No Turn On Red

The stimulus checks have been (presumably) spent, back to school shopping is underway, and the retail sales numbers for July are in and they are, well, pretty ugly. A lot of retailers posting negative same-store-sales numbers for the month, many of them posting numbers that fell below Wall Street’s expectations. Wall Street is responding - as of 12:30, the S&P Retail Index is down around $7.

The negative results are hitting all segments of retailers - from department stores to the mall, teen retailers to mass market merchandisers. Wal-Mart posted a positive sales increase of 3.0%, but that is less than the 3.5% increase that Wall Street was looking for. Target saw same store sales drop 1.2% in the month of July and warn that August isn’t going to be much better. JCPeneny’s sales dropped 6.5% but raised their Q2 guidance “due to better than expected sell-through of promotionally priced merchandise and continued expense management measures.” Kohl’s saw a steep 10.4 drop in same store sales in the month.

Gap saw negative numbers across all brands - Old Navy down 16%, Banana Republic down 8%, and Gap North America down 6%. When are they going to spin off the Old Navy brand, sell it, and let someone else deal with the turnaround?

Teen retailers aren’t seeing the Back to School numbers they hoped for with American Eagle down 7%, PacSun was down 4%, Abercrombie & Fitch (as a company) was down 7% (with only A&F proper posting flat numbers, up 1% for the month. Hollister was down 11% - blowing away the 4.1% decrease expected by analysts), but Aeropostale saw sales jump 13%.

More coverage from CNN/Money, Forbes, and Marketwatch.

Reminder, all of July’s numbers are available to analyze over at our partner site, Retail Numbers.

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Almost one year ago, I discussed the number of reasons why Gap, Inc. should integrate all of their brands online. Today, they’ve taken the first steps to doing exactly this. They’ve announced upgrades to their website that integrates their brand websites into one shopping session. Now, the customer is able to shop all four brands (Gap, Old Navy, Banana Republic, and Piperlime) using one shopping cart, one checkout process, and one shipping method. Kudos to Gap for making it easier for the user to shop their brands all at once.

I would still like Gap to recommend products across brands - Sell me a pair of Old Navy shorts with my Gap hoodie. I would still like to see them blog about new fashion items and offer ways to mix and match items across brands. But an integrated shopping and checkout experience is a positive step forward for this retailer.

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Looking at the Old Navy website to see what’s new, I noticed a box on the side of the main page advertising Crocs from Piperlime. Piperlime is the online footwear website that Gap launched last year. Carrying a range of styles and brands, this website is a very interesting endeavor by Gap.

Up until now, I don’t remember seeing much advertising for Piperlime on the other Gap Inc. properties. I could be wrong on that, but nothing has jumped out at me in the past. After seeing this integration on the Old Navy website, I checked and it is also on the main page for Gap and Banana Republic.

This is a great way to leverage their own brand through multiple channels. I’d venture to guess that a large segment of the shoppers of Gap, Old Navy, and Banana Republic, are not aware of the Piperlime brand. It is very smart to see them expose the brand this way.

I would love to see them take another step and integrate Piperlime even further into their brands. Why not include Piperlime shoes as recommendations to outfits on Gap.com? I realize all three of their brands have footwear selections of their own, but they are very limited compared to what Piperlime is offering.

In order for Gap to continue their turnaround efforts, they need to focus on three different consumer segments for their three brands. It is something they are working on already. But I’m imagine that there is still going to be some overlap between the brands. Why not take things even further and integrate all of the brands? Not one website, exactly, but recommend a Gap sweater to go with a pair of Banana Republic khakis and shoes from Piperlime.

Customers who bought this Gap shirt also bought these Old Navy jeans. I know I’m not the only one shopping at all three of their stores.

A great way for Gap Inc. to do all of this would be with a blog. Put a human face on the company and show off the newest fashions. Show me the new collection coming into my local Gap store and show me how I can dress that up with items from Banana Republic. Using already available technology, like blogging, could be a cornerstone of Gap’s continued regrowth efforts.

Again, I don’t think Gap should combine all of their brands into one. They need to have distinct plans for all of them. But there will be overlap and, I just have to wonder, if there is opportunity to leverage that online.

