What should a company do when its concepts are hitting on hard times? Open a flagship location in Times Square, naturally! Take two years of space on a billboard as well -- to advertise its products, which are continuously up against price competition and of potentially declining quality. This seems, at first glance, to be the strategy of The GAP (GPS) .
But on the other hand, can an expensive marketing effort in one of the highest-rent districts in the world increase a company's cache among an increasingly international audience?
Maybe this long-lived and innovative company is telling us something else. Maybe it is going to use this flagship location, opening in 2017, to reinvent one or more of its brands. It wouldn't be the first time.
Old Navy, where comps were flat in July, had been under pressure previously due to other cheap and casual options, like Joe Fresh. Joe Fresh recently closed a giant store on Fifth Avenue.
Remember Banana Republic? The famed GAP concept, known earlier in its history for a safari-like look, reinvented itself into a pretty and fresh business-casual powerhouse. Do the current GAP concepts have the potential to reinvent themselves -- like Banana Republic did in the past?
At Banana Republic, July comps were down 14%. Banana may have, at least temporarily, lost some of that cache -- and may be in dire need of a refresh somewhere within the brand or product offering.
Overall, July comparable-store sales again showed weakness -- down 4% versus the consensus recovery view of a 1% decline. Better cost management offset this weak sales result, enabling the company to guide EPS to $0.58 to $0.59 for the second quarter. The weak comp result, after the stock's recent recovery, will likely offset any stronger earnings results.
This is all unfortunate, considering what seemed like a better sales environment in June. But it is illustrative of the choppy environment that is retail at the moment, where behemoths, such as GAP, are struggling under slow traffic, commoditized products and potentially ever-increasing price competition.
All in all, I'm not sure that The GAP is interesting, right now. We'll have to see how it designs the flagship in Times Square in 2017.
Source for Photo: J. Gentile