Gap Brand to Shutter a Quarter of Stores in Turnaround Bid

CEO Art Peck Is Working to Reinvigorate Ailing Gap, Banana Republic Brands

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About 175 underperforming Gap stores will close in North America as part of a comeback plan for the business, which has posted sales declines for five straight quarters and lagged behind its sister chain Old Navy.

The company will shutter 140 of its stores before the end of the fiscal year in January, according to a statement Monday from the San Francisco-based retailer. When complete, the cutbacks will leave the brand with 500 full-price stores and 300 outlet locations in the region. Gap Inc. is also eliminating 250 corporate jobs as part of the move.

"Some of the stores that we're currently in don't represent the best of our brand," Jeff Kirwan, global president for Gap, said in an interview. "We want to make sure we don't have so much of a disparity."

Chief Executive Officer Art Peck, who was named to the job in October, has been working to reinvigorate the ailing Gap and Banana Republic brands. He previously shook up leadership at the chains, eliminating the global CMO role and broadening the marketing chief position -- now head of customer experience -- to include oversight of e-commerce. Longtime Gap executive Scott Key stepped into the senior VP and general manager-customer experience position at Gap brand, while Aimee Lapic took on the same role at Banana Republic.

Mr. Peck also named Mr. Kirwan to the Gap president job in November, and eliminated the creative director position that had been held by Rebekka Bay, who joined in 2012 to refresh the Gap brand. The CEO also recently told Fast Company that he's looking to shorten the company's production cycle from 40 weeks to about 30 weeks.

Slow Traffic
In a retail industry plagued by shrinking foot traffic in malls, shareholders like to see companies closing underperforming stores, said Betty Chen, a San Francisco-based analyst at Mizuho Securities.

"They're doing the right things proactively, rightsizing the brand," Ms. Chen said. "This seems to show that they're definitely being cautious."

The 250 eliminated corporate jobs will mostly come from the company's headquarters. The move will reduce overlap and streamline the organization, Mr. Kirwan said.

Bill Chandler, a Gap spokesman, declined to say how many store workers might lose their jobs. The company has more than 140,000 employees worldwide, he said. "We place a priority on helping impacted employees find other opportunities at one of our other brands," Mr. Chandler said in an e-mail.

The company expects to lose about $300 million a year in sales from the store closings, in addition to one-time costs of $140 million to $160 million from lease buyouts, inventory and employee-related costs associated with the changes. Gap is looking to save $25 million a year after the cuts are complete.

Little Payoff?
"It's odd to spend the money and get so little back in savings," said Ms. Chen, noting the level of savings seems low.

This is the second round of Gap store closures. The company said in 2011 it would shutter 21% of its North American stores. That decision was also led by Mr. Peck, who was then president for the brand's North American operations.

Mr. Peck, who took the CEO title in February, said he's "comfortable" with the number of stores Old Navy and Banana Republic are operating.

"The best way to think of these are bookends," Mr. Peck said in an interview. "Obviously over the last four years the customer has continued to embrace digital and mobile. We're always looking at our fleet and the right locations."

-- Bloomberg News with contributions from Ad Age staff --

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