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02/26/2012

Gap Growth Hot Spots: Online, Mobile and International

Gap sees its strongest growth prospects in two key geographies: cyberspace and international retailing. In fiscal 2011, the retailer's direct (e-commerce) and international divisions together represented 26% of Gap's total net sales, fueled by a 20% increase in its direct division's net sales. The retailer plans to nurture this growth with increased investments in e-commerce, particularly mobile commerce, along with plans to develop a global IT platform to support its international operations.

Overall, the retailer's net sales for the fiscal year ending January 28, 2012 were $14.5 billion, a 1% decrease compared to the previous year. Comparable sales, which included associated comparable online sales, declined 4%, compared to a 2% increase the previous year.

While Gap is not abandoning the brick-and-mortar business in North America, where it operates more than 1,000 stores, the company is shifting its focus to what it sees as higher-growth opportunities. "The first key initiative is to reduce our dependency on our North American specialty bricks and mortar business," said Gap CEO Glenn Murphy during a recent conference call discussing the retailer's Q4 and fiscal 2011 results. "We did accomplish quite a bit on that front in 2011. First off, we grew our online business' penetration of our total sales by two percentage points."

Gap also reduced its specialty square footage by more than 4%, he added, closing a net total of 65 stores. However, the retailer expanded its domestic outlet store square footage by 4% and also opened eight Athleta stores, with plans to open an additional 25 stores under this banner in 2012.

The retailer has already made structural moves to increase its overall efficiency. "We brought our logistics and distribution team together and merged it with our sourcing team to create one supply chain team, led by Colin Funnell, our EVP of supply chain," said Murphy.

Gap's key e-commerce investment in 2011 was the opening of a new distribution center supporting the direct business. This year, Murphy said the retailer would invest a "stepped-up amount behind our e-commerce business. The real investment is in mobile. Our mobile platform has done extremely well."

Long-term support will come in the form of a "brand new, global IT platform," he added. "Now when you open up in Italy and China and some of the other plans we have for the business going forward, you have to be strong in IT and you have to be strong in supply chain. It's going to take us a number of years to get done to really create and build a brand new global IT platform."

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