Old Navy presented its Bodequality campaign as a revolution in the world of fashion. From the hand of a university professor, he scanned the bodies of 389 women to have digital avatars of real women of all sizes. She adapted her design and manufacturing process, interviewed hundreds of women, ran tests and more tests. Her inclusive campaign aimed to “democratize the shopping experience” clothing for women of all sizes. The purpose seemed laudable. The result has been disastrous.
The GAP group, a fashion giant that has fallen on hard times due to its repeated strategic and management errors, announced this Thursday which had entered into losses in the first quarter of its fiscal year, that is, from February to April. The main reason has been the collapse of sales and margins of Old Navy, its main chain, largely due to size management problems. The company has announced that it is taking a step back to try to recover profitability.
What happened? GAP has many problems, but the inclusivity campaign of its Old Navy chain has resulted in the fact that in many stores and designs, it was very easy to find very large or very small sizes, but intermediate sizes, the most demanded, were missing. When a customer makes a mistake in size, an exchange or return solves the problem. When the one that makes a mistake is the company, and it does it on a large scale, the consequences are more serious.
The effect is multiple. On the one hand, the lack of merchandise in the most common sizes has hampered sales. On the other hand, the excess of large sizes has caused them to accumulate in stores and aggressive sales have been necessary to sell them, eroding not only sales but also margins. But in addition, it has completely misaligned the supply mechanisms, inventory management and the company’s response capacity. The disaster has cost Nancy Green, the Old Navy executive who launched and executed the inclusive campaign, her head.
The CEO of GAP, Sonia Syngal, openly acknowledged the problem this Thursday in a conference with analysts and investors: “While we believe that Bodequality is appropriate for today’s consumer and fulfills Old Navy’s mission to democratize style, we launched it too broadly and too quickly,” he said. “We have planned too many plus sizes and customer demand has fallen short of supply, leading to excess inventory in stores. This issue is compounded by out-of-stocks in major sizes due to ongoing supply chain disruption and inventory backlogs,” he continued.
He knows in depth all the sides of the coin.
He also acknowledged that putting both the focus of his campaigns, both in physical and digital stores, on plus-size customers has alienated his regular customers from the brand.
Syngal has promised a thorough rectification, although it will take some time to work. The chain is “resizing”, that is, cutting, its offer of large sizes in physical stores to better respond to demand, although trying to serve customers who have approached the brand with the launch.
“We will continue to offer the full range of sizes in the online store and maintain price equality between sizes in all women’s designs,” promised the head of GAP. His team has canceled a significant portion of the large sizes for the third quarter, is optimizing supply, and will monitor demand and fine-tune it if necessary. “We are confident that our main sizes will be back in stock for the fall,” he told analysts.
The inclusivity of your campaigns will also go down. After rolling out unconventional models, the message changes: “We’ve updated the marketing mix across all channels to better reflect plus sizes as a percentage of total business and are using inspiring creative to win back for the Old Navy customer.” our main marketing messages of fun, fashion, family and value”, says the executive.
The GAP group has announced this Thursday night that sales for its first fiscal quarter fell by 13%, to 3,477 million dollars (3,233 million dollars). The gross margin sank 33% and went from representing 40.8% of sales to only 31.5%. For comparison, Inditex had a gross margin of 57.1% in 2021. The aggressive reductions due to the excess of very large or very small sizes and the increase in costs explain this deterioration. And despite the sales, inventories have grown by 34% year-on-year. There is a lot of merchandise to liquidate.
Despite attempts to contain spending, in that period from February to April, GAP suffered a loss of 162 million dollars, instead of the 166 million profit of the same three months of the previous year. In addition to the problems with the Old Navy brand, there are other ills that are affecting the sector in general, such as the increase in the cost of energy and raw materials and bottlenecks in the supply chain, on the supply side. , and the deterioration of the spending capacity of consumers in the face of inflation, on the demand side. The company is raising prices on most of its brands and products.
String parsing It allows us to see how almost the entire drop in sales is due to Old Navy, which went from billing 2,099 to 1,973 million dollars, a drop of 19% in the brand that still represents 53% of the group’s sales. The chain that gives the group its name, GAP, reduced its turnover by 11%, to 791 million dollars, affected by the confinements in China. Faced with the fall of the two main brands, the 24% growth of Banana Republic and the 4% growth of Athleta were of little use.
The San Francisco-based group is basically North American, although its GAP brand is somewhat more internationalized. Although it is present in Europe and Asia, the group concentrates 84% of its sales in the United States and another 8% in Canada. The first quarter has been so bad that not even online sales have kept up. They have fallen by 17%, but still represent 39% of the total.
After that horrible beginning of the year, the company has drastically cut its forecasts for the whole exercise. He expects net profit to be between $0.40 and $0.70 per share, compared to the range of $1.85 to $2.05 he has maintained so far. The company expects sales to fall by up to 5% for the year as a whole. The reaction of investors has been very negative, with falls of more than 10% in non-market hours.
The group has 3,414 stores, including 589 franchises. Of the 2,825 owned stores, 1,258 are Old Navy; 840, GAP; 496, from Banana Republic, and 231, from Athleta, its more casual and sporty brand. The company plans to open between 30 and 40 Old Navy stores and as many Athleta stores in the year, but wants to close about 50 GAP stores and another 50 Banana Republic stores as part of its plan to close 350 stores.