More Piperlime images:

What do you think? Am I crazy to think this or Gap Inc strengthen their overall brands by integrating them somehow online?

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Not very suprisingly, Gap Inc. did not post good Q2 results and has lowered their year-end projections:

SAN FRANCISCO, Aug. 17 /PRNewswire-FirstCall/ — Gap Inc. (NYSE: GPS - News) today reported net earnings for the second quarter which ended July 29, 2006 of $128 million, or $0.15 per share on a diluted basis, compared with $272 million, or $0.30 per share, for the same period last year.

Second quarter net sales were $3.7 billion, compared with $3.7 billion for the same period last year. Comparable store sales decreased 5 percent, compared with a prior year decrease of 3 percent.

“The second quarter continued to be challenging, as we aggressively cleared inventory to prepare for fall merchandise, and we invested in marketing and stores to improve second half performance,” said Gap Inc. president and CEO Paul Pressler.

“Each brand is at a different stage in its turnaround,” continued Pressler. “We are encouraged by improved performance at Banana Republic and our online division. And while we are making progress at Gap and Old Navy, we know it will take several seasons of consistent product, marketing, and store improvements to win back our customers. We remain committed to the strategies at each of our brands and to our growth initiatives.”

(The rest of the press release is here.)

The huge markdowns they took towards the end of the season to make way for the new Fall re-launch really hit them hard. This shouldn’t be suprising. A long time ago, everyone should have realized that Q2 was going to be nasty for them.

The turnaround of the Gap brand is going to be hard, as I’ve talked about in the past (here and here). The hardest part now is going to be in remaking their image and getting customers back into the store. And so far, this has been a challenge:

That said, our sales results month-to-date are trending below our expectations. Although we are disappointed with this initial performance, we are not discouraged and are seeing some successes. Our body business is building momentum, and our kids, baby, and maternity division is tracking well.

In adult, customers are responding well to several of our key items. Most notably, our women’s clean pants, clean sweaters, casual bottoms and knits. In men’s, our new khaki pants, fashion cargos, graphic and short-sleeve knits are all performing well.

Denim across the board continues to be challenging, particularly our five pocket jean. Compared to last year, our fall denim buys are lower and we skewed our assortment for trend-right fashion styles in darker washes.

But they are also noting that they are very pleased with the execution in the stores (though, would they really say that they weren’t?) and that their customer service survey scores have increased at Old Navy and Gap. That is a positive sign. The key is going to be getting to each customer, one by one, winning them back, and hoping that they tell their friends about it. Increased customer service scores is a great first step and early indicator of that.

Look for the Fall 2 Update in Mens & Womens to happen at Old Navy on August 28. I am interested to see where they plan on going, fashion wise, post BTS.

Look for 100 adult Gap stores to be remodeled by the end of the year. I guess I am in an area of higher performing Gap stores, since I have three of the new concepts out of the four closest stores.

This will be an intriguing quarter to watch Gap and all of their brands. Except Old Navy and Gap proper to be the most fun to watch, while Banana Republic should continue to build on the moderate momentum that they’ve seen in the first half of 2006.

Will the young adults come back to Gap? Will the increased marketing effort pay off? How will they look in three months, as we go into the Holiday season? I wouldn’t expect a big turnaround this quarter, but I hope for their sake that they are announcing some positive sparks of light come October.

More coverage from Marketwatch and The Street.

Transcript of the conference call provided by Seeking Alpha.

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Back in May, the talk was about how Neiman Marcus, Saks Fifth Avenue, and Bloomingdale’s had scaled back or eliminated their petite department (see my post: Where’s the Petite Department). This did not go over well, as there is still a large segment of the population who is shopping for petite clothing. A few weeks later, Saks recanted and announced that they would be increasing their petite offerings for the fall (see my poist: Sak’s restores petite department after outcry).

I came across this excellent article in today’s Ventura County Star business section. It is called Size Matters: Petite apparel appears to be in short supply. It is extremely well written and very detailed about the state of the petite department in today’s stores.

