Retail Wreck of the Week: The Gap is Irrelevant

I feel sorry for retail brands that turn discount and soon march into oblivion. Not even Old Navy could or will save the Gap.

Peck — Gap’s CEO since early 2015 — once and for all wore out his welcome. What are you doing to do? There are always going to be losers in retail and after so many losing quarters the Gap is closer to falling off the cliff of no return.

Business Insider recently visited their store and with Gap (Inc.) reporting that same-store sales of its namesake brand decreased by 10% in the first quarter of 2019 as a result of inventory woes and declining foot traffic, this looks like another name for the retail apocalypse. No retail analysts who make their living off of retail are qualified to say that it is a myth.

What's the moral of the story for retail executives though? Peck hauled in an astounding $21.8 million in total compensation in 2018, according to Gap’s proxy filing, up from $15.6 million in 2017.

So here we are three months after the Gap announced it would split into two publicly traded companies — Old Navy as a standalone entity and a still-unnamed company that would include Gap, Banana Republic, Athleta, Intermix, Hill City, and Janie and Jack — the retailer continues to face an uncertain future. 

• Fast fashion is no longer the future, it's the past. That kind of discount fast fashion era is sort of scrubbed up.

Gap said it is still looking for a successor who possesses “operational excellence” and can help “drive greater efficiency, speed, and profitability.” But honestly, when your brand is degraded like the Gap is, leaders can't and won't save your brand.

Meanwhile, comparable sales slumped by 4% across all brands in the portfolio during the same period, including at Old Navy. These aren't losses if you are Gap that you can easily turn around.

Peck’s decision earlier this year to spin off Old Navy into a public company was an interesting one. The argument here on the street is that sources suggest the move was more about Peck keeping his CEO job than creating value for shareholders.

“The board continues to believe in the strategic rationale for the planned separation, and the preparation for separation continues as planned,” Gap told Reuters in an email. Retail leadership in the era of the retail apocalypse, good luck!

If you are not growing, you are shrinking, it's really that simple for retail brands.

The lack of a valid future here means that Gap shares were down around 7% by Friday (today) morning, shaving more than $450 million off the retailer’s market cap from Thursday. There seems to be a Gap in how retail stores and brands prepare for the disruption of brick-and-mortar retail.

Becoming a discount store is not the future, it can also be a one-way ticket to bankruptcy. Until recently, Old Navy had been the star of Gap’s portfolio, bringing in about $8 billion in annual sales. It has been successful at offering basic apparel like white tees, jeans and logo hoodies at lower prices. However if retail already has thin margins, discount retail is an even more precarious game.

Lastly, why should retail executives earn this much? It just makes no sense, the CNN reporter who covered this mentioned:

Gap chief Art Peck was one of the highest paid CEOs in retail, earning nearly $21 million last year. Meanwhile, Gap's stock lost more than half its value since he took over in 2015.

Retail leadership's model clearly needs a reset. Not just the Gap.