Gap Inc. didn’t reinvent the wheel when it came to the turns of its two largest businesses in Old Navy and Gap. It simply rolled up its sleeves to get the assortments and merchandising right.
It’s paying off.
“We are lapping the early stages of our transformation, and our two largest brands, Gap and Old Navy, are winning in the marketplace and demonstrating the potential of our brand reinvigoration playbook,” Gap Inc. CEO Richard Dickson told analysts last week during the San Francisco-based company’s quarterly update.
While Old Navy and Gap have their own strategies, their playbooks run parallel in the goal to rebuild relevance.
Old Navy’s re-focused efforts to be a place for the entire family to shop by breathing new life into designs in what Dickson called a “modern expression” of the brand.
There’s also the relaunch of the brand’s activewear offering with a “New Moves” campaign that features Lindsay Lohan.
Meanwhile, Old Navy’s set to open a “next-generation” flagship store in Herald Square next year in a big push at physical retail.
Dôen, Harlem’s Fashion Row Wins
For Gap, the strategy’s meant collaborations, with brands such as Los Angeles-based Dôen – the second time the two have partnered – and Harlem’s Fashion Row. There was also the launch of Gap Studio in April. The collection garnered buzz with Gap Inc. Executive Vice President and Creative Director Zac Posen behind the designs. Posen also holds the title of chief creative officer at Old Navy.
“The brand strategy, including collaboration, is attracting a new generation to Gap, while reinforcing the brand to those who have loved us for years,” Dickson said. “We are bridging the generation gap. Collaborations continue to drive relevance and revenue for the brand… with Harlem’s Fashion Row and Dôen contributing to strong new customer response, increased engagement and meaningful buying beyond the collabs.”
The limited-time collaborations are also pushing shoppers to pay full price.
“We are testing the brand’s elasticity as we push the boundaries of our pricing power through some of these programs,” Dickson said.
Elsewhere, Dickson called denim a “foundational category” for Gap that’s been “key” to its revival.
A dedicated denim shop within the company’s Flatiron store in New York will now be rolled out to other top-performing doors.
Surveying Gap Inc.’s Business
Overall, the quarterly results backed the upbeat outlook.
Companywide net sales rose 2 percent in the fiscal first quarter ended May 3 to $3.5 billion. Net income grew to $193 million from $158 million in the year-ago period.
Same-store sales increased 2 percent from a year ago, driven by a 6 percent jump in the online business. That offset the flat comparable seen at the roughly 3,500 physical stores.
Gap Inc.’s largest business, Old Navy, notched a 3 percent gain in its quarterly net sales to $2 billion in what the company took to be a win in brand relevance.
Meanwhile, the company’s namesake and next largest business, Gap, managed 5 percent growth of sales to $724 million as it looks to attract new customers and recapture existing ones.
The rest of the Gap Inc. brand portfolio is still on the mend.
The attempt to re-position Banana Republic as a premium brand continues. Dickson said Banana Republic’s seen “fundamentals improving and new proof points emerging.” Still, the brand relies heavily on promotions – such as 40 percent off – to woo, or some might say train, customers to wait for discounts.
Ultimately, Banana Republic sales fell 3 percent in the quarter to $428 million.
Meanwhile, Athleta’s turnaround has yet to take hold as sales slipped 6 percent to $308 million as Dickson told analysts, “We know we have more work to do.”
The activewear business is living up to expectations of this being a “choppy” year as it works to get the right product mix and make key hires.
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