Mind the Gap?

GapBig fashion business news Stateside last week were the dismal sales results of Gap Inc, the venerable American high street retailer that also owns Old Navy and Banana Republic. December 2006 like-for-like sales were down 8% versus 2005, which in turn were down 9% versus 2004. In the same period, many other retailers saw an increase in sales versus last year. Of late, the Gap has been struggling to recapture the heady days of growth and market dominance it enjoyed in the late 1990′s.

So, what gives? How did the Gap lose its way? The arrival of European retailers like Zara, H&M and Mango has surely played a big part. These retailers, who quickly copy catwalk trends and produce them in the store with amazingly short lead times, mean that competing on the high street now requires that fashion be fast – very fast. Make regular visits to the Gap and you will see that the fashion is neither fast nor fashionable.

The first issue at the Gap is the product, which is not as fashionable as what you can find elsewhere. The importance of good design has begun to trickle down from luxury fashion to the high street, meaning that the old business models of basic items at a good price is no longer sufficient . The Gap has been completely behind the eight-ball on this, while Zara and H&M have led the way with consistently fashionable, on-trend collections. The Gap was also late in catching the wave of bringing in big name designers to create high-profile capsule collections as Stella McCartney, Viktor & Rolf, and Karl Lagerfeld have all recently done for H&M. Last summer, finally, the Gap attempted a similar tactic by introducing a small collection dresses by London-based designer Roland Mouret. As far as I can tell, these simply did not seem to create the same level of excitement amongst fashionistas. To its credit, the Gap has reportedly created a European design team to better suit the tastes of international customers and I have noticed some improvement in the product on the men’s side, but there is still seems to be a long way to go if these sales numbers are any indication.

Second, and this is anecdotal only, the merchandise at the Gap doesn’t seem to change as often, and sometimes seems as though it is sitting there for months at a time. Zara makes regular, frequent drops of brand new merchandise to keep inventory fresh and to encourage shoppers to keep coming back to see what’s new. Not only did the capsule collections create massive brand awareness and street cred for H&M, it also brought new customers into the store, including fashionista types who may not have shopped at H&M before. More visits, more often, from more customers drives sales growth. As a McKinsey partner once exclaimed to me in Boston, the biggest drivers of retail success are footfall and basket size. The more visits you have to your stores, the higher your sales will be as each new visit means a potential purchase.

Which brings us to the third issue: heavy discounting. The more your consumer spends on each visit (basket size), the higher your sales will be. I have been to the Gap three times in the last 4-5 months, and each time, I have been offered large discounts on the merchandise that was being bought. I’m not complaining about this as a consumer, but as a manager of the business, I might think about discounting a little bit differently. During the first visit, upon leaving the fitting room, I was offered a friends and family card by one of the employees which saved me 30% on everything that I had in my hand. The second time, a month or so later, when I mentioned that I had been invited to a special American Express discount evening (which was not until the next day), the kind cashier offered my friend a 30% discount anyway, even though we were a day early. And now, if you walk into the Gap post-Christmas, it is covered with 75% off signs, with cashmere sweaters for only £35. Heavy discounting like this creates an expectation and precedent in the consumer’s mind about value and pricing. Many consumers will simply wait for items to go on sale, especially if it seems like the merchandise will still be there in a month. I can’t remember the last time I bought something on sale at Zara. If I find something there, I buy it right away, knowing that someone else will snap it up if I don’t act quickly.