Petite clothing sales generated $8.9 billion in 2005, remaining flat owing to the lack of choices from manufacturers and retailers, according to market researcher Mintel International Group Ltd. in Chicago.

But image consultant Ellen York argues there are still 43 million petites in the United States who will not let the specialty size die. Studies show that as many as 43 percent of women in the U.S. could be classified as petite.

The biggest issues I’ve seen facing the petite department in America today is not offering the fashion that women want and not adapting quickly enough to demand. There are a few retailers that I’ve watched that have offered petite clothing but, the be blunt, have half assed it. Owning such a small penetration of the overall company’s business, petites is a department that can get quietly brushed aside by some retailers. That’s led to bad fashion and bad inventory control at at least three major retailers that I’ve watched over the past 18 months.

Retail’s biggest mistake with the petite department: Just because the woman is short, fashion buyers seem to assume she is old, or at least wants to dress old. Across the board, the fashion offerings in Misses Contemporary Sportswear divisions, in most retailers, is not as “old” looking as it once was. A woman who is 50 or 60 today doesn’t want to wear elastic waist pants and dull color choices. The shift is towards fashionable but appropriate clothing. Misses departments have reacted to this - Petite departments have not. Where’s the clothing for the short 25 year old woman who is just starting her career? It appears that most retailers are just reacting to this now (as in the past few seasons) and offering the clothing she needs. I think that explains one reason why sales have been flat.

Department stores have not reacted quickly enough to this change in fashion trends, explaining why it looks like they have lost marketshare, in the petites department, to mall-based specialty retailers like Ann Taylor and Banana Republic. The biggest challenge is going to be the continuing turnaround of this department in most department stores, trying to reclaim that lost marketshare.

Like I said, the article above is really great. Lots of detail and insight into the petite apparel business and where it is going today.

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I took a trip to the mall on Saturday, as I already talked about. After jotting down a few thoughts I had after going into a few stores, I wanted to give a little more space to Gap.

First, I’ll just put it out there - I love the Gap store that I stepped in to on Saturday. It is not the same Gap that we’ve seen in seasons past. It is exciting, fun, and I think the merchandise might also be good enough to buy.

At the beginning of June, news started to come out about the re-launch/re-branding of Gap. I shared some thoughts I had then - see: Gap’s Makeover. Concentrating on four shops within the store (denim, t-shirts, active, and “clean”), Gap is looking to create a shopping experience that is fun, as well as easy for the customer to shop.

I think that they may be getting it right.

Walk in to your local Gap store and looks different. Using their trademark blue as the base color, they’ve opened things up with a lot of intricate visual elements balancing large, colorful, retro-inspired graphics & marketing materials. Each zone of the store is compact and easy to shop. On each side of the store (men’s & women’s), they have three small rooms/shops leading into the bigger, open, denim area in the back of the store. On the men’s side, t-shirts/polos leads into a room of khakis and wovens, leading into a room with accessories and the remaining summer clearance, leading into the big denim area. Similar thing on the women’s side: t-shirts and polos leading into wovens and kkahis leading into activewear leading into the denim room.

Simple, simple, simple.

They’ve rethought the merchandise and they’re rethought their shopping experience. They’ve reorganized the merchandise categories, making it easy to find what you’re looking for.

Increased signage and excellent use of mannequins make the experience an exciting one (even having mannequins outside each dressing room, allowing them to showcase more and more outfits). Add in some nice finishing details, including a glass table that is full of literally hundreds of buttons from denim jeans, make it a polished, thought-out concept.

The new styles of clothing showcase their carefully thought-out retreat into stylish basics. Denim, denim, denim, and the new styles are a good balance of trendy and basic.

Will customers respond? Like others have said, it is going to take more than one season to make a turnaround. But this could be a step in the right direction. The buzz that I’ve heard from some is that there are good things in store for this retailer.

My only complaint? I’m not a fan of the merchandising of their denim wall. It appears that they are organizing everything by size, and not by color/wash. This is something I noticed at the end of last season in their stores. All of the jeans are together by style (straight, boot, loose, etc) and then sized - mixing all of the color/washes together. So you go to the shelf for 32×30 and then look through until you find the color/wash you want.

