Checking in on the Gap: Old Navy Riding the Waves

Not surprisingly, the Gap reports drops in retail sales over this last quarter. While the company and its three stores – Old Navy, Banana Republic, and the Gap – have been struggling to return to earlier gangbuster popularity. Expansion, rapid merchandise turnover, and shifts to the brand identities were not sorted out and established strongly before the recession really started to take a bite out of everyone’s clothing budget.

In the past I’ve singled out Old Navy as an example of a concept gone awry, a good idea that went too far in the wrong direction. The last few clothing lines have not included enough interesting and basic pieces to attract the right segment of customers and, unlike more teen-upscale lines like Abercrombie or Aerie, wearing a shirt with the brand name across it isn’t signaling anything status-wise. The turn-around for styles was so fast you could buy a sweater one day and find it in the reduced aisle next week. And of course, the one you bought was already fraying. Having Old Navy be the “discount” Gap didn’t work well for Gap itself either. This year, both Gap and Banana Republic are still showing large losses. But Old Navy is pulling back: At its Gap North America division, same-store sales fell 12% for the quarter, at Banana Republic 13%, at Gap International, 4%, and at Old Navy -- the division that has been one of the worst performers of late -- the decline was just 3%. (In the same period a year ago, Old Navy's sales sank a steep 18%.)

Today if you walk into the store. there’s more actual basics being promoted – the tank tops, shorts, and flip flops that fit into a whole variety of fashion identities. One smart addition to the line are yoga -nspired exercise clothes. While fanatics of all sorts will still be decked out in brand names (LuluLemonistas we call them) , the Old Navy Athletica versions are versatile – a word I haven’t used to describe their clothes since they first opened.

This is not to suggest that the overall situation has changed – the Gap itself is losing ground, both because it’s a medium-end brand gaining a boost from celebrities wearing t-shirts to the Oscars (unless they can get Mrs. Obama to look beyond the J Crew catalogue). The consumer spending in that income bracket is getting more cagey, careful, and limited. That’s a trend that has to be considered durable, even if the recession lightens up. This is a message that’s most important for stores that depend on rapid growth, inexpensive and fast merchandise turnover, and single-category sales (clothing only versus Target, which can make up losses in one area with gains in another).