s performance report released on June 5 shows that as of May 30, the company’s total sales fell 5% to 1.03 billion US dollars. All the company’s same-store sales for the same month were lower than expected. Prior to this, GAP has continued to decline in performance for 15 consecutive months, and in the first quarter of 2008 was overtaken by the Spanish fast brand ZARA.
It is worth mentioning that this is not entirely thanks to the economic downturn. The desperation of GAP began in 2004. GAP tries to regain the brilliant road, but it is even more difficult in the face of the economic crisis.
Good times are no longer
The latest performance report shows that GAP's North American department's same-store sales fell by 11% in May, which is larger than the average analyst estimate of 9.7%. Sub-brand Banana Republic same-store sales fell by 14%, which was higher than the analyst's average forecast of 11.9%. International department same-store sales decreased by 7%, which was higher than the expected 4%. Only the sub-brand Old Navy's same-store sales increased by 3%, but it was still lower than the average analyst estimate of 3.9%.
GAP said that by the end of May, its same-store sales had fallen by 7%, and total sales had also dropped by 7% to $4.16 billion.
As the largest apparel company in the United States, GAP was founded in 1969. Its brands initially included GAP, Banana Republic, and Old Navy. It is also the world’s largest casual wear brand. By the way, Levinski’s famous blue dress is also GAP.
At the most brilliant time, GAP’s market leadership cannot be shaken. From an obscure mom and pop shop 40 years ago, it went all the way to the peak of clothing retail.
The turning occurred in 2003.
Fast fashion brands like ZARA and H&M are rapidly emerging. For the traditional route of GAP, collecting materials, brewing design, mass production, global distribution, two or three months are enough for ZARA to renovate several rounds. Fashionable and affordable, this was once a magic weapon for GAP and is now borrowed by H&M and ZARA, etc., and added new winning tips: fast. Grab the fashion trends of the top brands, blend in with their own design elements, and finally get into clothing. This cycle is 21 days for H&M, 12 days for ZARA, and 90 days for GAP.
Relentlessly, behind the decline of GAP, it is the opponent’s growing power.
For the reality of poor GAP sales, Glenn Murphy, chairman and chief executive of Gap, did not blame the economic crisis. He admitted that it was pricing, not being able to sell online extensively, and not being able to attract consumers, resulting in the brand failing to catch up with competitors and causing sales to decline.
In the fourth quarter of 2008, the company opened nine new stores and closed 50 stores. In contrast, 28 were opened in the fourth quarter of last year and 52 were closed. In fiscal 2008, the company opened 101 new malls and closed 119 malls, including 17 redeployed malls. In fiscal year 2009, the company plans to open 50 new stores, about half of which are outside the United States. The company will close about 100 stores.
Murphy said: "We are locked in North America. Market leaders should not lose market share. We have been losing market share in the past few years. This is unacceptable." In 2007, the company's sales fell by 8%, making the company's design strategy Return to the basic section.
Murphy also made merciless criticisms for its sub-brands. He believes that Banana Republic has “lost cool elements and cutting-edge factorsâ€; Old Navy has no innovation. "The fact is that we reinstalled the stores in 2008, but there is basically no difference from what we did when we launched in 1994."
For the continued decline in sales, Murphy said: "Partly due to the microeconomic environment. A large part of the reason lies with us. We cannot continue to lose market share."
Innovation boost
Under various circumstances, overseas markets and online sales are becoming GAP's last "life-saving straw."
On October 17, 2008, the apparel retail giant announced that it will adjust its market strategy. The company stated that it will shift the focus of the GAP and Banana Republic brand efforts to the expansion of overseas businesses, and will also focus on network operations.
GAP created its first online retail brand Piperlime in 2006. In September 2008, it announced the acquisition of Atlleta, a women's sportswear brand, for approximately US$150 million in cash. So far it has owned five brands (the rest are Gap, Old Navy and Banana Republic). It marks the company entering a new stage of development. Gap’s online business and international business continued to show strong growth potential. From 2006 to 2008, these two businesses increased by approximately US$500 million.
In the first quarter of 2009, despite the continuing downturn in the US economy and consumer markets, GAP’s same-store sales fell by 8%, but the company’s online sales business continued to rise by 13%. In addition, both the company’s Old Navy brand and its international business have seen a significant reduction in the decline rate. The former shows that affordable brands are more attractive to consumers at the current stage, while the latter reflects the importance of diversification strategies. It is reported that the company has opened branches in Canada, the United Kingdom, France, Ireland and Japan, and entered the European, Asian, Latin American and Middle Eastern markets through franchising.
However, GAP did not respond to any plans to enter China's huge emerging market.
Before formulating the 2009 plan, the focus of the GAP brand is to "stabilize the business development, strengthen the brand's global position, increase the level of the target customer base, and produce pure, typical American design style products." The company said that this strategy has put the GAP in a “stable position with a strong production line for special holidaysâ€, and now it is time to focus on how to pull customers back to the retail store.
On June 10th, Murphy informed investors of the company's priorities, including increasing the market share of North American core brands, while continuing to seek continuous development through online businesses and international trade.
He said: "Because of our solid foundation and strict operation, we are now taking steps to expand the market share of the company's brand. The company's healthy balance sheet also helps us make flexible strategic investments in the company's future." New in GAP In the strategy, the company will strive to stabilize its business in North America and actively connect customers by leveraging the innovative role of the entire company. As part of these efforts, Murphy announced that the company will rebuild about 50 Old Navy stores in 2009.
Previously, GAP had first converted two Old Navy stores in California. It is expected that GAP will continue to invest in rebuilding 50 Old Navy stores this year. â€
“The new layout will create a better shopping experience for our customers, and the effects of alterations will better capture the interesting and personalized features of Old Navy.†The press release issued by GAP reiterated that the annual capital expenditure plan for fiscal year 2009 is 3.5. One hundred million U.S. dollars. The company plans to expand the company's online shoe and handbag store Piperlime, including the addition of 50 new contemporary apparel brands later this summer.
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