In the United States, Gap is almost a must-have brand for ordinary people. Since the peak of the brand around 2000, the Gap brand has been in decline. Last year, more than 9,000 traditional retail stores closed in the United States. Affected by the new coronavirus epidemic, traditional retail brands such as Gap are even worse. Take a look at the following report
This article, the original title is This Is How The Gap Dies, author Rob Walker introduced in the article how the Gap brand was about to go bankrupt. This is the first article in this series, which mainly talks about some preludes before the “end” of the Gap brand.
A long time ago, Gap was a very popular brand. The famous director Spike Lee ), singers Madonna and Missy Elliott have all been spokespersons for the brand. In 1996, when the famous actress Sharon Stone attended the Oscars that year, she wore a long black dress from the Gap brand.
Gap had its heyday around 2000, when it transformed from a mall retailer selling T-shirts and jeans into a new category of affordable “casual fashion” clothing. The brand has become an “international clothing fashion vane and a globally renowned brand”.
However, that peak period seems to have passed long ago, and now it seems that it is coming to an end. In late March, more than 250,000 non-essential stores in the retail industry in the United States were closed due to the epidemic. This was undoubtedly a heavy blow to the retail industry. Among them, the clothing industry suffered even more severe losses, with sales falling by at least 50%. What’s even more exaggerated is that that was not the most serious period. The following April was even worse.
The outbreak of the pandemic has accelerated the arrival of the “apocalypse of physical stores.” Last year, traditional retail stores in the United States closed more than 9,000 stores, and many well-known brands have also gone bankrupt. Therefore, the situation we are facing today will only become worse.
So, how bad will the final situation be? Is it possible that the Gap brand will disappear completely?
Just a week before Gap released the news, this question might have sounded outrageous. After all, Gap is an almost ubiquitous and iconic brand around the world.
Even affected by the new coronavirus epidemic, it can be found through the financial statements of Gap’s brands such as Old Navy, Banana Republic and Athleta. , compared with other brands in the retail industry, their financial performance is still “in good condition”.
In an investor conference call on April 9, Gap pointed out that it held $1.7 billion in cash in its accounts at the beginning of February.
However, less than half a month later, Gap announced that it had exhausted about half of its cash due to the closure of most stores, and therefore passed some $2.25 billion was raised through mortgage debt (“junk” rated) and other financial instruments.
The company also pointed out that due to store closures, it did not pay store rent of US$115 million in April, and will continue to negotiate with landlords for subsequent rent payments.
In response, the famous bond rating agencies Moody’s and S&P Global have lowered Gap’s bond ratings. Gap’s stock price has also plummeted from $18 per share at the beginning of this year, and even fell below the price of $7 per share.
No one thinks that the Gap brand, or even the Gap company, will completely disappear tomorrow. However, this outcome suddenly seems more likely than ever.
Imagine that as unemployment reaches Great Depression levels, consumer irritability lingers; as mall landlords are unable to recover from bankruptcy Retailers cannot charge enough rent, and real estate difficulties are emerging one after another; a large amount of inventory is accumulated, and it will also affect the entire supply chain; before the important holiday season, the second wave of the epidemic may hit again…
Jordan Elkind, vice president of product marketing at consumer data analytics company Amperity, said retailers are in a completely different position now than they were just a few months ago. Situation: They don’t have to consider which stores to close, but which stores to reopen in the future.
He did not wish to comment on the Gap brand. But he also mentioned a little bit, “The question now is, if you want to reopen 25 of the 300 stores that have been closed, how should you choose these 25 stores? Many of our customers will regard this problem as a one-off ‘Restart’.”
If we are to restart in this way and are forced to close all well-known retail brand stores, this will be a cruel fact we face. So, the once shining GapHow many times has a brand experienced economic downturns, even severe ones? So, maybe everything will be fine. According to Nike’s marketing strategy in China during the epidemic, American consumers will also rebound, just as China’s previously suppressed demand will reappear. So, maybe retail will rebound too.
