Gap CEO Announces Changes to Get Back on Track

June 21st, 2011 by Trefis Team
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GPS: Gap logo
GPS
Gap

Gap (NYSE:GPS) Chairman and CEO Glenn Murphy announced restructuring plans to revamp the retailer in a bid to recapture operating margins of 13.4% and said that he would reduce the number of Gap brand’s North American stores from about 900 currently to about 700 by 2013. [1] Below we take a quick look at this strategy and how Gap could . Gap competes with other specialty retailers like Aeropostale (NYSE:ARO), American Eagle (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NYSE:URBN).

Our price estimate for Gap stock at near $29.80 is well ahead of market price by about 65%. We estimate that Gap stores contribute around 26% to the company’s stock value.

Replacing Gap Stores with Gap Outlets

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Gap plans to shift its brand image from a specialty retailer in North America to more of a value player. Apart from closing 200 Gap brand stores, it plans to grow Gap outlets to about 250 stores and add about 40 Banana Republic Factory stores. This move comes from the fact that outlet stores provide higher return on capital and Banana stores provide higher margins of close to 17% to the company. Gap outlet stores recently expanded to Canada and Japan, and the company has also shown interest in opening up stores in Italy as well.

In a bid to secure better prices for the products, the company also plans to cut the number of vendors it works and is planning more ‘direct’ tie-ups with mills. This will again help in improving the profit margins.

See our complete analysis of Gap

Notes:
  1. Gap to close 200 more U.S. stores, Denver Business Journal [↩]