Art Peck: 'We're opening Gap stores'
The Gap Inc. CEO just days ago said 230 locations would shutter. At Shoptalk he said others are opening, but they won't be in malls.
LAS VEGAS — Days after stunning the retail world with the news that Gap Inc. would disappear into two indepedent entities — Old Navy and a to-be-named company now designated as "NewCo" — and that 230 Gap stores, mostly in the U.S., would close, CEO Art Peck told a Shoptalk keynote audience Monday that the once quintessential American apparel brand would also open new locations.
He didn't say how many, but he did say they'll be found in unexpected places. The idea, he said, is that the 230 ill-fated stores, a remarkable number, don't reflect a failure of brick-and-mortar per se, considering that 80% of apparel sales still take place in stores. Rather, they're going away because they were "the wrong stores in the wrong locations."
Gap's fleet is 50 years old, he noted, and its historical model of setting up inside malls — a retail innovation from the late 1950s when America's newly thriving middle class was moving to the suburbs — no longer works. Traffic to malls is falling, making malls the new "wrong locations."
It's not just Gap. Build-A-Bear CEO Sharon Price John, speaking at Shoptalk on Sunday, also said that the interactive plush-toy retailer is abandoning many malls, partnering instead with indoor water park chain Great Wolf Lodge, Bass Pro's experiential Cabela's outdoor retail stores and six Walmart supercenters. Most recently, Build-A-Bear tied up with newly reemerged toy retailer FAO Schwarz.
"In 1997, families went to malls," she said. Now they're going elsewhere together.
With the rise of e-commerce — a channel that Gap Inc. has assiduously nurtured for all its brands — sales per square foot has become an outmoded metric. Several retailers have noted that closing a store can actually reduce e-commerce in surrounding zip codes, evidence that digital sales should be computed into a store's performance.
Recalibrating a location's performance isn't always a binary open/close proposition, either. Several retailers have also told investors in recent quarters that the rationalization of their fleets involves negotiating with landlords. Licensing firm Authentic Brand Group CEO Jamie Salter on Monday vividly described to a Shoptalk audience just such a scenario — a testy exchange with Simon Property Group CEO David Simon regarding Aéropostale stores. (The two are partners in this case: Simon Property Group, General Growth Properties and Authentic Brands Group won Aeropostale in a bankruptcy auction in 2016.)
Peck, however, has different plans for Gap. The Gap consumer simply "doesn't want to go to the mall," he said, so Gap stores will go elsewhere.
"We are building new Gap stores, but in doing that, we're basically taking the historical model for specialty apparel and turning it inside out and upside down. The historical model was: build a mall, tons of traffic, expensive rent and make it up in low conversion but highly productive traffic. The secret in the industry today is that traffic in many of these malls is not nearly as productive as it once was. The formula doesn't work."
Using what Peck calls "a pretty sophisticated tool," the brand is now casting about for the locations that will work, by "inserting" them into the consumer's daily journey. The brand just opened a store with a "low traffic, low rent, properly sized" spot next to a Trader Joe's grocery store in Encinitas, California, for example. The conversion there is two or two and a half times that of Gap's mall stores, more than balancing out that low traffic, according to Peck.
This kind of experimentation, which carries risk, is a likely reason for taking Old Navy, by far Gap Inc.'s best performing brand, out of the equation. But the Gap brand, which Peck told analysts last week would focus on denim as its core offering, per a transcript from The Motley Fool, must ultimately also revamp its merchandising, according to Neil Saunders, GlobalData Retail Managing Director.
"I suspect a lot more restructuring of the brands is on the cards, especially in terms of store closures," he told Retail Dive in an email. "These will create some financial pain, which is another reason to execute this without harming the value of Old Navy. As for wider changes, these need to come but Gap never seems willing to grasp the nettle: executives talk a good game, but they play poorly."
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