Although it makes an interesting looking wall, I don’t know if it is practical for the customer to shop. I want to find the color I want (dark wash, for example), and then find it in my size. When there are several washes of the same cut together, it seemed hard to find exactly the one I wanted. While I was there, I did overhear one customer remark on the same thing.

Or maybe, to their discredit, the walls were really badly merchandised & recovered when I was there! But it seems too neat to be bad recovery - it seems intentional that all of the washes/colors are mixed. Maybe someone with better knowledge of this can comment on this?

Other than that, great visit to the Gap. Keep an eye out for them and see if customers respond to their Back to School campaign.

Last week I talked about a trip to Old Navy and how their new merchandise mix and merchandising looked for the Back to School season. See also: First look at Old Navy.

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This weekend, Old Navy was doing the “stuff the bag and save 20%” promotion that they do several times during the year. My girlfriend got one of the bags in mail, so we took a ride to the local store yesterday.

Good news for shoppers is that nearly all of the Summer items are on clearance. The place is full of cheap shorts and cheap t-shirts. The bad news is that, at full price, I had already bought the two items from this Summer’s collection that I had wanted to buy. Even at reduced prices, nothing really stuck out at me.

But it was good to see that the store had started rolling out there Fall/BTS collection. First thing I noticed is that all of the new items are coming in on different hangers. They’ve made a switch to clear plastic hangers that look nicer, but are probably cheaper than the hangers they already had. Why the reason for the switch? I have a feeling it is a cost move, but, to tell you the truth, I always hated the Old Navy hangers. Interesting way to signal a new direction in the company, though.

They did have more than a few items out already, and, I have to say, that I am impressed by what they have out. Variations of polos, wovens, and denim - but with great detail. I linked to an article in last week’s Retail Notes that talked about Old Navy paying more attention to detail and construction than they had before. If the sample I saw today is any indication, I think they may have hit the mark they were aiming for. They have new “destroyed polos” with a level of detail (stitching, hems, design) that was unlike anything they’ve had in previous seasons.

On the other side of the store was still the same thing - the new denim offerings for Women look a lot better. New washes, new detail, and better construction. The new waffle-knit hooded pull-over that they had for women is very cute.

Add in a new graphic package, redesigned merchandise tags and labels, and whatever else they have up their sleeve - this could be the start of a turnaround for Old Navy. They will have to be gaurded, though, as I don’t believe investors will expect much from their second quarter numbers nor will consumers respond to them overnight. Gap, as a whole, has to overcome a few seasons of negative image in order to send the company in the right direction.

12 months from now Gap/Old Navy could be a different beast than they are today. It’s all about how quickly, and how well, consumers respond.

I am anxious to go back next week to see their full floor set and all of the Fall offerings.

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The May comp store numbers for the retail industry:

In the mall: Abercrombie up 3.0, Aeropostale down 1.1, American Eagle up 11.0, Ann Taylor up 12.0 , Hot Topic down 6.0, Limited Brands up 7.0, and Pacific Sunwear down 2.6. Gap as a company was down 6.0, however the break down between companies is interesting. Gap North America was down 5.0, Gap International is down 13.0, Old Navy was down 8.0, but Banana Republic is starting to show signs of a turnaround with a 3.0 positive comp.

In the department store sector: Dillard’s up 3.0, Federated up 9.2, JC Penny up 11.1, Kohl’s up 3.1, Nordstrom up 7.8, and Saks up 5.7.

In the battle of Target v. Wal-Mart and warehouse stores v. warehouse stores, Target was up 5.7 & Wal-Mart was up 2.0. Sam’s Club was up 4.0 while BJ’s Wholesale was up 4.2 and Costco was up 10.0.

Generally a pretty positive month across the board. Gap continues to struggle and Kohl’s is curiously one of the few companies with positive marks that didn’t beat investor estimates. Pacific Sunwear was down 2.6 after a fantastic April in which they posted a 14.0 positive comp.

Minyanville posts a good roundup of the May numbers, covering some retailers I didn’t cover here.

Interesting month and a good start to the Summer season in retail.

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