Can Gap Survive and Thrive?
Like most Americans who grew up in the 80s and 90s, Gap holds a special place in my memories. The mall stalwart was where we went to buy our favorite jeans, hoodies, and polos. It’s where a lot of our friends worked their first jobs. It defined casual cool for an entire generation. Those days are long gone. The future of Gap is uncertain. This is not the first time I’ve written about ways to save Gap.
Gap, Inc consists of multiple brands — Old Navy, Athleta, Banana Republic, Intermix, Hill City, Janie & Jack, and Gap. While some have stated for years that the bell has already tolled, Citi today upgraded $GPS to a Buy and raised the price target to $24. Here are some of my thoughts on what could come next.
Old Navy — As inequality grows in the US, this will continue to be the bread and butter of Gap, Inc. This is Gap, Inc’s answer to fast fashion — less trendy than H&M, but trendy enough for middle America and at a price point made possible by cheaper materials (and labor) — which has worked incredibly well.
Athleta — Needs to invest in better product performance. What gives athleisure brands credibility? A solid high impact sports bra. Leggings that stay put while downward dogging. If you can’t nail this, then you’re selling cute loungewear under the guise of athleisure. Lululemon is absurdly priced. But I buy it. Because it performs — I trust it in my hot yoga classes and for my trail runs. Even those who aren’t wearing Lululemon to work out, prefer Lululemon because the performance and designs underpin the strength of the brand. At Athleta, I couldn’t find a high impact sports bra that would be reliable. Haven’t returned since because to me, they don’t have credibility.
Banana Republic — Divest. COVID is not the end of workwear forever. But it is for the near-term and Gap, Inc needs cash.
Intermix — Invest in the e-commerce side and shift to a model where lux brands can easily sell their goods. Then promote the hell out of it. None of the lux brands want to use Amazon, but they’re being forced into the situation for lack of a better alternative despite it making little sense from a target consumer perspective. I shop at Amazon and Net a Porter, but the display Amazon uses for lux goods is a lux brand’s worst nightmare and makes for a highly unappealing user experience for the lux shopper. There is opportunity here.
Hill City — Roll under Athleta brand umbrella; become an even more direct competitor to Lululemon. Men a few years ago may have balked at wearing Lululemon. Now men all over wear the Lululemon ABC and travel/commute pants. There’s no longer a need for a separate men’s athleisure brand; Athleta shouldn’t have a problem transitioning men into the fold.
Janie & Jack — I don’t know enough about kids clothing or this brand to make a reco.
Which leaves…Gap. I continue to believe that Gap can make a comeback as the king of casual. Do other players sit on that throne now? One could argue Uniqlo does. Or maybe Target. Or Kohl’s. One could even argue this is Old Navy now. But what’s missing from the market — what none of the above deliver — is precisely what Gap reliably delivered in the 80s and 90s: high quality staples in the latest cuts and most in-demand colors.
I still don’t see a place to shop where people can feel good about “walking out” with the perfect white button down and perfect utility pants without spending half a paycheck. Everlane has made this their brand promise, but utterly fails to deliver (their clothes don’t even look good on their own models). Going to Gap, I should be able to find the perfect white button down in good quality fabric, with good stitching, nice buttons, in a variety of perfect on-trend cuts, and two sleeve lengths. Same with utility pants. The ship has sailed on Gap jeans, but if they can nail the perfect tops and hoodies then it might make sense to cross-sell them with jeans from their SF-based neighbor Levi’s. Gap Body is another potential bright spot to compete with Aerie. The key here will be to prune SKUs to the highest velocity staple items and limit non-basics to seasonal promotions with limited inventory.
The question becomes if this fight for Gap is worth fighting. I say yes. Maybe my response to this is emotional, but I still believe there’s unmet demand which if executed well can deliver.
