Gap Inc. CEO Art Peck is likely wishing umbrella brand Banana was, in fact, its own republic.
The flailing retailer detailed the downfall of its slide down the fashionista totem pole as it delivered a second-quarter earnings outlook below consensus forecasts, hurt by lower sales in July, continued weakness in Gap stores and the higher U.S. dollar.
The company, which releases its second-quarter earnings on Aug. 20, expects to post adjusted earnings per share for the period of between 63 cents and 64 cents, missing Wall Street’s estimate of 66 cents a share. On a reported basis, Gap projects earnings of between 51 and 52 cents.
The company cited every retailer’s ‘the dog ate my homework’ excuse for lower sales anything, namely lower foot traffic, weather, the impact of weather on foot traffic and shopping-free national holidays, as the cause of Gap’s current bout of the revenue flu, citing the shift of tax-free holidays in several U.S. states from July last year to August as another contributor to its disappointing result.
A second, more onerous culprit was Gap’s red-headed stepsister, Banana Republic, which posted a 4 percent dip in comparable sales for the second quarter, following a 10 percent drop in July after a modest improvement in June. Sales grew 6 percent over the same period a year earlier.
Lazy fashion editors everywhere got their knickers in a tizzy when a neatly packaged press release landed in their inbox last year, proudly announcing that Banana Republic had nabbed the former head of preppy-hipster hybrid brand J.Crew, Marissa Webb, who was poached with the challenging directive to ‘make Banana Republic cool’, complete with its hashtag, #TheNewBr.
While the fanfare heralding the feted designer’s appointment created the intended Instagram glorified shit show, now – with the pretty glitter sandstorm having since settled – the bottom line results show that you can have as many pretty filtered pictures of the label’s trendy, tech-friendly new flagship Fifth Avenue store as you damn well please, but the amount of coin our said fashion blogger is likely to sink into a mom-sy, poorly-made work shirt is likely as them investing in the brand beyond their second complimentary champagne at the next press preview at Milk Studios.
Webb may be hitting some sixes in terms of boosting the brand’s fashion credibility among the street style one percent, but that hasn’t translated into the same effect on Gap’s revenue stream.
For the four weeks ended Aug. 1, Gap clocked sales of $1.12 billion, down from $1.17 billion a year earlier. On a constant currency basis, Gap’s sales for the period were roughly flat versus the previous corresponding period.
In July, sales at the Gap’s namesake stores—excluding those newly opened or closed—declined 7 percent, compared with a 2 percent dip a year earlier. Same-store sales at Old Navy rose 3 percent, similar to a year earlier. Somehow, in some distant universe, in some tiny pocket of hidden fashion credibility, Old Navy became prom king of the mass retail mall ball.
Webb’s debut offering for summer 2015 exhibited strains of her former gig’s roots, such as popping yellow strappy heels, easy-to-wear, flattering cargo shorts and cheeky, printed tees. But, as is the unfortunate fate of many high-street brands attempting to recreate high-fashion trends at a portion of the price, when reviewed in the harsh light of day away from the flattering light of their home on 5th Ave., Webb’s designs stop pretending to be exactly what they are – so-so cheap work separates and weekend updates for the aspirational life you probably will never lead if your wardrobe consists solely of Banana Republic (and a few remaining pieces from your college days spent hunting for bargains at Loft).
Unlike Zara, which appeals to a broad range of shoppers looking for a quick on-trend fix, the “new” Banana Republic is struggling with growing pains as it overhauls its image, hoping to do so with greater subtly and success than an alcoholic former Disney child star or born-again Christian Beiber. A leisurely trip to Banana Republic is filled with a visual of hopeful hipsters, now angry they reacted to the recommendation of our aforementioned fashion reporter, who championed the brand with the integrity of a John Travolta on the defense stand amid allegations of an sordid affair with his jet piolet. In the left corner are the remaining fans of the brand’s former plain vanilla image, hunting for a bargain in a bin of forgettable comfort slacks, while the remaining contingency are tourists, either seeking an escape from the muggy sidewalk by pretending to browse through the first rack of half-price tees, others asking any store attendant, “Can you point me in the direction of Kate Spade?”
Competition among the bottom feeders has never been fiercer, while market concerns about Gap’s ability to overhaul its brand portfolio, and the public’s perception of Banana Republic and its namesake brand, has left many retail analysts unhappy shoppers.
JP Morgan recently downgraded its recommendation on the stock to “underweight”, from “neutral”, following the disappointing result, coupled with the anticipation of more downside risk to market share bleed due to higher competition from fellow cheap-and-cheerful knock-offs of things you’d rather wear.
The broker clipped its 12-month price target for the stock by 28 percent to $29, from $40.
Mind the Gap
Gap managed to escape relatively unscathed after its giant marketing campaign of 2014 – whereby it attempted to appeal to the non-existent intellect of its necessity-driven shoppers by paying homage to the ironic normcore movement with the tagline, “Dress Normal”. But, instead of flogging its threads to folks intent on embracing the banality of the everyday, they managed to alienate their core demographic by raising the question, “Are you marginalized in society? Gap’s here to help you blend in by paying to wear our nondescript, ordinary, no, really, they absolutely are simply boring, plain clothes, modelled by a mannequin who is 85 percent likely to be white!”
People used to look to Gap for a cheap alternative way to look cute, stylish and trendy and avoid paying $30 for a white shitty t-shirt at American Apparel. It remedied its botched campaign by heavy discounting on the collection, adding markdowns upon markdowns upon markdowns in a desperate attempt to move stock, all the while deflating its traded one.
Banana’s 5th Ave windows have screamed heavily-discounted sales chants since pre-Memorial Day, making for a less Instagram-friendly shot to slap on your carefully curated feed. Regardless, there’s zero chance that, after Labor Day, you’ll be donning your normcore ‘Dress Normal’ Gap whites.
Mind the gap, or miss it all together.
