Mickey Drexler’s Gap is in deep trouble.
The company’s 16-month slump reached new depths yesterday as the company’s shares dropped 21 percent to close at $15 – their steepest drop in at least 14 years. The stock hit a new 52-week low of $14.76 during trading.
The nose-dive came in reaction to the retailer’s announcement that comparable-store sales dropped 17 percent in August, compared to a 14 percent decrease in August 2000. Analysts had expected the decline to be about 10 percent.
It has been a lackluster back-to-school selling season for most retailers. Comp-store sales at Abercrombie & Fitch were down 10 percent and American Eagle Outfitter’s were up just 2.1 percent.
The Gap’s comps, however, are out of line and consistently depressed, while others appear to have bottomed out in May and are on the rise.
“The Gap’s fashion is not right, and the environment is quite recessionary,” said Todd Slater, retail analyst at Lazard Freres. “They have too much of the wrong product when the consumer wants newness and fashion.”
The difference between this downturn and past recessions is that consumers are behaving differently, especially when it comes to buying apparel. Instead of looking to buy traditional clothing that will last, consumers want items that will spruce up what they already own.
“Consumers have what I call a ‘closet glut’ right now. It will take a while to build up demand,” Slater said.
“You’d think consumers would want basics,” Slater explained. “In this slowdown, people don’t want basics – they want fashion. Nobody’s selling basics in this go-round.”
Chief Executive Mickey Drexler has had a revolving door of executives in and out of his Gap stores and Banana Republic and Old Navy divisions to try to improve the company’s fortunes.
The Gap’s innovative advertising campaigns that excited consumers about khakis and jeans are a thing of the past. Basic bottoms don’t excite consumers anymore, and the recent ad campaigns have featured second-rate celebs like Juliette Lewis and Laura Prepon.
Fixing the mess will take more than a good ad campaign.
“The Gap has to get faster fashion, closer to the trends, better quality merchandise, quicker turnover – they’re bigger and slower than their competitors,” Slater said.
“They also need an upturn in the economy. There’s a recession in both men’s and women’s apparel.”
Still, there are bright spots in the economy that The Gap is missing.
“The teen or Gen Y demographic is more substantial than it was 10 years ago and is growing,” Slater explained.
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Fashion backward
Gap CEO Mickey Drexler can’t get his company out of its rut. And projected sales and earnings aren’t supposed to get any better. Here’s why:
* The merchandise is not fashion-right. Teen and tween consumers are buying elsewhere.
* Consumers don’t need the basic fashions the Gap is selling. Years of prosperity and consumer spending have caused what analysts call “Closet Glut.”
* The recession in men’s and women’s apparel sales isn’t helping any.