Why Is The Gap Failing?

Back in the day, The Gap, or Gap, was one of the most popular clothing brands out there. Big celebrities could be found in all of their advertisements, and they were frequently referenced in movies and TV shows. It was a cool place to shop, and teenagers would beg their parents to take them there for their clothing needs.

After the early 2000s, things seem to have changed. While Gap was still seen in movies and TV shows, it was less about being cool. In ‘Crazy, Stupid, Love’, Ryan Gosling, a suave and fashionable man, even tells Steve Carell to “be better than The Gap” as he tries to suit him up in better clothing. Today, it looks like The Gap has died altogether.

COVID-19 brings forth the “retail apocalypse”

In March 2020, more than 250,000 non-essential stores closed across the US due to the COVID-19 pandemic. Apparel has suffered a lot with their sales going down by more than 50%. Some people have called this the “retail apocalypse” with several brands already filing for bankruptcy. And it looks like big brands like Gap are affected, too.

The Gap recently admitted that they had gone through half of their money because of their idle store fleet, skipping $115 million in April rents after the pandemic closed down their stores. They have since raised $2.25 billion in secured debt. They say they intend to use that money to refinance $1.25 billion of notes due next year along with outstanding amounts under its $500 million revolving credit facility.

This might seem surprising seeing as how The Gap is known practically all over the world. When the coronavirus was starting, their balance sheet looked to be “in decent shape”, and in February, they were said to have $1.7 billion in cash. Today, their shares sank below $7 from more than $18 at the start of the year.

While it isn’t guaranteed that The Gap will die because of the pandemic, it does look possible the way things are going. A lot of people have already lost their jobs. Malls aren’t able to collect rent from bankrupt retailers. Plus, there is no clear date as to when the pandemic will end.

Retailers like The Gap find themselves in a compromising situation. Instead of deciding on which locations they should close, they have to decide which ones should reopen. It almost feels like starting from scratch all over again.

How online shopping affects retail stores?

The pandemic isn’t the only one to blame. Even before the coronavirus came along, traditional retail stores were already having trouble keeping up with what technology has to offer. Online shopping has become more convenient, and more and more people are starting to favour smaller brands with more affordable prices. 

Pier 1 Imports shut down half of its locations last year, while Forever 21 went completely bankrupt. Sears has also been closing stores, while Barneys was liquidated. With the pandemic in our midst, online stores are once again thriving while mall-based retailers are struggling.

The Gap lost it’s brand positioning

Add to that the fact that The Gap didn’t seem to know where to position themselves, so they ended up positioning themselves practically everywhere. While Uniqlo and Target positioned themselves as the top providers of basic apparel, and brands like Madewell and Zara catered to the fashionistas of the world. The Gap tried to fit themselves in everywhere and ended up not properly fitting into anywhere.

It isn’t clear when the coronavirus will clear or if things will ever really go back to normal after it is gone. Will people be ready to go back to their normal ways when all of this is over or will they still avoid malls? Either way, a McKinsey & Company survey last April found that 67% of US consumers are expecting to spend less on apparel than usual. Shifting onto a digital platform might be a good idea as you will be able to save on rent and other overhead costs while focusing instead on online sales.

As mentioned earlier, more affordable online stores are also stealing a lot of brands’ thunder. Aside from online sales going up, a lot of brands are offering great sales to get rid of inventory and to bring in more cash flow. Some observers have said that it might take years for demand to go back to the way it was before the pandemic, so offering drastically lower prices might be a viable option for you to look into at the moment, as well.