Gap has long been among the biggest operators of mall stores in the country. But after the pandemic, it will have a much smaller presence in traditional indoor malls as it closes Gap and Banana Republic locations and bets on the expansion of its Old Navy and Athleta brands.
“What we have accelerated now is the digital dominance of the business — our e-commerce business is about half of sales for the Gap brand, maybe even more in certain markets — and the restructuring away from real estate that has been obsoleted,” Sonia Syngal, chief executive of Gap Inc., said in an interview on Thursday.
She added that only about 17 percent of the company’s overall sales came from indoor malls in the first quarter.
Gap said on Thursday that its first-quarter sales rebounded 89 percent to $4 billion from a year earlier and rose 8 percent from the same period in 2019. It posted a net profit of $166 million, compared with a loss of nearly $1 billion a year earlier. The results were driven by surges at Old Navy and Athleta. Gap also raised its outlook for the year, calling for a sales increase in “the low-to-mid 20 percent range,” from an increase in the “mid-to-high teens.”
The pandemic fundamentally reordered the retail landscape, as bankrupt chains and even healthy retailers closed thousands of stores, and e-commerce became far more significant for companies. Gap, for example, said online sales made up 40 percent of its revenue in the first quarter. The retailer said in October that it would close 30 percent, or 350, of its Gap and Banana Republic stores in North America by January 2024, with a focus on reducing its exposure to declining indoor malls. As part of that plan, it will close 75 of the stores this year, the company said Thursday.
The shifts reflect changing consumer behavior and the widening gap between America’s best and worst malls, which was exacerbated by the pandemic. Gap has said it expects 80 percent of revenue from Gap and Banana Republic to come from “off-mall, strip, outlet and online formats” by 2024.
The company has also entered a new era in which Old Navy and Athleta are its star brands. Athleta, which recently struck a major partnership with the gymnast Simone Biles, just passed $1 billion in annual sales, and Gap said that could double by 2024. By then, executives expect sales from Athleta and Old Navy to make up 70 percent of the company’s net sales. It also plans to open at least 30 Old Navy locations and 20 Athleta stores this year.
“It’s the only female-only, women-supporting-other-women active lifestyle brand,” Ms. Syngal said of Athleta. “It’s a time when people are wanting human connection, and that’s where people are relating to Athleta and its unique positioning.”
Old Navy, the company’s biggest brand, brought in $7.5 billion in revenue last year globally, while Athleta, which caters to women, is the company’s highest-margin business. Athleta’s first-quarter sales surged 56 percent from the same period in 2019.
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Ms. Syngal was appointed chief executive of Gap in March 2020 just as the pandemic hit and has been trying to chart the retailer’s path forward. Before she became the top executive, Gap was planning to spin off Old Navy into a separate company. Now, it’s focusing on expanding its four $1 billion-plus brands and shedding distractions. It recently agreed to sell its Janie and Jack and Intermix chains.
Even as Gap and Banana Republic shrink their physical footprints, the brands plan to have more than 800 combined locations in North America. Both have been working toward revivals, with Gap planning a highly anticipated collaboration with Kanye West for a new clothing line called Yeezy Gap. Executives have said that would be available in the first half of 2021, but Ms. Syngal declined to confirm the timing: “We’re going to let Yeezy reveal the exact date.”
“We are pleased with the creative process that we’re seeing with Yeezy, and as we said, creativity really takes time,” she said. “I’m staying very, very close to it, and think that the planning that we’re doing is really about this multiyear potential — it’s not a one drop and done. We’re planning for multiyear growth.”
Ms. Syngal said that the Gap brand was “healthy and growing and cool,” and that Banana Republic was also seeing a recovery after taking a hit last year as customers worked from home and sales at urban locations fell.
“Banana certainly had challenges unique to Covid, between occasion wear and work wear,” she said. “Now that we’re getting past that in North America, we’re really pleased with the customer response.”
Broadly, Ms. Syngal said, there is a “peacocking effect” among shoppers, who are seeking bold and colorful clothing.
“There’s this exuberant optimism that’s happening,” she said. “We’re seeing consumers respond to a lot of new trends right now.”
Gap’s sales declined to $13.8 billion last year, when it posted a net loss of $665 million, from $16.4 billion and a profit of $351 million the prior year.