(Editor's note: This column opens a new series, the TSC Mall Rat, in which our retailing ace, Suzanne Kapner, will walk the stores to uncover deeper truths in the retailing world. By visiting a broad array of stores, Kapner will provide members with little retailing gems that we expect will prove invaluable. If you have stores you want Kapner to check out, shoot her an email: email@example.com.)
Mall Rat Special: Gap
Tuesday's closing price:
3 shopping bags (scale is 0-to-3). Ratings take into account: merchandise mix; whether products are heavily marked down or selling at full price; whether salespeople are helpful, annoying or nonexistent; interviews with customers about how the clothes fit; and general store ambiance.
After a spring filled with fashion foibles, Gap is doing what it does best this fall -- casual, basic attire. And as the company's other divisions,
, hit their niches with the force of a linebacker, Gap is looking for a strong finish in 1997.
Investors in Gap already have an idea that things are looking up at the retailer. Since the beginning of the year, the company's stock has climbed about 42% to just over 44. That's pretty impressive compared with the
gain of about 24% during the same period.
Gap trades at roughly 26 times trailing earnings, which some value players might consider expensive. And earnings gains are slowing. After posting net income gains of 103% in 1996's second quarter, the company weighed in with a modest 6% net income increase in this year's second quarter.
The company, however, appears to have ironed out two key problems at its 983-unit Gap division. A survey of some stores shows that for the first time in four years Gap is aggressively pursuing the back-to-school market. Moreover, the fall merchandise is back-to-basics with a vengeance.
Since 1992, when Gap aggressively lured the back-to-school customer by cutting prices on most merchandise -- suffering margin deterioration in the process -- the company has tiptoed around the season. But four years of disappointing fall same-store sales have kicked the retailer into action. This year, markdowns on selected items like jeans and khakis are designed to drive traffic while leaving margins intact.
Walk into any Gap and gawk at the ceiling-high piles of jeans and khakis. For two weeks prices have been slashed to $29 from $34. The product buildup bulked inventory 38% in the second quarter. While such massive inventory gains, in the face of a more modest 20% sales gain, normally alarm investors, many believe Gap's strategy is sound. To grab the impulse customer -- the college kid who buys two or three pairs of jeans before heading back to school -- Gap needs to be fully stocked in sizes and styles.
After getting burned by trendy clothes last spring, Gap has returned to its roots. Nothing fancy here. Just basic T-shirts, ribbed turtleneck sweaters and blazers. And the color-shy can relax. There's not a fuschia to be found (you'd have to head to Old Navy for that). Just good, safe fall colors like brown and red.
The entire store has a more masculine feel, which should help woo back male customers who didn't go in for Gap's frou-frou spring look. Adding to the manliness: Fragrances have been tucked away near the middle of the store. When the vials of "Heaven" and "Earth" were first introduced, they needed a showcase. But with customers fully aware that they can spritz at their leisure, the scents now take their rightful place near the cash registers -- better for impulse purchases.
And Gap designers have beefed up the men's line. Yummy flannels are available only for men, whereas before they came in unisex versions. And men are blessed with wide corduroys (long live the manly-man), while women must settle for thinner, more feminine cords.
A quick word about
, with 536 stores. After the between-seasons, bland look of black and gray this summer, the fall merchandise in warm, wonderful colors is enough to make mom salivate.
While the Gap division is the company's core, future growth will come from the lower-margin Old Navy. It's easy to see why analysts get all red in the face about this 225-unit division. The flagship store in Manhattan's Flatiron District hums with the intensity of
The showplace also is a trendsetter. Old Navy managers were some of the first to sport headsets. (You know, the gadgets that make stock boys look like bouncers at a nightclub.) Aside from the practical benefit of allowing managers to communicate with employees in different parts of the store, the headsets are cool -- in the same way beepers are hip. Just ask a teenager.
As for fall merchandise, Old Navy is betting big on
. The baggy, big-pocketed pants are flaunted in ads atop taxis and on bus stops. While the store racks are bulging with the wide-legged slacks, it's too soon to gauge whether people are buying.
However, a quick look at the bank of cash registers raises momentary alarm. There are many of them, and most are empty. Are people just chilling and not spending? Could that vibe that smells of -- cha-ching! -- casholah be a fake-out?
The idea is to provide convenience, and that means eliminating long lines at checkout. There are enough cash registers that during this slow time -- 3 p.m. on Friday -- some are empty. But step outside and clustered on the sidewalk are groups of shoppers hailing taxicabs. All have multiple Old Navy bags.
The last stop in Gap Inc.'s empire is the refined and oh-so-brown-suede-and-leather Banana Republic, with 240 stores. The prices are high, $98 for a pair of slacks, but so are the margins. Safari is hot this year thanks to
skillful use of khaki in his fall line -- think
-turned-tigress. And that suits Banana Republic fine. The store is a den of lush browns, deep olive greens, golds and blacks. The merchandise purrs like a leopard in heat.