Photo: Gap, Inc.
Will Gap Cut Its Way to a Turnaround?
Gap Inc. is laying off 1,800 corporate workers in a restructuring that will make it more agile, according to the apparel retailer.
The layoffs, representing just under two percent of the company’s global workforce, are part of a multiyear effort to spur profitability through cost-cutting. Around nine percent of Gap’s 95,000 workers worldwide work in corporate positions. Gap laid off around 500 workers in September and has closed underperforming stores, primarily in mall locations.
The Wall Street Journal reported that Gap Inc. interim CEO Bob Martin sent a memo to employees last week and explained the layoffs would help achieve the company’s goal “to flatten the organization, increase spans of control to create more robust roles and individual empowerment, and decrease layers to remove bottlenecks and make better, faster decisions.”
The new layoffs are expected to focus on headquarters and other upper-level corporate field positions. Gap Inc. expects to achieve annualized savings of $300 million due to the layoffs. The company is looking to book half those savings this year, CNBC reports.
“We are taking the necessary actions to reshape Gap Inc. for the future — simplifying and optimizing our operating model, elevating creativity, and driving better delivery in every dimension of the customer experience,” Mr. Martin said in a statement.
Mr. Martin said that the company’s Athleta, Banana Republic, Gap and Old Navy banners would be able to “release untapped potential” due to the company’s restructuring.
Gap, last month, reported that its full-year revenues were down six percent and that same-store comparisons fell seven percent. The company reported an operating loss of $69 million for the year and its gross margins declined 500 basis points.
Gap, also last month, closed its retail media network, GPS Media, about a year after its start. A company spokesperson told Business Insider that the company was shifting its investments to its supply chain and stores.
“After testing and learning across multiple opportunities, our B2B team is focused on the businesses with the strongest demand and greatest momentum,” said the spokesperson.
Discussion Questions
DISCUSSION QUESTIONS: How likely is Gap to become a more agile organization due to its latest reorganization and layoffs? Where does Gap have the most significant deficits to overcome: merchandising, marketing, supply chain, et al.?
Poll
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Cathy Hotka
Principal, Cathy Hotka & Associates
John Lietsch
Chief Operating Officer, Bloo Kanoo
A far smarter CEO than I said about the tech layoffs that tech companies could cut their way to profitability but couldn’t cut their way to growth. Are six and seven percent decreases in full-year revenues only due to over staffing? How is that so clear today but it wasn’t a year or two ago? I don’t know enough about their financials or operational issues to intelligently challenge their thinking but I believe Gap’s deficits are fundamental and I’m not sure they will be cured with layoffs. I’m not saying layoffs aren’t necessary at times. I just think, layoffs aside, it would be great to know how they plan to release all the “untapped potential” that all those people were apparently blocking.
I suspect the announced layoffs have nothing to do with “greater agility” and everything to do with pure panic.
Their problem seems to be that not only does John not “know enough about their financials or operational issues to intelligently challenge their thinking”, but no one inside the GAP does either.
Gap has multiple problems that will require a range of solutions. Cutting expenses and corporate bloat is a good thing, but it is not customer facing and won’t change the perceptions customers hold of its brands. Banana Republic has initiated their merchandising and marketing makeover and I’m optimistic. Old Navy blew it on their sizing and fit initiative but they can bounce back. The huge challenge lies in the Gap division. The Barbie initiative is another indication that they are again/still looking to external topical licenses to fuel fun and differentiation. But Barbie has to be the first in a long line of a carefully managed flow of fun and interesting ideas. (I’ll note that licensing has served Uniqlo well over the years.) Brilliant marketing of boring product worked well for Gap many years ago (the swing dancing campaign). That won’t be enough this time around. It will take brilliant marketing of fun, differentiated product to succeed.
Gap is making cuts in response to poor trading. Poor trading is a result of a broken value proposition. Ergo making cuts will not solve the underlying problem. This is all exacerbated by a lack of a permanent CEO. And none of this is new: Gap has struggled to come up with a clear reason or brand essence for many, many years. What’s changed is the trading environment which is now more punishing of weak retailers.
Gap’s problem isn’t excess. It’s creativity. Gap needs fresh new designs and colors that will bring younger consumers back into stores. Fresh new looks could work wonders.
Well, at a certain point they did have an excess of stores–but that’s long over. Their attempts at fresh new designs, at least the last time I looked, were borderline scary (floral prints? Seriously?) and not even close to on trend. Yes, they need REAL creativity.
So I would add “fresh looks that people actually WANT to buy” with marketing that highlights that change.
Layoffs and reorganizations may provide a short-term boost to profitability, but it is not a recipe for long-term success. Some of the roles eliminated may negatively impact merchandising, operations and marketing effectiveness that could result in lower revenues. Long-term success will require attention to merchandising decisions that appeal to their target audience.
