Gap Will:
The cash gap between the number of retail stores and shoppers with income to spare may be what's causing retailers like the Gap to slide. Respondents to last week's Quick Poll anticipate more store closings than announced the for the Gap (59%) compared with 20% who believe the retailer will "Find a Real Estate Solution." About one in five respondents (21%) think the company will "Fall Through the Gap." Maura B. O'Connor, a real estate partner at Seyfarth Shaw LLP in Los Angeles, believes there will be more closings.
I voted on 'Close More Stores Than Announced.' Gap has publicly announced it's increasing store closings to about 115 for fiscal 2008, after announcing in February that they were going to close 85. Bottom line, the current market makes it hard to offload or sublet large amounts off real estate.
Therefore, I don't think a real estate solution is likely. It's unlikely they will be able to reconfigure, close or sublet some of their stores so that they don't' have to close so many.
There's also a fair amount of discussion about how Gap has become very big, and the apparel retail business has become very competitive. The merchandise they started with is kind of hip, cool clothes, but when you have that many stores open, it's hard to be hip and cool. Gap started by having high-quality basics at affordable prices. Now a lot of people have basics at affordable prices.
As I was saying, I really don think there's a real estate solution that will let them downsize without closing more stores. They were at 3,143 stores last year. They're opening 100 new stores this year, even though they've announced that they're closing 115 stores. Their same store sales fell 7% in the first quarter this year for North American Gap stores. Old Navy fell 18% the fiscal first quarter, and Banana Republic fell 4%.
I suspect that they will need to close more given that their same store sales that far down, but I don't think that's likely that Gap will fold. They're still selling a heck of a lot of khakis. And, hey, they could always try to do something else like go private or retool.
The most important thing to know if you're Gap, you've got to figure out how to become a little more hip.
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