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Strategic Initiatives Are Holding Gap’s Top Line

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Gap has emerged as a true survivor

For some time, the North American market has been a roller coaster ride for apparel retailers. Companies have been battered by rising competition from the online channel, an increasing presence of fast fashion brands such as Forever 21 and H&M, and numerous bankruptcy filings from industry peers.

However, Gap (GPS), the owner of Banana Republic, Gap, and Old Navy, has emerged as one of the notable survivors. After witnessing its sales decline 3.9% and 1.8% in fiscal 2015 and fiscal 2016, respectively, it bounced back in fiscal 2017 with a top-line growth of 2.2%.

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What’s behind improving sales?

Strategic initiatives such as digital expansion, timely responsiveness to changing customer preferences, and a focus on more profitable brands have boosted Gap’s comps. The company has delivered five consecutive quarters of positive comps after witnessing negative comps for nine consecutive quarters.

It might see further improvement for its top line in its first-quarter results, which are expected on May 24. Total sales are projected to rise 4.9% YoY (year-over-year) to $3.6 billion.

Key focus areas

Gap has swiftly repositioned its portfolio over the last couple of quarters. The company is turning to its more profitable Old Navy Brand and scaling back on its namesake brand Gap as well as its underperforming Banana Republic brand. It plans to close 200 Gap and Banana Republic retail stores by the end of 2018. It’s also looking to add 60 new Old Navy stores in North America.

Another key focus area for Gap is its activewear business. Its Athletica brand, although a very small fraction of its total sales, has had a superb performance lately. The brand posted a mid-20% growth in sales during the second half of 2017.

The next focus area for Gap is its digital business. It set a goal of $3 billion for online sales in fiscal 2017. It comfortably met that target.

In the next part of this series, we’ll look at Gap’s profitability and margins.

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