The Gap Will Close 175 Stores, Hoping to Climb Out of a Slump

The Gap to Slash More StoresApparel retailer The Gap Inc. (NYSE/GPS) announced on Monday, June 15 that it would close a quarter of its stores as the company continues to struggle in sales.

The retailer said in a statement that it would close 175 of 675 stores in North America, with about 140 of the closings occurring this fiscal year. The Gap also said that it would be cutting 250 corporate jobs this year at its headquarters in San Francisco, New York, and other locations nationwide. (Source: The Gap Inc. June 15, 2015.)

A few years back, due to The Gap’s aggressive expansion, the retailer claimed the title of the world’s largest specialty-apparel chain by entering into virtually every North American mall and city. Today, however, sales are plunging as customers are doing more of their shopping online. The Gap is stuck with a high cost of operation and too much real estate in unattractive locations.

The retailer chain reported a 10% drop in same-store sales for the quarter through May 2, which resulted in an eight percent decline in earnings to $239 million. (Source: The Gap Inc., last accessed June 16, 2015.)

The announcement of store closures follows a management shakeup of the retailer. In February, new Chief Executive Art Peck said that the women’s clothing business had been a challenge for several reasons due to poor quality and fit issues.

In January, the retailer fired its creative director, Rebecca Bay, eliminating the position in the process. In February, The Gap hired Wendi Goldman, former co-president at L Brands, Inc’s (NYSE/LB) Victoria Secret, as executive vice president of The Gap’s product design and development team.

The Gap said the store closures would result in annual sales losses of about $300 million. The CEO has also said that improvements may not be visible until next year because the label’s merchants had already ordered many styles before the recent shift in strategy and leadership changes.

Investors cheered on the decision to close stores, but retail analysts believe this is only the beginning of The Gap’s turnaround. The retailer also needs to improve merchandise and the in-store shopping experience. And with the management team in a constant state of flux, the company lacks a clear vision.