A Gap store opened in Shanghai last year. Another 10 stores are planned for China.

Gap to Close 189 U.S. Stores as International Expansion Looms

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A Gap store opened in Shanghai last year. Another 10 stores are planned for China.

A Gap store opened in Shanghai. Another 30 stores are planned for China.

San Francisco—Saying that it may be “over-penetrated” in the U.S. market, Gap Inc. management told investors Thursday that they will close 189 Gap stores in the United States as the company expands its brands internationally.

The closures ,along with a plan to downsize many of its Old Navy stores, is part of Gap Inc.’s previously announced strategy to reduce its North American square footage in 10% by the end of 2013. Meanwhile, the company plans to expand its international and online business with the goal of making them account for 30% of its total revenue by 2013.

“The combination of our global strategy and formidable growth platform puts us in a strong position to expand our reach into the top 10 apparel markets worldwide,” said Glenn Murphy, Gap’s ceo. “In North America, we’re taking a number of steps to improve sales in the near-term, and I’m confident that with a strong management team in place, we’re well positioned for sustained growth across the business.”

Gap executives revealed more details of their plans at an annual meeting in New York with investors and analysts. Gap Inc. has been struggling with its North American business and in its most recent second quarter earnings reported that total comparable store sales fell 2% while Gap North America’s comp sales fell 3%, Banana Republic posted a 2% decline and Old Navy was flat.

More Gap Stores for China

As part of the turnaround strategy, 21% of the Gap stores will be shuttered leaving the company with about 700 stores. However, 50 Gap Outlets will open by 2013. Old Navy will shrink its 1,000 North American stores by 1 million square feet either by relocating or remodeling existing doors. Meanwhile the company plans to open 50 Athleta stores in the next two years.

“Over the next 26 months, we’ll look store by store at our specialty fleet and determine which stores meet the standards we’ve set for our brand,” said Art Peck, president, Gap North America. “This is a continuation of our work since 2007.”

While streamlining the U.S. business, the company predicts most future growth from international and online sales. Sales outside North American increased 16% in the first half of this year and online sales grew 19% across all brands.

The company, which already has a presence in 90 countries, plans to increase its Gap stores in China from 15 to 45 doors by the end of this year. Additionally, the company said online orders in China “were logged from over 330 cities, covering all parts of the country.”

Its franchise business, which has grown 48% in first half, will be stepped up to about 400 stores by the end of 2014. Banana Republic, which opened a successful flagship in Milan last year, is scheduled to open its first store in Paris in December.

Gap Inc. expects its online business to hit $1.5 billion in sales by year’s end “on track to reach $2 billion in revenue and operating income of $500 million by the end of fiscal 2014.”

Toby Lenk, Gap Inc. Direct’s president, said his division plans to expand its “ship-from-store” pilot program—one that taps into store inventory to meet growing online demand—from 25 Banana Republic stores to 270 Banana Republic, Old Navy and Athleta stores by the end of its fiscal fourth quarter.


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