Gap to buy Athleta for $150 million

Gap Inc. is investing in the activewear market with its $150 million cash purchase of Athleta Inc., a Petaluma company that makes women's sports apparel, the San Francisco retailer said Monday.

The deal will give Gap, which has made previous forays into the segment, a ready-made player in the $31 billion women's athletic clothing market, which includes such brands as Vancouver, British Columbia, sportswear retailer Lululemon Athletica Inc.; Lucy, headquartered in Portland, Ore.; and Title Nine, which is based in Emeryville.

"This is a strategic acquisition that makes sense for both Gap and Athleta. Both brands complement each other, so we see many opportunities for growth," said Gap spokeswoman Louise Callagy. Callagy described the privately held Athleta as profitable but declined to reveal the company's annual revenue.

Gap plans to add Athleta to its online brands, which include Gap, Banana Republic, Old Navy and Piperlime. It also might consider giving the brand space in its retail outlets. . . . more

Discount stores score big in August

Consumers flock to low-cost stores such as Wal-Mart, Costco and BJ's in back-to-school season, abandoning higher-end retailers such as Abercrombie, The Gap, Limited.

NEW YORK (CNNMoney.com) -- Consumers nervous about the weak economy abandoned higher-end clothing store chains for discount retail giants such as Wal-Mart, Costco and BJ's, which reaped back-to-school sales in August.

"Americans haven't slowed their spending," said Ken Brown, president and retail analyst with ResearchConnect.com. "They just moved their spending, from some of the retailers with bigger-ticket items to the discounters."

That was why the August same-store sales for Wal-Mart, BJ's and Costco increased and trounced analysts expectations, while sales plunged for Abercrombie & Fitch and The Gap, experts said.

"This is Wal-Mart's year to eat share," said Dean Hillier, retail expert with management consultant firm A.T. Kearney.

The discount stores
Discount stores tend to thrive in a weak economy, because many consumers perceive low-cost retailers as the best places to stretch their dollars in purchasing necessities. Some analysts had expected - incorrectly, it turned out - that discount retailers would experience a softening in sales as the government-issued stimulus payments that came out in the spring and summer dried up.

Wal-Mart (WMT, Fortune 500), the leading retailer in the world in terms of annual sales, said Thursday that sales at stores open at least one year increased 3% during the four weeks ended Aug. 29, compared to the same period last year. The figure didnot include fuel sales.

A consensus of analysts interviewed by Thomson Reuters had expected a gain of 1.6%.

"Quite honestly, I think their brand is a comfort zone for consumers during bad economic times," said Hillier. "They're the trusted brand in uncertain times."

Wal-Mart, the biggest food retailer in the world, attributed the gain to strong sales in groceries and "health and wellness" products. The company also was lifted by back-to-school sales, and said that sales in certain electronics - such as flatscreen TVs, cell phones and GPS units - continued to do well.

Wal-Mart's U.S. sales, not counting its Sam's Club division and fuel sales, rose 2.8% in August, compared to the same period last year. Analyst consensus from Thomson Reuters had expected a gain of 1.4%.

BJ's Wholesale Club (BJ, Fortune 500) said Thursday that same-store sales jumped 15.4% in August, lifted largely by rising gas sales from inflation. BJ's beat analyst expectations of a 14.1% gain, according to a consensus of projections compiled by Thomson Reuters.

But even without gas, BJ's outperformed higher-end retailers with a same-store sales gain of 8%, matching the consensus projection from analysts. The company said that food was among its biggest sellers, with an 11% gain in sales of perishable foods.

Costco Wholesale (COST, Fortune 500), another top low-income merchant, reported Wednesday that same-store sales jumped 9% in August, compared to the same period last year. But the company still fell short of a consensus of analysts pooled by Thomson Reuters, who had expected a gain of 9.9%.

Costco said that its sales gain was bolstered by the 40% surge in the price of gasoline. Without gas, Costco said same-store sales rose 6%.

Higher-end retailers
August is generally a good month for retail sales, as parents and college students stock up on clothing and supplies before the start of the school year. But these shoppers stayed away from retailers of higher-end clothes, according to analysts, who noted that many consumers are simply continuing to wear the clothes that they own.

The Gap (GPS, Fortune 500), which owns Old Navy and Banana Republic, said that same-store sales fell 8% in August. This was much worse than the 1% decline experienced in August 2007, but it wasn't quite as bad as the 9.7% decline expected by a consensus of analysts surveyed by Thomson Reuters.

The worst-performing part of its business with Banana Republic North America, with a 14% plunge.

