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Gap ties its future to more digital, mobile and global expansion

June 17, 2015 03:24 PM
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The future for Gap Inc. is digital and global. At least that’s the latest vision from Gap CEO Art Peck and senior managers to Wall Street analysts at the company’s annual investor’s meeting Tuesday in San Francisco.

On Monday Gap, No. 18 in the  Internet Retailer 2015 Top 500 Guide, announced it would take a one-time charge of $140 million to $160 million mostly in the second quarter to fire 250 people at its San Francisco headquarters and close 175 stores Gap stores over the next two years, including about 140 this year.

“Returning Gap brand to growth has been the top priority since my appointment four months ago,” says Peck, who was named CEO in February.

Gap, which will announce fiscal second-quarter earnings on Aug. 20, turned in a poor financial performance in the first quarter including a drop in web sales. Online sales declined 2.1% in the quarter ended May 2 to $563 million from $575 million a year ago, while total sales declined 3% to $3.66 billion from $3.77 billion. Net income fell 8.1% to $239 million from $260 million.

But in the wake of cutting costs and a shaky financial start to 2015, Gap sees growth for its Gap, Old Navy, Banana Republic and Athleta brands by concentrating on global operations and expanding e-commerce. “The retail industry is at a pivot point, where digital experiences are redefining how customers shop and engage with brands,” Peck told analysts. “We’re constantly testing and rolling out new innovations to ensure we stay ahead of the customer and, ultimately, thrive in a time of disruption.”

Gap is closing stores because more of its customers are shopping online, says executive vice president and chief financial officer Sabrina Simmons. “Since 2010, Gap’s online channel has grown at a compound annual rate of 15%, and as t customers increasingly move to online, we believe the smaller specialty fleet is appropriate. Simmons told analysts.

Gap, which grew web sales 10.6% to $2.50 billion in 2014 and generated about 14%, or an Internet Retailer-estimated $360 million, from mobile commerce, didn’t release many specifics, but the company did say mobile commerce is becoming a higher priority. “Today we know that more than 50% of our customers try their shopping experience with us on their mobile device,” Banana Republic brand president Andi Owen told analysts. “Last year that number was only about 20%.”

Increasingly Gap’s growth is coming from international expansion, especially in Asia and China where Gap grew web sales 60% last year to an Internet Retailer-estimated $51.9 million. Gap also operates 55 stores in China. “Gap will emphasize its ongoing pursuit of global growth opportunities, most notably through continued expansion in China, where sales have grown to nearly $500 million in just over four years, and its Gap e-commerce sales expanded by about 60% year over-year between 2013 and 2014,” Peck told analysts.

 

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