Gap to Close 175 Stores

by Katie Sloan

San Francisco — Gap Inc. is streamlining its retail business by slimming its store count to 800 Gap stores in North America, the company outlined in a statement ahead of an investor meeting scheduled today.

The measure will close 175 stores in North America over the next few years, according to the company, with 140 of those stores occurring in Gap’s current fiscal year. When complete, Gap will have 500 Gap stores and 300 outlet and factory stores in North America. As part of the process, Gap Inc. will also shed about 250 employees in its corporate workforce. It is a move that Global President Jeff Kirwan, who was appointed to the position in December 2014, says will enhance the customer experience across all of the retailer’s channels: online and in-store.

“Our customers and employees want Gap to win,” said Kirwan in the statement. “We’re focused on offering consistent, on-brand product collections and enhancing the customer experience across all of our channels, including a smaller, more vibrant fleet of stores.”

The move comes as Gap has struggled to find its footing in the marketplace. Gap must right-size its portfolio, as well as recapture its customer base. In recent years, consumers have moved toward one end of the spectrum or the other — buying more ready-to-wear, trendy clothing at retailers like H&M and Forever 21, or opting for more high-end fast-fashion apparel like those found at specialty retailers and upscale department stores. That shift has left Gap — once one of the more affordable and fashion-forward retailers — stuck in the middle.

“Over the past few years, Gap has quietly and slowly closed many Gap Kids, Gap Body and other related stores and integrated that merchandise into Gap stores, so they have made some moves to streamline retail already,” says Jeff Green, president of Jeff Green Partners, a retail consultancy based in Phoenix that works with retailers and shopping center owners. “Performance isn’t just in the Gap line, it is also an issue with Banana Republic. Old Navy, meanwhile, is quietly becoming a very American fast-fashion brand at prices consistent with that category; its sales are up 10 percent. While many of us in the retail industry have seen or expected these changes, much this announcement is that Gap has to show Wall Street that it is making specific changes in the Gap brand.”

The store closings come at a relatively good time for the segment of the retail real estate market where Gap stores are located. Since relatively little new specialty retail space has opened over the last five years, space in many top malls, lifestyle centers and community centers is at a premium among expanding tenants. Long known for being a leading tenant among specialty retailers in new projects, Gap’s real estate is mostly well located in centers. 

Sources in the industry say that many of the stores closed will be natural lease term expirations. With the industry fresh from the ICSC RECon Convention in Las Vegas, it is likely that many shopping center owners were aware that Gap wasn’t planning to renew some leases.

“In many cases, landlords have already started talking to prospective tenants,” says Andy Graiser, president of A&G Realty Partners, a Melville, New York-based firm that specializes in excess real estate. “It is a good time for the stronger real estate to return to the market, but the stores in weaker centers will have a lag to re-lease. Depending on where the stores are determines whether or not they could be a problem for landlords.”

Graiser also forecasts that the industry may see similar announcements in the days ahead.

“Gap is not the only specialty retailer who is closing stores as they expire,” he says. “Many specialty retailers are closing stores to right-size their store counts. They’re not exiting retail, but they are making their businesses healthier.”

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