"I don't see those guys coming back any time soon," said Brown of ResearchConnect.com, referring to The Gap and other clothing retailers.

Abercrombie & Fitch (ANF) said same-store sales fell 11% in August, which wasn't as bad as the 7.9% projected by analyst consensus from Thomson Reuters. Limited Brands (LTD, Fortune 500), owner of Victoria's Secret and Bath & Body Works, reported that same-store sales fell 7% in August, slightly worse than the 6.9% decline projected by analysts.

Gap closes high profile Boston shop

The Gap Inc. quietly closed the doors to its Newbury Street store last Wednesday, becoming the latest tenant to leave the popular Boston shopping destination.

Without any fanfare, the retailer closed its location at 201 Newbury St., leaving the storefront, which was once adorned with mannequins dressed in Gap clothes, empty. Four signs hanging outside the shop yesterday read: "This Gap location is closed."

Gap spokeswoman Kris Marubio would not disclose why the store closed. "We vacated it last week but customers can shop at nearby Copley Place, Faneuil Hall, or CambridgeSide [Galleria]," she said.

The Gap is the latest store to abandon the trendy shopping district in the Back Bay. In recent years, shops that line Newbury Street have seen sharp increases in rent as chain stores such as H&M and Victoria's Secret replace trendy boutiques. In May, luxury retailer Louis Boston said it would not renew its lease when it expires in 2010.

Like other specialty retailers, Gap Inc. - the parent company of Gap, Old Navy, and Banana Republic - has been hurt as consumers squeezed by the slowing economy, higher gas and food costs, and a weak job market have been spending less on clothes and other nonessential items.

Gap saw a surge in sales in the 1990s when American offices moved toward a more casual dress code and workers snagged its khakis and polo shirts. But recently, Gap has faced increasing competition from retailers such as Abercrombie & Fitch and discounters Target and Wal-Mart. To remain fresh and current, last year the Gap hired designer Patrick Robinson to help revitalize the brand.

The San Francisco-based retailer, which has had sluggish sales at all of its brands, also has been trying to boost its earnings by cutting inventory, reducing costs, and closing and downsizing stores. In the fiscal second quarter, ended May 3, Gap reported a 10 percent decrease in sales at stores open at least a year. In June, chief executive Glenn Murphy said he aimed to close some stores and downsize others; the Newbury Street location is just one of 115 stores Gap said it plans to close in fiscal 2008.

Christina Wright, 26, of the Back Bay walked yesterday to the Newbury Street Gap to buy a turquoise cashmere sweater that she had seen at another location only to discover the store was closed. "I just hope they do something good with the space because obviously this is an important street for Boston."

Source: Boston Globe

Gap Cutting Square Footage By Up to 15%

SAN FRANCISCO-With declining comps but soaring earnings due to cost-cutting, and its real estate analysis now complete, Gap has dropped the number of store openings this year and will cut its overall square footage 10% to 15% over the next three to five years, executives said at the company’s second quarter conference call.

In July, the company completed an analysis of its 3,170 stores, seeking to assess the role of each store in its market and the appropriate size for each unit. The results showed that Gap’s chains had too much space, says Glenn Murphy, chairman and CEO of Gap Inc.

“We’ve never had a clear real estate strategy,” Murphy explains. “We now have that information, and it will allow us to make quick decisions. The real estate comes down to the quality of the mall and the quality of the real estate.”

The company will first approach its landlords regarding dispositions, as they may have knowledge of tenants who will want or need the space, he says. Gap now plans about 100 new stores for the year, primarily in the Banana Republic division, a reduction of 15 stores. Store closings remain steady at about 115. Those numbers include store repositionings, which count both as an opening and a closing. Net square footage is expected to remain roughly flat for the fiscal year.

In other news, the company named Tom Wyatt president of its Old Navy division; Wyatt had been serving as interim president since February. Old Navy will begin a remodel program in 2009.

Second quarter net sales were $3.5 billion, compared with $3.69 billion for the second quarter of last year. Overall comparable store sales decreased 10%, with Gap North America, Banana Republic North America and International reporting 6% comp declines, while Old Navy North America posted a 16% comp drop. Online sales however, rose 11%. Net earnings increased 51% from the previous year to $229 million. The company does not expect a major change going forward, while vowing to be aggressive in efforts to drive more shopper traffic.

“There’s nothing new from our perspective for the second half,” Murphy said. “The environment is still challenging. We see no reason for optimism and are managing our business accordingly.”

Source: GlobeSt.

