Banana Republic Continues To Be A Drag On Gap Inc.

Gap Inc (NYSE:GPS) recently reported its August same store sales, which fell by 3%, driven by a 10% decline in its Banana Republic brand. While comparable sales at Gap Global also was a negative 5%, versus a negative 8% last year, its Old Navy brand reported a positive comparable sales of 1%; however, when compared to a 6% rise last year, this brand also disappointed. For the company, as a whole, the August sales were down 2% to $1.17 billion. Any signs of a rebound, as hinted in the positive comparable sales in June, was indeed a blip on the radar, as following that, the company has reported two consecutive months of declining comps.

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Banana Republic can be identified as the weak link for the company, as it has not reported positive monthly comparable sales for over a year. Lackluster product assortment is pushing customers away from the brand, and the consumers are unwilling to pay the premium prices it once commanded. Consequently, it is falling into the same trap as Gap, by resorting to discounting and deals to get rid of the built up inventory. In May, the company had warned of weak sales across its portfolio, and noted steps would be taken to streamline its business. This included evaluation of its Banana Republic and Old Navy operations outside North America. During the first quarter earnings call, the decision to shut the Old Navy stores in Japan, in order to concentrate on its operations in North America and China, was announced. Further, in Banana Republic and Old Navy, the company has made adjustments to the ticket prices, where it was felt that the initial prices weren’t competitive. CEO Art Peck is also following in the steps of his predecessor, Glenn Murphy, by focusing on speeding up the production time and improving the supply chain. The company has also been looking to improve its production times and work on its processes in order to quickly react to the changing fashions. This would help them to better compete with fast fashion retailers, such as H&M and Zara.

A new study by RBC Capital indicates that reversing the situation Banana Republic finds itself in will not be easy. In the survey it was found that 48% of millennials disliked the brand, as compared to just 22% who said they liked it. The brand didn’t do that well with non-millennials either; 53% of non-millennials surveyed disliked the brand, as opposed to 18% that viewed it favorably. The older, non-millennial audience was more likely to shop at traditional retailers, such as Kohl’s, J.C. Penney, Macy’s, T.J. Maxx, Ross Stores, and Burlington. The survey goes on to show that 75% of respondents never shop at Banana Republic. Meanwhile, Gap and Old Navy fared better; about 40% of millennials dislike the Gap division, versus 35% who like it, while 39% of non-millennials hated the brand and 29% viewed it favorably. Old Navy was the clear winner, with 53% of millennials liking the brand versus 23% disliking it. Non-millennials were fine with the brand too, with 45% viewing it favorably, and 31% not. The brand’s value positioning is working in its favor, while Banana Republic’s higher price points are working against it.

The Banana Republic brand is banking on its collection co-signed by fashion personality Olivia Palermo, their newly hired global style ambassador, to help pull itself out of the rut. The collection, which debuted at the New York Fashion Week went on sale online alongside the presentation, in continuation of their see-now-buy-now strategy. Like other mall-based retailers, the company is being hurt by the declining foot traffic, and a shift in consumer spending towards travel and experiences, rather than on clothing. The retailer’s strategy of never-ending discounts has also trained customers to avoid buying at full price. In its earnings call in May, Peck acknowledged the damage done to the Banana Republic brand by its excess promotions. The company has now tightened its promotions, and instead of discounts, the brand is offering its limited-edition collection with Palermo in order to attract more customers. While its recent offerings have been panned by the consumers, the success of this collection remains to be seen.

Have more questions about Gap Inc? See the links below:

• How Is Gap Expected To Perform In 2016?
• Gap Reports Yet Another Month Of Declining Comparable Sales
• Can Old Navy Win The Back-To-School Market?
• What Are The Problems Plaguing Gap Inc.?
• Gap Reports A Weak Outlook For FY 2016
• Fall In Sales To Weigh On Gap In The Second Quarter
• After Positive Results In June, Gap Returns To A Sales Decline
• Are There Signs Of A Turnaround At Gap, Or Is It Just A Blip On The Radar?
• Are Gap Inc’s Earnings Volatile?
• What’s Gap Inc’s Revenue & Net Income Breakdown In Terms Of Different Brands?
• By How Much Did Gap Inc’s Revenue & EBITDA Grow In The Last Five Years?
• What Is Gap Inc’s Fundamental Value Based On Expected 2016 Results?
• By What Percentage Can Gap Inc’s Revenues Grow Over The Next Three Years?
• How Are Gap Inc’s Old Navy Revenues & Earnings Expected To Grow Over The Next Five Years?
• How Are Gap Inc’s Banana Republic Revenues & Earnings Expected To Grow Over The Next Five Years?
• How Much Revenues Can Gap Inc’s Athleta Brand Add By 2020?

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