Gap Inc.'s Plan For Growth? Shrink Gap, Not Other Brands

Gap Inc. has a problem with its namesake stores, but not so much its other brands. As such, CEO Arthur Peck said in the near future some Gap stores will probably be on the chopping block.

Peck acknowledged as much before Thanksgiving on the company's most recent earnings report call, when he said that Gap Inc. is considering closing hundreds of weaker stores, mostly of the Gap brand. The company also owns Banana Republic, Old Navy and Athleta.

"The biggest challenge with Gap brand is largely a function of certain legacy elements, which we understand and recognize, of the brand," Peck said during the call. "A big one, specifically, is the real estate obligations that currently encumber the business."

Namely, Gap stores. During the company's fiscal third quarter, same-store sales at Gap stores fell 7%, while those at Old Navy and Banana Republic were positive.

The core challenge for Gap stores — like many clothing purveyors — has been staying current. Gap fell out of touch with baby boomers that grew up on the brand and also failed to attract the millennials who now drive fashion trends, CNN Business reports.

Peck said that Gap Inc.'s online business, which constitutes about 20% of the total revenue of the brand, is "healthy and growing." There is also a profitable business in the outlet space, with about 500 stores globally that represent about 30% of the company's revenue. 

"The remainder is the specialty business, which is currently underperforming," Peck said. "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 [or] traffic trends."

Peck did not detail which stores will be closed, though when the company provides its forecast for next year, more information about closures will probably be forthcoming, CNBC reports.

Such closures wouldn't be the first for Gap Inc. or the Gap brand. Last year, the company began a process of closing about 200 Gap and Banana Republic stores.

In a different cost-saving strategy, Gap Inc. has also taken landlord Westfield to court, accusing the mall operator of overcharging the apparel retailer by inflating its share of mall expenses.