Facing decreases in same-store sales and shrinking customer bases, Gap and Talbots are planning to close a combined 300-plus stores over the next two years. By 2013, Gap plans to close 200 of its 900 locations, 22% of its current total, and Talbots will shutter 110 of its 580 units, a 19% decrease.
The announcements came after a first-quarter period that proved to be a challenge for both apparel retailers, with the outlook for Q2 and the remainder of the fiscal year showing a rocky road ahead. However, even as they close stores, the retailers have ongoing efforts to improve their businesses, including revamping merchandise assortments, remodeling stores, investing in technology and fine-tuning their marketing messages.
Gap announced it plans to close 22% of its U.S. stores at its recent investor conference, although it plans to make net additions to stores operating under different banners. The specialty apparel retailer has witnessed a drop in sales in the U.S., with a record drop of 10% in same-store sales in March 2011. During the first quarter of 2011, Gap's operating income plunged 22.8% year-over-year to $233 million, while its operating margin fell to 7.1%.
Gap plans to change stores in terms of product, store design and marketing in the U.S. by shifting from being a completely specialty retailer into a more value-oriented player that can offer its products at competitive prices. This will not only boost its sales, according to CEO Glenn Murphy, but also its profitability.
"I think we've lost our edge here a little bit," says Murphy. "We've been tapping at the edges of Gap brand in North America. That's not good enough. We need significant change — first in product, then in stores and third, a big change in marketing."
While closing its Gap branded stores, the company plans to grow its Gap Outlets total to 250 stores, a net addition of 50 stores, and its Banana Republic Factory stores to 150, a net addition of 40 stores.
Murphy also said the company will dramatically reduce the number of vendors Gap works with, including dealing more directly with mills in an effort to secure better prices and a faster, more flexible product pipeline.
Talbots Tries to Appeal to Younger Shoppers
Talbots has had four consecutive declines in quarterly sales. In the past year, the retailer has attempted to remedy this by focusing on broadening its appeal beyond its core audience of mature women. Part of this strategy included remodeling stores and a marketing campaign targeting younger women. The efforts did not draw the new customer base and may have turned off its existing base; comp store sales for Q1 2011 decreased 8.2% compared to the same quarter last year due to a 6% decrease in store traffic and a 3.5% decrease in conversion.
As a result of the poor results of its turnaround strategy, Talbots CEO Trudy Sullivan announced that the retailer will close 19% of stores by 2013.
"We plan to close approximately 83 stores in fiscal 2011, 25 stores in fiscal 2012 and 2 stores in fiscal 2013 for a total of approximately 110 stores closings," explained Sullivan in a recent conference call with financial analysts. "The predominant factors impacting our results were an inconsistent customer response to our merchandise assortments. As we look at the back half of the year, we will deliver a stronger balance of classic versus fashion-forward styles in our assortments."
The efforts to remodel and broaden its appeal will continue, Sullivan said, and the company expressed optimism about the second half of the year. But the company offered a pessimistic outlook for the current quarter. So far in the second quarter, sales are down by a percentage in the low teens, and the company expects "high levels of promotional and markdown activity." Gross margin will be "significantly" below last year, Sullivan said.
For related content see: Talbots to Use Customer Preferences and Size Profiles to Localize Assortments