Why The Gap Closing 175 Stores Is A Bigger Deal Than You Know

Photo: The Gap via Shutterstock

The effects of fast fashion are dominating the retail competition, as Gap announced Monday that it will be closing a quarter of its stores and cut 250 corporate jobs as it tries to survive the changeover.

Founded in 1969 by Donald Fisher and Doris F. Fisher, the company also operates in six primary divisions: Gap, Banana Republic, Old Navy, Piperlime, Intermix, and Athleta. While the closing does not include outlets or factory store, there will be additional store closures at European locations. From here on out, Gap will continue to operate about 500 stores in the U.S., plus 300 outlet stores.

Gap is just one store in a line of many that are struggling to retain customers, as brands such as Macy’s, J.C. Penny, Deb Shops, Sears, and Wet Seal are also closing its doors. Budget-friendly retailers like Forever 21 and H&M have the opposite effect as its competition with sales for the latter growing 10 percent in May, which happens to be the same month that it opened its largest store in the world in New York’s Herald Square.

For fast fashion, which is described as designs move from catwalk quickly in order to capture current fashion trends, it has achieved success for certain stores who partner with well-known designers and release timely collections. British e-commerce retailer Boohoo.com is another example of a brand capitalizing on core market reach and premium clothing options. By combining cutting-edge fashion with an affordable price tag, Boohoo has had a sales increase of 27 percent in the past three months. It also makes 64 percent of revenue and shares in the company were up 3.9 percent.

What does this mean for moderately priced retailers such as Gap, J.C. Penny, and the like? Simply put, the mark of fast fashion and the growing trend of consumers buying their wares through e-commerce sites means that these brands are soon to be extinct. Unable to partner with Balmain or Alexander Wang to create a desire at its stores, the Gap isn’t likely to fill anyone’s shopping cart with its products. The effects of fast fashion, albeit harmful to the environment, are enabling customers to nab fashionable clothes for cheap prices. Even though the Gap’s price points are moderately favorable to those on a budget, it does not have the relationships or the market share to make an impact with consumers.

Take for instance the growing success of the Swedish giant, H&M, who has experienced a 14 to 15 percent boost during this quarter alone. It has brought in roughly $5.6 billion from March through May of this year alone, which is hardly small potatoes, while Gap has had same-store sales fall 10 percent in the first quarter. “We’re focused on offering consistent, on-brand product collections and enhancing the customer experience across all of our channels, including a smaller, more vibrant fleet of stores,” said Jeff Kirwan, global president for Gap, in a statement. But what does that mean to the purchaser who wants to by something that will set them apart from the masses and not put a strain on their budget? Absolutely nothing.

More Americans and global consumers are turning to e-commerce to hone their individual styles. No one wants to run to the mall to get the same trendy pairs of shirts that everyone else will eventually be wearing. The Gap, whose biggest competitor used to be the neighbor in those very malls, now has an infinite number of online retailers all gunning for the number one spot. Interestingly enough, as fast fashion continues to create opportunities for middle-of-the-road income customers to purchase items at a fair and decent wage, the Gap will still struggle to make a dent as it utilizes an old world model.

As the Gap begins to shutter its stores and figure out how to survive the onslaught of new shopping opportunities, the company will have to seriously consider its place in the growing universe of fashion. The company is already expecting to lose about $300 million in sales due to the store closures alone, as one-time costs of $140 million to $160 million will occur as a result of lease buyouts and writing off inventory. Gap is seriously hemorrhaging money while its competition — H&M, Boohoo.com, and others — pile on racks and racks of dollars into its coffers. “Right now they’re basically like a ship without a captain,” says Jessica Bornn, a senior analyst with retail research firm Merchant Forecast. “There’s no major creative design force behind the collection. They haven’t interpreted any of the trends of the season.”

Could the company rectify these issues by tapping into the deep creative waters within the fashion industry? Bringing about someone like Astrid Andersen or Christian Siriano to help resuscitate the brand might help to stave off some consumer exhaustion. Either way, with so many stores and too many locations in underperforming malls and areas, the Gap is an archaic example of what happens when you do not change with the times. By increasing the scarcity of where one can actually find a Gap, it may start to improve the reputation and drive traffic to its stores.

[via New York Times]

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