Sales Decline, but Cost-Cutting Helps the Gap

SAN FRANCISCO (AP) — The apparel retailer Gap Inc. said on Thursday that despite a decline in sales, its second-quarter profit rose 51 percent, helped by cost-cutting and tight control on inventory.

Profit for the three months ended Aug. 2 rose to $229 million, or 32 cents a share, from $152 million, or 19 cents a share, a year earlier.

Analysts polled by Thomson Reuters had predicted a profit of 30 cents a share, and the company had forecast earnings of 30 or 31 cents a share.

Revenue fell 5 percent, to $3.5 billion, from $3.69 billion last year. Analysts had expected revenue of $3.52 billion.

Sales in stores open at least one year, a main measure of industry performance known as same-store sales, fell 10 percent. In North America, same-store sales fell 6 percent at both Gap and Banana Republic and fell 16 percent at Old Navy. International same-store sales also fell 6 percent.

Gap also reaffirmed earnings guidance of $1.30 to $1.35 a share; analysts expect a profit of $1.34 a share.

The company said it would open 15 fewer stores, mainly Banana Republic, than previously expected during the year. It said it now expected to open 100 stores.

Earlier on Thursday, Gap named John T. Wyatt, a 30-year retail veteran, as president of its Old Navy chain.

Mr. Wyatt, 53, had served as acting president of Old Navy since February, when Dawn Robertson stepped down after struggling for 16 months to turn the division around.

Source: NY Times

Zara overtakes Gap to become world's largest clothing retailer

Spanish fashion chain Zara has ­expanded so rapidly in recent months that it has overtaken its main US rival Gap to become the world's largest clothing retailer.

Beloved by proponents of fast-fashion, Zara has spread its reach across the globe at a time when Gap has suffered from plummeting consumer spending in the US.

Inditex, Zara's parent company, recorded a 9% increase in sales to €2.218bn (£1.7bn) in the first quarter of its financial year. It also benefited from the strength of the euro to edge slightly ahead of Gap which saw its revenues fall by 10% and recorded sales of €2.169bn in the same period.

The difference may be tiny, but ­Inditex claims it is significant: for the first time the Spanish group has inched past its American rival.

The group, whose high street store Zara has led the charge, hopes to consolidate its lead over rivals later in the year as it continues to expand overseas in spite of the economic downturn.

It is three years since Inditex overtook H&M, to become the biggest clothing retailer in Europe. But the rapid growth is nothing new to a company which first started in 1963 in the bedroom of chairman Amancio ­Ortega's home in Galicia, northwest Spain, making bathrobes.

The first Zara store was opened in 1975, in A Coruña in Galicia. The 1980s saw rapid expansion across Spain, followed by the opening in 1988 of the first Zara store outside Spain, in Porto, Portugal.

Other shops followed swiftly in New York in 1989, Paris in 1990. Now the group has nearly 3,900 stores in 70 countries around the world.

Inditex has managed to get so far, so fast largely through the use of innovative management and logistics techniques, which have now become the subject of studies in business schools around the world.

In simple terms, it follows the same 'oil stain' pattern when moving into a new market. This involves opening one 'insignia' store aimed at building up its name in a new location, before setting up smaller shops of different brands to reach a certain density of outlets that allows it to create economies of scale and boost profit margins.

For a company which spends very ­little on advertising, its shops have always been its principal marketing tool, so many are purpose-built to look like fashion boutiques.

The key to Inditex's brand ­diversification lies in the group's vertical integration. Almost all the phases of developing and selling a new product are carried out in house — from design and production to logistics and sales.

Shop staff are encouraged — even expected — to keep Inditex designers in touch with any fashion trends as soon as they spot them, so the group can turn them round as soon as possible. A small team of in-house designers then works to keep up — if not ahead — of trends and get them on to the high street as soon as possible.

An Inditex spokesman said: "The ­success of the model lies in being able to adapt what you're ­offering in the shortest time possible to what ­clients want.

"For Inditex, time is the principal ­factor to take into account, more so than the costs of production."

Last year, Inditex saw profits rise by 25% to €1.25bn. Zara remains Inditex's most important brand, with sales of €6.26bn in 2007, which represented two thirds of the group's total revenues of €9.43bn.

Inditex has managed to branch out to a younger generation with its Bershka brand. This is where rivals have struggled to attract fickle, younger customers.

Gap in the market In particular, Gap has found that as its core customer base has aged and looked elsewhere, the chain has struggled to attract a younger generation to its stores. The company's Banana Republic chain in the US has fared better although a cheaper brand, Old Navy, has been a patchy performer.

For much of the past four years, Gap's sales have been falling. The company brought in a new chief executive, Glenn Murphy, last year to turn around its performance but just as things were showing signs of improvement, the US economic slowdown caused a dip in consumer spending.

