The Gap Is Going Under?
Both Gap, and its subsidiary Old Navy, experienced significant decreases in earnings in the amounts of 8% and 13% respectively.
Lately, it seems retailers have been dropping like flies. Nearly every week, there is news of another company either going under or facing a rocky financial road in the future. And Gap is the latest to join the long line of struggling companies.
The popular retailer has already struggled this year. And it does not appear the news will get any better for it heading into the holiday season. The US retail market is slowing down instead of ramping up the way it does in typical years.
According to 24/7 Wall St, “the National Retail Federation (NRF) has issued research that covers retail activity from November 1 to December 31. The pace will be much slower than in 2021. This year’s forecast is a 6% to 8% growth, which would push the total to $4.68 trillion.”
That is a significant downturn from last year when the retail industry experienced a 13.5% increase. That does not bode well for Gap, which is showing weak financial performance heading into the fourth quarter. At the end of the third quarter, the company reported an 8% drop in earnings.
They closed out the quarter with only $3.86 billion in revenue. And that is not the only bad news. Comparable year-over-year sales dropped by 10%.
Despite the terrible numbers, the CEO, Bob Martin, feels hopeful about the future. He said, “Our team has the capabilities to deliver what our customers, and our shareholders, expect — what’s needed for profitable growth. Importantly, as we adopt behaviors that enable sustainable change, I’m confident we will unleash our potential and drive value creation over the long term.”
He is not the only one expressing a seemingly ill-placed optimism. Gap leadership claims to be “cautiously optimistic.” However, they offered no insight as to why.
Perhaps the worse news for Gap comes from its largest brand, Old Navy. At the end of the third quarter, Old Navy reported a 13% drop in revenue. It finished out the quarter with only $2.1 billion in revenue.
Additionally, Old Navy’s year-over-year store sales took a nose dive. They dropped by a whopping 15%. And it is not likely that the holiday season will help them overcome this tremendous hurdle.
Jack Kleinhenz is the Chief Economist for the NRF. He acknowledged the difficult position many retailers, like Gap, are in as they head into the shopping season. He said, “The holiday shopping season kicked off earlier this year – a growing trend in recent years – as shoppers are concerned about inflation and availability of products.”
All retailers will do their best to try and entice customers to spend their hard-earned money with them. Customers can expect some fairly cutthroat competition. However, that may result in stellar promotions and discounts.
Unfortunately, Gap’s financial struggles may not give them much wiggle room in this competition. But they will have to work some magic to beat out the competitors. The only question is, will they be able to make it happen and turn their sinking ship around?
