Gap Inc. is set to take drastic action with regards to its ailing namesake division — and sooner rather than later.
Speaking on the chain’s quarterly call with analysts, Gap CEO Art Peck said that the biggest challenge with the Gap brand has to do with certain “legacy elements,” notably real estate obligations that currently “encumber” the business. The company operates 775 Gap stores globally, and “the range from the very best to the very worst is extremely broad,” Peck added.
“Addressing the bottom half of the fleet represents over $100 million of earnings contribution opportunity and it is that portion of the fleet that is dragging down the brand,” he said. “This is the piece of the business that we are firmly committed to addressing with urgency.”
Peck, who spoke with analysts shortly after the retailer released its third quarter results in which sales at the namesake division tumbled 7%, said the company is evaluating Gap flagship stores around the world, with an objective eye on which ones provide sufficient value to keep.
“Beyond that, there are hundreds of other stores that likely don’t fit our vision for the future of Gap brand specialty store, whether in terms of profitability, customer experience, traffic trends, importantly the ROI structure and/or near and long-term relevance to the brand,” Peck said. “These stores are a drag on the health and a drag on the performance of the brand.”
Peck told analysts strategic action on the Gap fleet is overdue.
“There likely will be a cash cost to exit many of these stores, which we will attempt to minimize with appropriate sequencing,” he said. “But I plan to exit those that do not fit the future vision quickly. I’m going to move thoughtfully, but aggressively.”
The CEO emphasized that stores remain an important part of the customer journey, and that there are a significant number of specialty and outlet Gap stores that have positive trajectory and long-term relevance.
“It is this healthy core of the brand that we will focus on to deliver future value,” he said.
More details about Gap store closures are expected when the company provides its forecast for the next fiscal year.