Gap has a fundamental challenge to drive excellence across merchandising, assortment planning, pricing, and promotion, in-store and digital commerce, and social commerce. Ensuring that these essential elements are in place, Gap has another challenge to engage and attract the Gen Z and Millennials who have moved on to other trending brands that resonate with their needs and wants.
Aside from any turnaround or transformation plans, the top priority for any retailer going through this journey is to center every single strategy around the customer experience and regain relevancy and brand equity. As we have seen with the recent Bed Bath & Beyond bankruptcy and the long history of retailers undergoing turnaround and transformation plans, Gap cannot cut its way to growth and market share.
While turnaround and transformation plans are often painful and necessary, they must be purpose-driven to shift the narrative for Gap. Otherwise, we will be having the same conversation in a few months.
I AGREE with you Whole Heartedly !!! So Many problems here — & it is sad because it seems that (???) they can not — or maybe — do not want to — See them! — And That is Also another Huge Problem !!!
It is really difficult to change the culture of a large organization on the back of layoffs and some “let’s become agile” exhortations. And Gap, in my view, is a brand that is going to die a slow death, although I hope I am wrong there. The brand just does not have the same draw as it did before from a merchandising standpoint.
Gap has bigger issues than just being too top-heavy. They’ve lost a generation of shoppers. Their product mix feels dated, they have too many locations in underperforming malls and shopping centers, and they’re facing sharp competition from big box stores and online discounters. The issues that Gap needs to overcome are significant.
That said, they do have a strong brand identity. They also have a robust design and sourcing organization, and they do a great job at store execution. My experience, even when times have been tough, is that they have great-looking stores.
I do think there is a path to success for Gap, I just don’t know if they can cut their way to success. If this action enables them to make changes that allow them to be more attuned to market trends and helps them focus their marketing on recruiting younger shoppers, then it will be a good thing.
If this wipes out key leadership and makes it harder for them to leverage their strengths of assortment planning and product design, this might hurt them in the long run. And given their financials, I’m not sure that run can be very long at all.
Though every company should review its corporate headcount regularly, the driving force behind the decision should be “do we need these people?” not “let’s cut costs.”
Gap’s problem is not in the number of people they employ, it’s that its full-year revenues were down six percent and that its same-store comparisons fell seven percent. If they can’t fix that problem, they can cut another 1,800 employees and Gap is still heading for failure.
Gap is probably failing in every aspect of the business, starting with the product. Cutting people will not solve this problem.
My wife was in Athleta this weekend. Upon going to the checkout, the associate checked my wife’s information. The phone number was old (maybe five years old). The email address was three years old. My wife asked if the associate could correct it. The answer was, “I’m sorry. You must go to the website yourself to fix it.” Bizarre! Cutting staff to fewer people will not solve such a basic problem.
Very rarely can you cut your way to success, especially if revenue is falling. This is just a long slow road to the bottom unless you take action to turn round the decline in revenue. There is clearly something more serious in Gap’s trading that needs to be addressed. It may be that they have become too corporate and slow in which case some of the staff reduction and restructuring may help. Only time will tell but usually strategic changes are necessary to address this sort of decline. Do they really deliver to the customers demands now? Are the problems in trading, supply chain or customer service? Only the executive will be able to tell this, they are the ones who need to take action.
All talk of agility aside, over the long haul you can’t cut your way to profitability–you can only continue making cuts until there is nothing left. Gap has struggled for years but its problems have been less organizational and more inspirational. Put another way it needs to find a new consumer-forward raison d’être. You can cut all the headquarters jobs you want but that won’t change anything until Gap gives shoppers — and here I mean younger shoppers — a new reason to shop, and that’s going to take a total reimagining of the brand, the inventory, the consumer value prop, etc., and that requires hiring new creatives not laying off middle managers. In the same way you can’t cut yourself to profitability for very long, you can never cut yourself to creativity.
I think the marketing department has started to get involved in writing the financial news. “You can’t save your way to prosperity” is a phrase that comes to mind. (Should have trademarked that one.) The other phrase that comes to mind is “if you don’t put the right product in front of the customer – nothing else matters.” (I really should have trademarked that one — it’s an original!)
It might be a bit harsh to say (borderline nonsensical) rationalizations are for losers, so let’s just acknowledge the obvious: these cuts are a result of their problems, not a solution to them/
Gap needs interesting merchandise. Their designers need to create on-trend garments that excite (and encourage) shoppers to come to their sites and stores.
Cutting staff will not rescue this company.
They have had so many missteps throughout COVID they’re still trying to recover. From paying exorbitant amounts to airship in merchandise, to being overstocked in stores. This is just the first step in making changes and probably a convenient way to restaff and move forward with the new CEO’s vision.
Buried in this story is this: “Gap, also last month, closed its retail media network, GPS Media, about a year after its start. A company spokesperson told Business Insider that the company was shifting its investments to its supply chain and stores.”
A proof point that not all retailers are fit to have their own Retail Media Network.
This is something to keep an eye on.