Gap Inc. is facing pressure to turn around its sales slump and has now opted to close its Old Navy stores in Japan.
Gap Old Navy Stores Set To Close in Japan
Amid pressure to improve its sales, the company has given a less than optimistic outlook for the rest of the year, indicating that it required an improvement in trends in the apparel retail industry since its first quarter in order to attain earning targets for the year as expected by Wall Street.
Gap announced its fifth quarter of low profits and revenues. The firm said that it would shut down about 75 stores mostly abroad and would use up to $300 million in restructuring before tax. It estimated that these efforts would save the company as much as $275 million each year.
In the past, restructuring plans, which saw dozens of stores close in North America, were not adequate in ensuring that the company’s investment grade credit rating remained protected. Consequently, S&P Global Ratings downgraded the company to junk on Thursday, following Fitch Ratings, which made a similar downgrade last week.
Credit analyst Helena Song asserted that "Meaningful headwinds in the industry have offset the company’s operations and had been detrimental to the company’s competitive advantage."
Song continued, “The company’s weakening brand appeal and its loss of market share to fast fashion, off price retailing and online competitors has contributed to this.”
Old Navy is mostly a budget brand that has generally performed better than other Gap brands but has been struggling recently. In this year’s first quarter, Old Navy’s store sales fell by at least 6 percent while same store-sales for Gap fell 3 percent.
Speaking on a conference call, Art Peck, Gap CEO said the problems facing Old Navy could be attributed to too much duplication and too much fashion as well as weak marketing.
Mr. Peck further said that the company would boost its TV commercial after a hiatus in April in spite TV being the brand’s strong marketing platform.
These changes come on the heels of the exit of Stefan Larsson, Old Navy President. Mr. Larsson has largely been credited with bringing improvements to the brand but last year became the Chief Executive at Ralph Lauren Corp. Company veteran Sonia Syngal replaced Mr. Larsson.
The exit from Japan signifies a turnaround for the company, which had planned to open more Old Navy Stores in the country.