When Will It End? Gap Reports More Declines, Blames Marketing

Old Navy, Which Is Without a CMO, Will Return to TV

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Gap_Store Credit: Wikimedia Commons

Gap's journey through the gauntlet continued on Thursday when the beleaguered 47-year-old retailer reported first-quarter earnings. The chain saw net sales slide 6% to $3.44 billion, compared with the year-earlier period, while same-store sales were down 5% for Gap Inc., led by an 11% decline at Banana Republic. Gap's namesake brand saw same-store sales fall 3%, while sales were down 6% at Old Navy.

The San Francisco-based company's marketing expenses for the quarter were $127 million, a 9% drop over last year. Chief Executive Art Peck called out marketing as a specific factor in the poor sales at Old Navy.

"We have not had strong marketing in the first quarter of the year," Mr. Peck said on a conference call, noting that the brand pulled out of TV in April, but will return to the small screen for the remainder of the year, specifically for back-to-school. "We put TV and a number of other things back into the schedule, in order to bring our voice back every day," he said.

Old Navy has been operating without a chief marketing officer after the departure in March of Ivan Wicksteed, who had been with the lower-priced brand for three years and was responsible for well-received campaigns featuring the likes of Amy Poehler and Julia Louis-Dreyfus.

Earlier this year, Gap hired Abercrombie veteran Craig Brommers as chief marketing officer for its namesake brand.

Gap has relied on social media and word-of-mouth to save on marketing costs, and Mr. Peck reiterated that the company is moving away from traditional marketing vehicles to more personalized communications with consumers. He noted that store windows are less relevant for the Gap brand, and it is "skinnying" down its window treatments moving forward.

"If you haven't won at the digital interface on the front end, your window in the mall store is probably not going to make a difference," Mr. Peck said.

The 3,727-unit chain had warned of declines last week when it reported April sales results -- its 13th straight month of declines. Mr. Peck also outlined a strategic plan to shift its geographic focus; for example, Old Navy will discontinue its four-year-old operations in Japan and concentrate on North America.

Last month, Old Navy filled its long-vacant leadership position with the promotion of Sonia Syngal, who had been exec VP-global supply chain and product operations at Gap Inc. before her promotion to global president of Old Navy.

Following reports earlier this week of Gap products selling through the Amazon platform, Mr. Peck noted on Thursday's call that there is no partnership with Amazon in the works. However, the retailer is watching the e-commerce giant. "Amazon's presence in e-commerce is undeniable in this country, and therefore, to not fully consider all of the options of distribution for us would be to not be thinking about things that were important to us," he said.

Meanwhile, one bright spot for Gap, as noted by executives, is its fitness line Athleta, which just rolled out its first TV campaign and has been expanding in both depth of product and store count.

Investors remain impatient; Gap's stock suffered a 52-week low earlier this week of $17, down from a high of $39.59 last June.

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