Gap has 3,100 stores globally and employs about 150,000 people. A Gap spokeswoman declined to comment on the loss of the top spot to Zara.

Inditex's Bershka recorded sales of €925m last year with Massimo Dutti, Inditex's more upmarket offshoot , bringing in €696m in sales in 2007, while Pull and Bear, which sells casual wear aimed at a younger people, recorded €614m sales. Stradivarius, meanwhile, offers cutting edge designs. Its sales last year were €521m. Other brands, such as Oysho, a women's lingerie chain, and Zara Home, the furnishings chain, recorded sales of more than €200m each. The ­newest addition to the Inditex stable is the accessories chain Uterque.

Ortega, 72, remains the group's ­reclusive chairman, who hardly ever appears in public and never grants interviews. He has already anointed his 24-year-old daughter Marta Ortega Pérez as heir. She is expected to take a role in the boardroom but has also been reportedly working on the shop floor learning the ropes.

Source: The Guardian

Gap to focus on smaller-scale stores

In response to slumping sales, the clothing retailer changes strategy and develops a new real estate plan.

NEW YORK (AP) -- Gap Inc. plans to use its existing real estate to create smaller-scale stores and does not plan to open new stores in the near term, Chief Executive Glenn Murphy said at a conference on Tuesday.

Murphy's comments, made at the PiperJaffray (PJC) consumer conference in New York, were webcast.

Gap (GPS, Fortune 500) has experienced slumping sales over the last several years, although the San Francisco company's profit has been improving since Murphy took the helm in July.

In May, the company said first-quarter profit rose 40%, helped by managing inventory and cutting costs, but sales fell 5% to $3.38 billion. Sales at stores open for at least a year dropped 11% - the company's worst erosion yet during a downturn that has lasted nearly four years. Gap's same-store sales have now declined in 15 consecutive quarters.

"None of us feel good about minus five in sales," Murphy said. "We want to drive bottom-line earnings growth through running a healthier margin business."

One way to do this is by retooling the company's 40 million square feet of real estate, Murphy said.

"We always viewed this as a cost, but it is an asset," Murphy said. "We need to monetize it and maximize it."

Murphy said San Francisco-based Gap has too many stores that are 12,500 square feet, which he deemed too large other than for flagship and signature locations.

"We got carried away," he said. "Stores are larger than we need."

Instead, he said the target size of stores should be 6,000 square feet to 10,000 square feet.

In addition, the company plans to combine previously separate concept stores. Some Gap body, adult, maternity, baby and kids stores will be combined in one, rather than in separate spaces as they have been previously.

Most of the changes will be evident beginning in 2009, Murphy said.

"We will think through whether our 3,100 stores will be repositioned, relocated, remodeled or right-sized," he said.

Meanwhile, company plans to reduce the number of 20,000-square-foot Old Navy stores it has, and focus on stores that are around 14,000 square feet to 15,000 square feet.

It will take about three to five years to get the right amount of stores into that "sweet spot," at Old Navy, Murphy said.

Other initiatives the company is working on include opening outlets in Canada. It also recently launched an online platform where consumers can shop across all four of its brands: Gap, Old Navy, Banana Republic and online shoe retailer Piperlime.

Source: CNN

Gap Turns Lean & Mean

Gap Inc. posted a 40 percent hike in first-quarter profit on the backbone of tight inventory and cost controls. Same-store sales fell 11 percent but some analysts still believe that the retailer's long-awaited turnaround may finally be taking hold.

Gap has been able to avoid dramatic markdowns that had become commonplace across its banners - Gap, Old Navy and Banana Republic - by more effectively managing inventory. The more disciplined approach - combined with lower advertising expenses, layoffs, and other cost cutting - has helped increase Gap's profits for four consecutive quarters.

In the first quarter, gross margins improved to 39.7 percent from 38.2 percent as both full-price and markdown profit margins improved due to lower inventories. Inventory per square foot fell 17 percent at the end of the quarter. Operating expenses declined to 28.3 percent of sales from 29.6 percent, partly due to reduced advertising costs. Although Old Navy still advertises, the flagship Gap chain has been off the airwaves for several quarters.

The ugly stat was the same-store drop, which marked the company's worst erosion yet during its nearly four-year downturn. Gap's comps have now declined in 15 consecutive quarters. Comps dropped 18 percent at Old Navy, seven percent at Gap domestic, five percent at Gap international, and four percent at Banana Republic.

