Photo: David Paul Morris / Bloomberg News
Will Old Navy chart a course for profitable growth?
Haio Barbeito, Old Navy CEO, on Gap Inc.’s fourth-quarter analyst call, said the apparel chain has “spent considerable time focusing on stabilizing the core and elevating execution” as it rebuilds from a down year marked by merchandise miscues.
Old Navy’s same-store sales fell 12 percent in 2022. The decline was attributed to an overemphasis on active and casual assortments that worked early in the pandemic before fashion-forward and occasion dressing revived as people headed back to offices and resumed socializing.
A Wall Street Journal article also noted that Old Navy had “too many extra-small and extra-large items and too few of the rest” in a push toward inclusive offerings. Gap has indicated that pressure on lower-income households has particularly impacted Old Navy.
Mr. Barbeito, who led Walmart’s Canadian operation before taking over at Old Navy last July, said the chain rebalanced inventory in the second half of 2022 to make “room for newness and seasonally the right assortment.”
Assortments are now more balanced and relevant after “pivoting from narrow-end use over dialed a little bit on comfort to a more versatile occasion-based assortment in response to our customers’ need for return to routine,” he said.
The leaner inventory position and balanced assortment have refocused Old Navy on “getting our responsive capabilities back in order to buy more efficiently and remain dynamic and flexible to chase into demand or pivot, if the consumer needs shift.”
Old Navy’s focus on “execution discipline” has helped it in “identifying areas of opportunities for organizational efficiency.”
Signs of progress included “positive momentum” in women’s in the fourth quarter that helped Old Navy maintain market share in the second half after losing share in the first half. Updated assortments in kids and babies are “seeing early improvement” and “consistent improvement” is being seen in overall net promoter scores.
“With a more solid foundation from which to build, I can focus my attention toward the long term and defining the future of Old Navy,” said Mr. Barbeito.
“I am confident that our unique customer value proposition is well suited for an environment where consumers are increasingly seeking value,” he added.
Discussion Questions
DISCUSSION QUESTIONS: What path will return Old Navy to profitable growth? What is your assessment of Old Navy’s strengths and weaknesses?
Poll
Loading …BrainTrust
Liza Amlani
Principal and Founder, Retail Strategy Group
Bob Phibbs
President/CEO, The Retail Doctor
This organization has been bumping along for several years. The changing leadership and the strategy changes that come with the new leadership are part of the challenge. Old Navy needs to find its groove, but it also needs to stabilize the business and get back to growth. Businesses of this size and scale require quarters to turn things around and I suspect it will be the same here — if they ever do at all. Beyond getting its operational house in order, the more fundamental challenge at Old Navy and Gap is finding its relevance with consumers.
Old Navy has gone off the boil. Aside from the sizing issues, merchandise is too bland and boring and there aren’t nearly enough compelling styles to inspire and entice the consumer. On top of that the family demographic which Old Navy serves is under financial pressure and so has cut back. The combination of the two things adds up to one big issue for a brand that was once the star of Gap Inc.
Every time RetailWire has a discussion involving Gap I hear Liza Minnelli’s “Maybe This Time” — but it doesn’t work. Every division of Gap was down in the earnings call. They have become the crisis retailer that took over after Sears fell. Inventory assortment is nothing new.
Sure Old Navy can get its merchandising mojo back, but that doesn’t solve the inflation-driven discretionary spending pinch that many households are now experiencing. It’s difficult when apparel has to compete with groceries and utility bills. They are saying all the right things, but this bounce back will not be easy–or quick.
Old Navy is a strong maybe. The leadership revolving door in all key areas has hurt them as much as the corresponding revolving product assortment vision. To their advantage is their focus on off-mall locations in the last three to four years which will serve them well if they can get the merchandise mix consistent and take advantage of omni-cart automation to leverage an enterprise view of inventory. The next two years will be a critical tipping point for them.
Finally, a forward thinking strategy focused on an assortment the customer actually wants. This is not revolutionary but like many brands, merchandising strategies have been detailed assuming more supply equals more demand.
Brands need to rethink their merchandising and product creation strategy. The focus should be on creating tighter assortments while leveraging customer insights to determine what the shopper wants and in what size.
The Old Navy teams are focused on implementing digital product creation which will reduce time to market and waste. The product creation team attended and spoke at the PI Apparel conference a couple of weeks ago and there is a clear shift in rethinking digital as it applies to product creation.
This a positive step towards execution discipline.
Once the darling of Gap, Inc., Old Navy’s merchandising miscues have proven costly. Merchandise planning and assortments are critical decisions in apparel and play a huge role in the success or failure of brands. Old Navy is in a good segment of the apparel market, as when the economy is rocky, more upscale consumers are looking for value brands and cost conscious consumers will shop the discounts and take advantage of their loyalty points.
CEOs on analyst calls make me smile.
First, there is the rosy picture of the future because they have figured out the problems (finally, again). Then they give lame excuses for why they missed the previous quarter. They are often the same excuses they used in the last quarter. Then the media gives them a rah-rah and rants about how this is the big turnaround.
Ah, yes! Inventory mix. Old Navy had “too many extra-small and extra-large items and too few of the rest.” Or they could say, “we have watched and forecasted our inventory based on the customers we know and just ignored the data of the last three, five, seven years.”
Are poor operations just endemic to this chain?
Strengths: Cost control leading to inexpensive clothes. Weaknesses: Cost control leading to inexpensive, very boring, clothes. I mean, how many “Old Navy” hoodies can one have in their wardrobe?
Old Navy used to be the one part of the GAP empire that worked; well sort of: at least it wasn’t the disaster the other divisions seemed to be. I guess those days are over.
I don’t think any reasonable person can have confidence in ON — or its brethren — under the current management. Ask me again when it’s been sold to someone who knows what they’re doing.
Sold to someone who knows what they are doing? Not likely. Those folks won’t touch it. More likely, it will be part of the private equity game.
Efficient merchandising planning, data-driven assortments, remodeled stores, ecommerce growth plan, better storytelling, loyalty program and enhanced customer experience are some of the leverages that will set Old Navy for success. The brand is in a right segment of the apparel market, when the economy is tough, consumers are looking for value and cost-conscious consumers will shop the discounts. Old Navy must leverage its loyalty program to re-engage existing customer & acquire new.