At a meeting with investors and analysts on Wednesday to discuss its plans, Gap Inc. will begin to franchise Old Navy, its largest retailer, next year in particular international markets. Old Navy opened its first company-owned stores outside North America in Japan last year.
Saying there is “meaningful opportunity for our diverse portfolio of brands to gain share in the $1.4 trillion apparel market,” Glenn Murphy, chief executive, said, “Over the next five years, key to our continued success will be pushing the envelope further to make shopping seamless to customers through our digital strategy, while seizing the opportunity for Old Navy in many untapped international markets.”
In addition to continuing its expansion of the Gap brand in China, the company will explore adding company-operated Old Navy and Banana Republic stores in the Asian country as well.
“We have big, big opportunities internationally,” Murphy said during the meeting. “We have every intention to be the world’s favorite for American style.”
Expand Its Digital Footprint
Gap said it will continue to build its online and physical store omni-channel platform, an initiative it first introduced last year. The company plans to expand its digital footprint by creating a system with capabilities such as ship-from-store, find-in-store and reserve-in-store, the ability to reserve a product online and pick it up in the store.
The company said it also will invest behind growing its Piperlime, Athleta and newly acquired Intermix brands.
Since joining Gap in 2007, Murphy had steered a turnaround at the company which has seen its stock nearly double as he reduced square footage at stores by 11% and closed 34% of Gap-brand stores and reduced some Old Navy doors as well. The company plans to open 160 company-operated stores this year, focusing on Athleta, Gap China, Old Navy Japan and global outlets, resulting in a square footage increase by 1% by the end of the year.
The changes appear to be working. For its most recent fiscal year ended Feb. 2, the company reported its net income rose 36% to $1.1 billion and revenue rose 7.6% to $15.6 billion.
“Gap Inc.’s strategic goals aligned with our view of future of retail and if execution is good, per-share profit growth will be encouraging,” said Citigroup analyst Oliver Chen. “There’s a shrewd evolution taking place.”
Last week, Gap posted a 1% decline in its March comparable store sales, the first decline in comparable store sales in a year. Analysts’ expected a 2.1% drop, however. Comp sales were flat for the month at Gap, up 1% at Banana Republic and down 2% at Old Navy.
Chief Financial Officer Sabrina Simmons said Gap’s goal is to return to peak sales of more than $400 per square foot. Sales per square foot last year were $364.
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