Gap swings axe on North American stores, cites rising power of online ops

The Gap axe fell hard and true late Monday. The US apparel retail giant took decisive action to reverse disappointing performance at its signature brand saying it would cut 175 North American stores (a quarter of its store stock there), and eliminate 250 related corporate jobs.

The retailer, however, did not say how many store employees would be laid off as a result of the closures. It also plans to close some stores in Europe, but did not specify how many.

In a statement, Gap said the decision to reduce its brick-&-mortar footprint reflects its increased emphasis online shopping.

To address a long run of slumping store sales, 140 units will be closed by early 2016. That will leave Gap with 500 stores in North America, down from more than 700 in 2013. Some 300 Gap outlet stores are not affected.

In 2011, the brand close 189 stores in North America, around a 20% of its stores.

Gap said the latest store count cut would reduce sales annually by around $300m. It also expects to take charges of $140m-$160m in Q2 to cover the cost of buying out leases, writing down the value of its stores and inventory, and layoffs.

“Customers are rapidly changing how they shop today, and these moves will help get Gap back to where we know it deserves to be in the eyes of consumers,” chief executive Art Peck, who took over the reins in February, said Monday.

He added that the moves were designed to ensure that the Gap chain is the right size for a changing market and that the remaining stores were in productive locations.

“Many of these stores are in centres we’ve been in for a long time,” he said.

He noted that the makeup of the mall has since changed and the population has shifted so that those locations are less desirable.

“I feel very confident that this is the right number of stores as we look at the business today,” he said.

In May, the Gap brand saw a 6% decline in same-store sales following a 15% dip in April. Same-store sales also fell 10% in the three months to May 2, after falling 5% in the year-earlier quarter.

Peck admitted last month that the brand’s wosmenswear business had been a challenge for several seasons due to quality and fit issues and because it was not trendy enough.

However, he has bought in Wendi Goldman to head the design team, replacing creative director Rebekka Bay, to improve the line for next spring. Jeff Kirwan was also been made head of the Gap brand globally in December, after three years running its China business.

As of January 31, Gap employed 141,000 full- and part-time workers in about 3,700 company-owned and franchise stores worldwide.

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