Can Old Navy Win The Back-To-School Market?

Gap Inc‘s (NYSE:GPS) Old Navy, being a low-priced brand, makes current fashion accessible to everyone. It was first launched in 1994, and soon became one of the top apparel brands in the US, making history in 1997 as the first retailer to achieve a billion dollars in annual sales within four years. However, in recent months, the brand has not performed well for the company, though not as poorly as its other Gap and Banana Republic brands. The company was able to overturn the disappointing results, with the segment bouncing back positively in June and July, when the comparable sales were up 5% and flat, respectively. Year to date, this brand is also the biggest contributor to the company’s revenue, comprising 44% of the company-wide sales, as compared to 35% for the Gap brand.

See our complete analysis for Gap Inc.

Despite a fall in brick and mortar retail sales, the industry’s second biggest shopping season – back-to-school – is expected to witness a rise of 9.6% over last year, reaching $27.3 billion, according to the National Retail Federation. This equates to families with children in grades K-12 spending an average $673.57 on apparel and accessories, electronics, shoes, and school supplies, up from $630.36 last year. According to their survey, K-12 consumers plan to spend $9.54 billion on clothing, which is expected to be purchased by 95%, and $5.12 billion on shoes, purchased by 94%. This comes on the back of rising consumer confidence in the economy, prompting families to spend more, albeit a high number of those being budget-conscious, who are looking for sales. If the spending for college is added to it, the total spending is projected to reach $75.8 billion, an 11.5% rise from 2015.

According to RBC Capital Markets, Old Navy is in a prime position to gain from this market, thanks to moms and millennials. In a survey conducted with 540 women, of which 57% consisted of millennials, and 43% were mothers, the brand was the “mindshare winner.” 45% of the participants planned to shop at Old Navy, with 41% of the millennials and 51% of mothers intending to shop there. A factor working in their favor is the low prices the brand charges for its products, which is an important factor for millennials, further reflected in the other brands in the top five.

The brand has also tied up with Amy Schumer for a marketing campaign aimed at the back-to-school market. The comedian, who has signed up for eight spots, joins an impressive roster, which has included Elizabeth Banks, Amy Poehler, and Julia Louis-Dreyfus in the past. The first spot also includes tween celebrities Laneya Grace, Skai Jackson, and Hayden Summerall, which may give a boost to Old Navy’s social media traction. The new ad campaign has already garnered several million views on YouTube. Furthermore, close to 4% of the brand’s Instagram followers have been gained in the past 30 days, which is highly likely a consequence of the new campaign.

However, it may not turn out as great as it looks on paper, since the brand was also considered a “mindshare leader” in the holiday survey of 2015, which still saw the brand’s sales nosedive 8% in the fourth quarter of 2015. The brand has suffered as a result of poor merchandise mix and heavy discounting. Furthermore, if discounting is rampant, consumers may be used to it, and may not shop at any point besides when sales are offered.

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

• 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?

Notes:

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap |More Trefis Research