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Marketplace Morning Report

Parent Gap Inc. benefits as Old Navy gets stylish

Gigi Douban May 21, 2015
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Clothing retailer Gap Inc. reports first-quarter results on Thursday. Revenue in 2014 totaled $16.2 billion, up 3.2 percent from the previous year. For the last four quarters, profit has gone up year-over-year by an average of 4 percent. But there’s an interesting fragmentation within parent company Gap Inc. Last fiscal year, store sales fell 5 percent at Gap stores; Banana Republic’s sales were also unimpressive. But at Old Navy, sales went up 5 percent.

Old Navy started out as a place where the whole family could pick up cheap fleece jackets and tank tops.

“They really weren’t known very much for being fashion forward,” says Jane Thomas, marketing professor at Winthrop University.

Other retailers, like H&M and Forever 21, started grabbing young shoppers. But then Gap Inc. hired the executive who led H&M’s expansion into the U.S., Stefan Larsson, and asked him to revamp Old Navy.

“It’s brilliant strategy,” Thomas says.

Now, plain T-shirts and khakis are bold prints and crinkle-gauze tops. Mark Cohen, head of retail studies at Columbia University’s business school, says Old Navy is making its merchandise more interesting and attractive. But the Gap has an identity crisis.

“Is it trading into the teen segment with American Eagle, Abercrombie and Aeropostale, or is it trying to move up market to an older customer? I’m not sure they get it,” Cohen says.

If the Gap does get it, he says, it’s not making it clear.

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