In the United States, soaring unemployment will only further dampen demand. From this perspective, it can also explain why e-commerce sales growth is only 30%, not 300%. Elkind of Amperity, a consumer data analysis company, pointed out that “most of the people shopping on e-commerce platforms are employees who have been laid off as hundreds of thousands of stores and restaurants closed.”
Before the outbreak, the number of U.S. retail employees accounted for about one-tenth of the U.S. employment. After the outbreak, whether they were employees of start-ups or factory workers, their discretionary income temporarily disappeared.
Even consumption that occurs during the epidemic will reflect the shift from offline consumption to online consumption, further reducing the profitability of more physical retail stores. According to a report released by McKinsey & Company, “Consumers have become accustomed to staying at home for weeks at a time and purchasing a variety of goods online.” In the past few months, even those who are not interested in online consumption have become more and more popular. Interested people are also forced to experience online shopping and may stick to it. “In the future, unless physical retail stores have highlights that attract consumers, these consumers may not visit physical stores again.” The aforementioned report reads.
Finally, and most importantly, there may be a “second wave” of the epidemic. There is now a growing consensus that, while the epidemic will ease somewhat during the summer months, it will continue to explode in the fall.
According to the epidemic timeline forecast released by Morgan Stanley, there will be a new surge in new confirmed cases in November, and in It peaks during the Christmas holidays. If a second wave of the epidemic triggers a new wave of business closures and store closings, coupled with the fear that stay-at-home orders may be implemented again, it could be a heavy blow for clothing brands such as Gap during this particularly fragile period. blow.
By then, the inevitable reshuffle will only become more severe. As weak consumer demand reappears, real estate and inventory problems will follow. Even for businesses that are currently affected by cash flow and have temporarily survived, their financial liquidity will be more severely tested, and many may go bankrupt.
Gap may have enough resources to weather the storm, but it may also decide that it no longer wants to let the Gap brand be a drag on more important parts of its business. potential part.
“At present, all of this is still unknown, and we don’t know when the epidemic will really end.” Cohen of Columbia University Business School said, “I would tend to think that all this It will only be more chaotic, and there will be no Hollywood blockbuster ending.” He also believes that brands such as Costco, Walmart and Target will be able to survive, “but for Macy’s No one is sure whether brands such as Macy’s, Dillards and Gap will be able to get back on their feet.”
This may seem hard to imagine, but it This really shouldn’t be the case. For all the talk about permanent change, it’s worth remembering that change is nothing new in market-driven business. As dire as the situation may be, many of the changes we are facing now have actually been ongoing for a long time.
About half a year ago, Elkind of consumer data analysis company Amperity also mentioned, “We have launched discussions with many customers about closing stores. Deep and depressing conversations.” But such conversations began to accelerate, and the tone had changed.
He also mentioned that many customers are increasingly aware that the possibility of a complete restart may sound scary, but it is real. “It’s really about starting from scratch,” Elkind said.
Imagine that under the combined influence of weak consumer demand, increased rental burden, and inventory backlog, Gap may not have enough cash flow to repay related debts. In order to seek bankruptcy protection, the company is preparing to reorganize and further focus on the two more profitable brands of Old Navy and Athleta, and consider selling other brands. This means that the Gap brand may no longer “appear in Gap’s portfolio.”
The Gap brand, which has been losing money, may have difficulty finding a buyer. Only if the brand’s intellectual property can be separated from physical chain stores and expired inventory will it be sufficiently attractive. Think again of assets that might be ruthlessly liquidated, stores emptied, and brand identities torn down.
Maybe some digital startups will consider acquiring this brand identity and integrating it into an e-commerce application. But no matter which shopping mall survives, the Gap brand may never be seen again. All that’s left is our overwhelming nostalgia for this vanished brand.
��may be attractive enough. Think again of assets that might be ruthlessly liquidated, stores emptied, and brand identities torn down.
Maybe some digital startups will consider acquiring this brand identity and integrating it into an e-commerce application. But no matter which shopping mall survives, the Gap brand may never be seen again. All that’s left is our overwhelming nostalgia for this vanished brand. </p
