- The Washington Times - Friday, May 10, 2002

It's back to the basics for Gap Inc.
The struggling retailer is trying to correct its fashion faux paus and return to classics like khakis, denim and white shirts in hopes of turning itself around from a nearly two-year slump.
Gap, which also owns Old Navy and Banana Republic, yesterday reported a 24 percent drop in April sales at stores open at least a year adding to the company's overall 22-month decline in sales.
Same-store sales are used to gauge the success of a company because they compare stores that have been open for at least a year excluding those that have recently opened or have closed.
Overall sales at the largest U.S. clothing retailer fell 17 percent to $962 million for the four-week period ended May 4 compared with sales of $1.2 billion a year earlier.
The decline in same-store sales isn't a big surprise to analysts, who were predicting a severe drop of 15 percent to 35 percent. The Gap ended March with more inventory than management expected and continued with heavy markdowns to clear the shelves for the summer season, analysts said. The early Easter holiday falling in March instead of April also hurt sales as it did with other retailers.
"We expected April comparable store sales to be more negative than the quarter overall because the Easter shift accelerated sales into March," said Chief Financial Officer Heidi Kunz in a statement.
In fact, Gap's April sales figures were by far the worst of any retailer last month. According to the Bank of Tokyo-Mitsubishi Ltd., total same-store sales were up 1.7 percent last month based on a tally of 65 retailers.
But Gap's problems started well before this season as the company moved away from the look that made it famous and added trendy clothes like denim jackets with glitter and tight-fitting fashions to its product mix.
As a result, Gap's original concept stores began losing regular customers who were turning to discount retailers to find the look minus the expensive Gap tag. The company's target customer, among its three brands, range in age from teen-agers to adults in their 30s.
"Gap lost touch with its customers," said Kent Dahl, president of Wells Fargo Retail Finance.
This summer's merchandise which consists of much more of the classic Gap look from khakis to cotton shirts started to appear on shelves last month, but officials say it is too early to rate its success.
Gap began the spring season with a new advertising campaign April 28 using heavy Hollywood star power like Dennis Hopper, Christina Ricci and director Cameron Crowe to draw in customers. The black-and-white ads, which highlight jeans, khakis and white shirts, will run through May 26.
But analysts say the company is on the right track in its attempt to get back to basics and target the customers it has alienated over the past several years.
"They've taken the first step, but is it enough to get people back into the store?" Mr. Dahl said.
Gap Inc. operates 4,228 stores among all three concepts and its BabyGap, GapKids, GapMaternity and GapBody stores about 10 percent more than last year. Mr. Dahl says Gap may need to close some of those stores in the next two years to get back on track.
While the company overall had a 24 percent drop in same-store sales last month, its Banana Republic brand fared the best with a drop of 13 percent. That was also true in March when same-store sales dropped 12 percent for the company but only 4 percent for Banana Republic.
"The Banana Republic concept is doing better than the other two," Mr. Dahl said. "Banana tends to have a higher customer profile and have more style to it."
Old Navy, a funkier, less-expensive Gap concept, which originated in 1994, is now feeling the pressure of superdiscounters that carry much of the same merchandise but offer the convenience of one-stop shopping.
Old Navy's same-store sales dropped 27 percent last month.
Gap's final earnings results for the first fiscal quarter ending in April are expected next week, but the retailer said it is expecting a profit of 2 cents to 3 cents a share. In February, Gap reported its first back-to-back quarterly loss in about 25 years.
In fiscal 2002 ended Jan. 30, the company reported a loss of $8 million (1 cent per diluted share) for the year. Net income was $877 million ($1 per diluted share) a year earlier.
Shares of Gap Inc., which trade on the New York Stock Exchange, rose $1.08 per share yesterday, closing at $15.79. The stock has dropped about 45 percent from a year ago.


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