Total Retail’s Consideration: Yesterday’s announcement reflects the stories of two very different businesses. Old Navy has been a shining spot for Gap Inc. because its affordable apparel has made it more appealing to a wider base of customers. However, the Gap brand has been struggling in the face competition from fast-fashion retailers as well as changing trends. It lost popularity with baby boomers, who grew up with the brand, and failed to attract millennials who are driving fashion trends today. Although it makes sense for Old Navy, because of its size, customer awareness, and positioning, to grow as an independent company, retailers analysts are questioning NewCo’s future. The risk of combining promising brands such as Athleta or Hill City with the struggling Gap brand is real. This will ultimately lead to profitability for Gap by relying on them. Peck believes that integrating the capabilities Gap Inc. has focused on for years — increasing its omnichannel customer experience and building its digital capabilities — into two separate companies with a sharpened strategy focus and tailored operating structures will allow both companies to “capitalize on their respective opportunities” and “act decisively in an ever-changing retail environment.”
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L Brands to Shutter 53 Victoria’s Secret Stores
L Brands, the owner of the lingerie chain announced Wednesday that it will close 53 Victoria’s Secrets shops in North America this fiscal year. This is more than three times as many as the 15 stores it had previously closed each year. With this latest round, Victoria’s Secret’s square footage in North America will decrease by approximately 3 percent. Victoria’s Secret’s problems have been exacerbated by a weak holiday quarter. Comparable sales at the retailer fell 3 percent, due to a 7 percent drop in in-store sales. The retailer’s PINK brand, which was once a popular choice with younger shoppers, suffered a double-digit drop in same-store sales in the fourth quarter. Lingerie, on the other hand, was flat during a period that is usually a large gifting period. Margins suffered across all categories due to increased traffic-generating discounting.
Total Retail’s View: With more competition entering the market — Rihanna’s lingerie brand Savage X Fenty and American Eagle Outfitters Inc.’s Aerie and ThirdLove and Target’s plans for three new private-label brands specializing low-cost underwear/sleepers — Victoria’s Secret has seen a rise in its position at the top of the category. Inability to communicate with customers on themes such as female empowerment and diversity has been criticised by the brand in recent years. Victoria’s Secret customers have lost out due to image problems and pricing concerns. As more options for women (including those at lower prices) became available, so has the size and pricing. Victoria’s Secret will close unprofitable stores first. The next steps are still being determined. John Mehas, the former Tory Burch CEO, was appointed Victoria’s Secret CEO last autumn. Perhaps a brand revamp could help Victoria’s Secret regain lost market share.
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