Glenn Murphy, who replaced Paul Pressler as Gap's CEO last July, has been working to improve traffic through among other initiatives, naming designers Todd Oldham and Patrick Robinson to help revamp merchandise at the Gap and Old Navy.

While Old Navy remains the most challenged, some analysts are wondering whether the flagship Gap chain should resume advertising. The company has no plans to do so at least for the second quarter.

On a conference call, Mr. Murphy, who formerly led Canada's Shoppers Drug Mart Corp, outlined four factors underlying the Gap's decision to make deeper inventory commitments and marketing more aggressively to consumers, according to Advertising Age. Brands must have good product, well-run retail environments and an "imaginative, creative" message for the target consumer. The fourth criterion, he said, answers the questions: "Is the consumer ready to respond to the marketing? What is the psyche of the consumer? How are they feeling at that moment?"

"If we can see those four sets of criteria being aligned, we're happy to one, spend the money or, secondly, not spend the money, if we can't see a return," he added. "And just to be clear, we're happy to invest more money to get a return if everything is lined up."

Source: RetailWire

Banana Republic to Open First Monogram Store

Banana Republic, a division of San Francisco-based Gap Inc., will open its first standalone Monogram concept store in New York on April 7, according to Dnrnews.com. The retailer will convert its Bleecker Street location in Greenwich Village to the Monogram concept store, which will serve as a test store for nine months. The Monogram concept, which has more expensive, sophisticated collections, will offer a men's line focused on tailored pieces, as well as women's merchandise. The men's collection debuted last fall, and the women's Monogram line will launch this spring, with accessories planned for fall 2008. "Monogram offers our customers the best of city style and we are eager to showcase the collection in a dedicated environment for our New York City customers," said Jack Calhoun, president of Banana Republic. Currently, there are no plans to open additional standalone Monogram stores.

Source: Display & Design Ideas

Legacy Place will include L.L. Bean and market

Despite difficulties in lending markets, the developers of a planned Dedham shopping center with as many as 80 stores and restaurants have secured construction financing and are set to break ground next week.

Legacy Place, at the intersection of Route 128 and Providence Highway, will have a 60,000-square-foot Whole Foods Market with a cafe and outdoor seating, a two-level L.L. Bean store, and a National Amusements Cinema de Lux premium movie theater complex.

Other tenants include Kings entertainment, which offers billiards, bowling, and beverages; a Legal Sea Foods; an Aquitaine restaurant and a Ruth's Chris Steak House; and clothiers Ann Taylor Loft for women and Pink for men, plus Gap, Levi's, and of course, a Starbucks.

"People have been trying to build better retail in this area for 20 years," said Dick Marks, a partner in WS De- velopment of Newton, one of the developers, which started planning four years ago. "You need to have enough different opportunities for people to visit as you can."

WS Development and partner National Amusements of Dedham have a loan of almost $200 million from Sovereign Bank to finance the 675,000-square-foot project.

"I've been in this business 30 years, and it's the worst credit market I've ever experienced," Marks said. "But they're obviously as confident as we are in this asset."

Designers for the retail portion of the project are PCA Architects of Cambridge. The architect for the theater complex on the site and for an 85,000-square-foot headquarters for National Amusements, owner of the cinema chain, is spg{+3} of Philadelphia.

Suffolk Construction will begin construction on April 1, with completion planned for summer 2009, including parking for 2,900 cars.

WS Development has been in heavy competition for some of the same prominent stores with the developers of Westwood Station, a retail, residential, and office development a few miles east along Route 128. The larger Westwood Station, which is also just getting underway, will have Target, Eddie Bauer, and McCormick & Schmick's Seafood, among others.

In Dedham, Massachusetts-based companies that will lease at Legacy Place include National Jean Co., City Sports, Finale desserts, Magic Beans baby goods, and lululemon athletica apparel.

Other signed tenants include Anthropologie, b.good health food, Banana Republic, Levi's, H&M clothing, Cold Stone Creamery, Qdoba Mexican Grill, Fossil watches, Dandelion dining, the house wares company Stil Haus, and Yankee Candle.

The developers will demolish the existing cinema and office buildings bracketing the large parking lot, then construct seven new buildings, mostly of two stories, on the 47-acre site.

Legacy Place will be a large example of the "lifestyle centers" that are in vogue in the retail world, and which comprise a shopping center with entertainment and a variety of restaurants.

Marks said shopping centers at South Shore Plaza in Braintree, the Natick Collection, and Chestnut Hill in Newton are far enough away that, even in a weak economy, Legacy Place should do well.

"That's why this is such a good market - there really isn't any competition," he said.

Source: Boston Globe