Gap Gambles Little with Growth Plan

Gap will try a little of this and a little of that to get sales growth going, but maybe too little.

The company announced that it will build on a prototype test and remodel 50 of its Old Navy stores as part of a plan to move beyond the cost-cutting programs it has undertaken and start to drive sales in an economy that might – or might not – be poised for a turn around.

At an analyst conference last week, CEO Glenn Murphy announced the Old Navy plan, which is part of a $350 million capital expenditure program for the year. Gap has the money, as, even though sales have been sliding for years, the company has kept its balance sheet solid and held on to cash.

Murphy sees Old Navy as poised for revival, saying at the meeting:

We’re pleased with the results we’ve seen from the new store prototype that has been tested this year in two Old Navy stores in California, and we’ll invest in 50 additional remodels this year. Early results demonstrate the new layouts create a better experience for our customers that better captures the unique energy that’s central to Old Navy’s fun personality.

The Old Navy plan is part of a broader effort to return the company to sales growth. Gap will also invest in its online and international businesses, which together boosted sales by $500 million from 2006 to 2008, Murphy said. The company’s online shoe and handbag shop, Piperlime, will expand with 50 new contemporary apparel labels debuting this summer. Meantime, Gap will open around 40 new franchise stores in 20 countries by the end of the year and will expand it outlet business in the United Kingdom, Japan and Canada.

Yet a Gap turn around may require more than what Murphy outlined. The Old Navy store remodel plan, derived from a two-location test in one, atypical state followed by a roll out to 50 stores, can’t be characterized as a thoroughgoing repositioning of a 1,000-unit chain. The investment in online and overseas seems modest as well and another initiative is temporary.

Later this year, GapKids and babyGap will launch a fashion line from designer Stella McCartney in the United States, Canada, Japan, Ireland, the United Kingdom and France. Gap by Stella McCartney will be limited to select GapKids and babyGap stores, although it will be available online in the U.S. While that should provide a holiday boost, McCartney won’t let it be, contrary to her father’s once-expressed sentiment. She doesn’t intended to become a Gap fixture. Indeed, in a statement released by the retailer, McCartney seems to distance herself from Gap even as she announces her collection:

For years now I’ve wanted to create a collection for kids, it’s something I’ve often been asked about. I believe that this one-off collaboration will be a great way for customers to be able to participate in the Stella McCartney brand. I believe that kids clothing should be more accessibly priced, which is particularly important at the moment given the current climate. It’s really exciting for us to do a boys and girls collection for the first time.

Maybe Gap still is testing ideas in preparation for a more concerted sales growth effort, but, if that’s the case, the company might have waited before raising expectations amid a room full of investors.