Gap sees future in outlets

SAN FRANCISCO— At an investor conference on Thursday, Gap CEO Glenn Murphy announced the company will close 200 of its 900 U.S. namesake stores even as it expands its outlet presence.

 While the company did not identify which stores will close, Gap said the 200 Gap brand closures over the next two years will be accompanied by a push to expand its Gap Outlet and Banana Republic factory chains.

At the Piper Jaffray investor conference, Murphy said he believes the company can recapture operating margins of 13.4%, which it saw in 2010. Operating margins were 8.5% in first quarter 2011.

Murphy also outlined a plan for Gap Inc. to shift from being primarily a specialty retailer in North America to being more of a value player. In addition to closing 200 Gap brand stores, Gap will grow its Gap Outlets to about 250 stores, a net addition of 50 or 60 stores. It will grow its Banana Republic Factory store count to about 150, a net addition of about 40 stores.

"The economic model of Outlet is the highest return on capital and is where customers gravitate," Murphy said in the meeting. "Everywhere around the world there's a way to put the value expression of the brand."

The Athleta brand is slated for expansion, with 10 stores scheduled to open by year-end 2011 and ready to “explode” the brands’ real estate opportunities in 2012 and beyond, said Murphy.

Murphy also said that he would dramatically reduce the number of vendors with whom Gap works, including working more directly with mills, in an effort to secure better prices and a faster, more flexible pipeline.

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