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business newsClothes Call: Old Navy Gets Back to Basics
By
Scott Reeves Apr 07, 2009 11:45 am
Down-on-its-luck retailer to drop the trendy act.
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Dangerously skimpy bikinis and overly dressy duds will be de-emphasized as the company returns to proven hits such as jeans, flip-flops, T-shirts and dresses under $20. The company again seeks to live up to its motto, “Family, fashion and value.”
“We believe we got a little too sophisticated last year,” Old Navy President Tom Wyatt told Reuters. “We got a little bit too expensive.”
It’s not hard to see how the 15-year-old chain that built its name on casual clothes and low prices went astray: Spiffier clothes come with higher profit margins for the retailer.
But there was a catch - customers weren’t buying the new stuff in significant numbers. Old Navy hasn’t had positive same-store sales growth since March 2007.
Trendy fashions alienated Old Navy’s target customer - a young mother who shops for her family and herself. In March 2008, Old Navy’s sales fell 27%.
Recovering from that marketing faux pas is likely to goose sales figures in the coming months, but it shouldn’t obscure the fundamental restructuring the company plans to undergo, including the remodeling of about 1067 stores and closing of 15 others this year. Old Navy generates about 36% of The Gap’s total sales.
Plans to remodel Old Navy stores call for improved merchandise display, centralized check- out, easy-to-find fitting rooms and a children’s play area.
Despite its strengths, Old Navy has been The Gap’s weakest performer unit recently. The Gap goes after the urban chic market with Banana Republic. Brand extensions include GapBody, GapKids and BabyGap.
The market segmentation positions allow The Gap to compete with everyone from Target (TGT) to American Eagle Outfitters (AEO) to J. Crew (JCG).
The Gap does a good job in holding down costs, but the company has been losing market share in its 3 brands, making Old Navy’s revival vital to its long-term success.
Gap is betting that getting back to basics and returning to its irreverent ads will revive the brand. Look for “Super Modelquins” who yap about their “bodacious booties” in an effort to recreate the slightly goofball aura that animated sales in the past. The company is also creating a spoof of celebrity magazines in an effort to appeal to the chain’s target customer, women aged 25 to 35.
Early reaction to the new campaign appears to be mixed, but getting back to basics -- especially lower prices -- suggests Old Navy’s revitalization plan is a good long-term bet.
No positions in stocks mentioned.
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