Gap’s profits fell to $219m for the three months ending August 1, down from $332m the year before. Sales, meanwhile, fell to $3.9 billion for the period.
It is also expected to record up to $140m in restructuring charges in 2015 as it moves to close up to 175 unprofitable stores in the US and drops 250 head office roles.
At the company’s annual investor meeting in June, Gap chief executive Art Peck admitted: “None of us are happy with the performance right now.”
Here are three ways the brand can turn things around and bring a smile back to Peck’s face.
Address its marketing
Around a decade ago Gap commercials were mini events in their own right.
With more celebrity cameos than a Taylor Swift video, Gap adverts were heavy on iconic dance routines and cool minimalism. However, its activity over recent years has been far removed from those previous heights.
Its 2014 “Dress Normal” campaign, which featured Mad Men actress Elizabeth Moss talking up unglamorous outfits, was widely criticised for stepping outside of the fashion world’s typically aspirational messaging; it even resulted in a dip in sales.
Shareholders have also been quick to criticise Gap’s digital efforts including an odd ad campaign earlier this year via Tinder. The campaign’s ads, which were disguised as dating profiles, were such a disaster that Tinder removed them along with a statement claiming Gap had violated its rules.
“Their TV ads used to be iconic, everybody loved them,” says Maureen Hinton, research director at Conlumino. “I don’t think I can remember a single one over the last decade.
“It’s now a limp brand and by going down the older generation route [with the likes of ‘Dress Normal’] the brand is ageing and alienating that core 16-29 year old audience needed to succeed. It’s sort of like M&S in that regard.”
In 2007, Gap was the world’s 93rd most valuable brand according to Brand Finance. However, in 2014 it fell out of the Brand Finance Global 500 altogether.
Above: An ad from Gap’s 1990s heyday
“It seems to have lost confidence in its advertising,” says Brand Finance’s Robert Haigh. “The recent tag line ‘let your actions speak louder than your clothes’ is much more apologetic in tone; it is effectively an admission that it has lost the battle to avoid its classic garments becoming commoditised, and it is instead pleading with customers to believe that clothes don’t really matter that much anyway.”
In order to regain some of its “icon status” from the 1990s, Haigh says Gap’s messaging “must be more confident.”
“As both someone from Gap’s target group (25-35 year olds) and a regular customer I would suggest that they aim to reassert the importance of the classic wardrobe staples they’re best known for.
“Rather than ‘let your actions speak louder than you clothes’, it needs something that instead implies that your clothes should help you act in a certain way, in Gap’s case that should be by making you feel confident, unpretentious and unencumbered.”
Get a clear price plan
Although Gap has moved to cut costs over recent years, its expensive prices still don’t exactly fit with its basic product offering.
The rise of the likes of Primark and H&M has made British shoppers far less inclined to shop at Gap with near identical jeans and t-shirts often significantly cheaper at its rivals.
“Fashion retail has changed, Gap has refused to – it is a brand with no clear meaning,” says Mintel’s director of retail research Richard Perks.
“With Primark, the pricing structure of British retail has completely evolved and Gap is now just too expensive. There are no US retailers succeeding in the UK and that’s because they have not got it right on price – the dollars to pound model does not work.”
Despite Gap’s sales woes, its sister budget US fashion brand The Old Navy continues to be a bright spot. In the second quarter, its sales were up 3%.
However, Conlumino’s Hilton says it is also becoming damaging to the Gap brand.
“With the Old Navy, Gap is cannabalising itself as that’s a brand with a clear budget message and affordable prices; perhaps Gap could learn something?” she ponders.
“Gap either needs to justify its prices very quickly, by investing in its basics ranges, or go more upmarket. Things can’t stay the same.”
Refresh its clothing
To address the second quarter decline and its questionable ranges, Gap is planning to test small batches of new products in selected Gap stores next spring. It says it is changing its supply chain so it can now quickly order in volume if the ranges are a success. Equally, it will be able remove ranges more efficiently if they fail in order to avoid over stocking.
Gap’s chief executive Art Peck says the company is aiming to build in the speed-to-market capability, which is already being implemented at The Old Navy, “as soon as possible.”
The move could be wise says Haigh of Brand Finance, who is highly critical of Gap’s current ranges.
He explains: “The relative cost of fashion has fallen even since the 1990s, driven both by low labour costs and highly organised fast fashion businesses such as H&M, Topshop and Primark.
“This has reduced Gap’s margins and intensified competition. It has also had an impact from a branding point of view. It has commoditised the products for which Gap was best known such as the plain white t shirt, making it more difficult to position them as desirable, standout items.”
But the solution “isn’t rocket science” according to Hilton.
She concludes: “The US basics it sells just aren’t appealing anymore. The solution isn’t rocket science, it has to evolve its clothing and make them more versatile. There needs to be more colours, more sizes and more meaning. If it doesn’t do this then it will continue to struggle.”