Gap Considers Closing Flagships

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Gap Considers Closing Flagships

By Jamie Grill-Goodman - 03/16/2020

Gap Inc. ended a disappointing year on a slightly upbeat note with fourth-quarter results that topped Street estimates. It also is making more leadership changes and is considering closing some flagships, including its locations in Times Square.

Gap Inc. said it is considering closing or subleasing some of its “least profitable” flagships, including the Gap and Old Navy flagships in Manhattan’s Times Square.

“As we and many of our peers have noted, the marketing value of the historical flagship model has diminished with the continued confluence of channels in the omni-shopping journey, particularly considering the size, location, premium brands and longer lease terms associated with flags,” Teri List-Stoll, EVP and CFO, said on the retailer’s recent earnings call.

“Frankly, it's a bit old fashion and no longer makes sense in today's omni-channel environment,” List-Stoll continued, “and where possible, we are working to exit the leases on some of the least profitable stores through buyout or sublease.”

This majority of this charge is related to our Time Square location agreements that were entered into in 2015, extend to 2032 and where rents have fallen dramatically.

In 2019, Gap’s 31 flagships represented approximately 3% of sales and were responsible for a $120 million drag on operating margins. Gap is targeting to close about 230 specialty stores by the end of 2020, and expects total costs of the program to be about $250 million to $300 million, which includes the estimated buyout costs of four flagship locations. Last year, 141 Gap brand stores were closed globally. In 2020, the retailer expects to close about 170 Gap stores globally and estimates restructuring costs of about $190-$240 million.

Gap ended a disappointing year on a slightly upbeat note with fourth-quarter results that topped Street estimates.

Looking ahead Gap Inc. CEO Sonia Syngal said due to the evolving coronavirus situation, the retailer is “facing a period of uncertainty regarding the potential impact on both our supply chain and customer demand.”

“During our 50-year history, Gap, Inc. has weathered many storms, she said. “We will benefit from our strong balance sheet and cash generation as well as our important vendor relationships during this current challenging period. We are focusing on decisive actions that will ensure we emerge well positioned to compete in the years ahead, and I am impressed by how diligently the teams have navigated the events of the past weeks.”