and the article's referenced follow-up.
-----
People: TREND SPOTTERS
WHY GAP ISN'T GALLOPING ANYMORE
By Louise Lee in San Francisco
11/08/1999
Business Week
Page 136
Business at Jenny J. Ming's Old Navy chain is going great. Maybe too great for the rest of Gap Inc. For six months now, sales at Gap and GapKids stores open at least a year have been flat or down slightly from levels tallied a year ago. By that measure, they're deadwood compared with gains of about 20% for Old Navy and about 10% for Banana Republic.
So how big an issue is this? A very big one to Wall Street. Gap's share price has sunk a worrisome 40% from its July peak of 53, to 32. Investors are fleeing largely over fears that Old Navy, with its bargain jeans, khakis, and sweaters, is cannibalizing sales at its more established sibling. Worse, profitability is taking a hit. For the six months ended in July, overall gross margins declined from a year earlier, a trend that the company attributes to markdowns. "Gap has got some big problems," says Bob Buchanan, an analyst at A.G. Edwards.
It shouldn't come as a surprise. After all, with little obvious difference between them, why pay $16.50 for a simple Gap T-shirt when you can get one for $12.50 at Old Navy that seems just as good? That's the attitude of shoppers such as Cheryl Ellis, a 32-year-old nanny in Bethesda, Md., who used to shop at Gap. She hasn't been back since she discovered Old Navy's lower prices several years ago. Now Old Navy gets the $100 to $150 she spends each month on clothes for herself and her three young charges. "I can get twice as much as at Gap," says Ellis.
CROWDED CLOSET. And if competing with itself isn't trouble enough, Gap also has to contend with a host of marketing-savvy upstarts in a domain that it dominated just a few years ago. Today, shoppers can turn to rivals such as Abercrombie & Fitch or J. Crew, as well as Web sites such as bluefly.com for their casual duds.
Still, Gap Chief Executive Millard S. "Mickey" Drexler claims that he isn't worried about cannibalization. Sure, he concedes, Gap sales fall off a bit every time an Old Navy opens up nearby. But they bounce back quickly enough. "If you can give up a nickel and make a buck, with high returns, you're going to do that," Drexler says. Instead, he insists the real problem at Gap has been not having enough of the right merchandise, such as this summer's popular Capri pants. As a result, stores ran out far too early.
But to many outsiders, that sounds like just so many excuses. They argue what Gap needs is more focus. "I've got a problem when I see Gap trying to appeal to people age 12 to 60," says analyst Buchanan. He and others believe the company has allowed far too much overlap between Old Navy and its namesake stores. While the upstart chain is largely aimed at a younger audience--and its clothes really aren't as well made--many consumers don't know or don't care. Warns marketing consultant Jack Trout: Drexler and his team must "find a way to communicate how Gap has got higher quality." But that, too, poses a delicate problem. After all, Drexler wouldn't want anyone to start confusing Gap with Banana Republic. |
