Should Gap Close All Its Stores?

Among the Gap brands, the flagship is performing badly. Global same store sales for the brand fell 6% in May. Almost immediately, Gap “right-sized” its U.S. operations:

In order to drive productivity improvements and showcase the brand in the most successful locations, Gap will close about 175 specialty stores in North America over the next few years, with about 140 closures occurring this fiscal year. These changes will not impact Gap Outlet and Gap Factory Stores. In parallel with these moves, the brand will close a limited number of European stores during this period.

That leaves Gap with about 800 stores in America. Of these, 500 are “specialty locations” and another 300 are “Gap Outlet” stores.

That is not the first time Gap has closed a large number of stores to chase sales downward. In October 2011, the retailer announced it would close 21% of its locations, a number close to 200.

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Eventually, like many primarily brick-and-mortar retailers, Gap will have to hope online sales will make up for part of its sharp sales drop. It has a perfectly good website that promotes Gap and the company’s other brands, Banana Republic and Old Navy.

Gap operates on razor-thin margins. It posted sales of $3.7 billion in its most recently reported quarter, and it had only $239 million in net income. That leaves little room for mistakes.

There is nothing shameful when a retailer moves online quickly. Several use Amazon.com Inc. (NASDAQ: AMZN) to supplement their Web presence. Perhaps because Amazon is so large, it becomes their major presence. That is an opportunity for Gap, and it should take the opportunity in steps, and quickly.

There is precedent for the use of Amazon. Calvin Klein does it. So does kate spade, and Dockers and Levi’s. The list represents enough major clothing brands that the tactic must work.

How long will it take for Gap to close more stores? If same store sales drop 6% or more per month, not long.

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