- Gap Inc.’s CEO Art Peck told CNBC on Monday that the retailer will be opening 60 new Old Navy stores in the US.
- Old Navy has become the parent company’s saving grace.While Gap has struggled in recent years, Old Navy has seen positive same-store sales growth for the past five years.
- The store has a cult following of price-conscious customers who choose it over Gap because of its lower prices.
Old Navy is Gap’s saving grace, and its CEO wants to see more of it.
On Monday, Gap CEO Art Peck told CNBC that the retailer will be opening 60 new Old Navy locations in 2018. It currently has over 1,000 locations.
Old Navy has become Gap’s sweet spot. While its parent company has struggled in recent years and announced 200 store closings at its namesake brand and sister store Banana Republic, Old Navy has seen positive same-store sales growth for the past five years.
In Gap Inc.’s fourth-quarter earnings, reported in February, same-store sales were up 5% overall at Gap Inc. This growth was driven by Old Navy, which was up 9% in the quarter. The Gap brand, on the other hand, showed flat growth compared to the year before.
The growth at Old Navy is not specific to any one section of the store. "Old Navy had a super strong fourth quarter," Gap Inc CEO Art Peck said on the earnings call. "It was very diversified and was not relying on any one horse to pull the cart."
We visited a Gap and an Old Navy store in one of New York's busiest shopping areas - Herald Square - on a rainy Thursday afternoon last May, and we saw firsthand why Old Navy is resonating well with customers:
We timed our visit to Old Navy with the start of Memorial Day weekend sales. The first thing that struck us was the amount of clothing and accessories that were on sale.
The store was awash with signs offering discounts ranging from 20% to 60% off.
There were also several clearance sections around the store.
Even before discounts, however, Old Navy was still much cheaper than Gap.
A basic women's cardigan cost $24.94 at Old Navy. At Gap, it was $49.95 (on sale for $25 with the Memorial Day weekend discount).
The price discrepancies were evident in both the women's and men's jeans sections.
A pair of women's jeans at Old Navy cost between $29.94 and $44.94.
The cheapest pair of women's jeans at Gap was $69.95.
The focus on value at Old Navy is resonating well with price-savvy customers in the US.
According to one Morgan Stanley analyst, the psychological impact of the recession is entrenched in our spending habits. "Old Navy is one more proof point in the consumer's preference for value," Kimberly Greenberger told Business Insider in May.
There is a noticeable difference in the quality of similar items at Old Navy and Gap. These Gap espadrilles, for example, cost $49.95 and are made with real suede and 100% cotton.
At Old Navy, a similar pair cost $24.94 but were made with synthetic materials.
Dana McKay, a 39-year-old mother of two who does all her shopping at Old Navy and has done so since her college days, cares less about the quality of the products than the price.
"Maybe there is a little bit of difference [in quality]," she told Business Insider. "But not enough that is making me feel like I need to spend more money."
Fast fashion has made disposable shopping a trend. "Once I've worn something for a season or two I am usually going to be sick of it and want to buy something else," McKay said. "I’d rather buy a $30 dress than an $80 dress knowing that I am only going to wear it for a season or two."
Old Navy is trying to capitalize on this by offering a quicker turnover in styles than its sister brands.
"I wouldn't call it fast fashion but they are replenishing the merchandise more frequently. You are constantly getting new stuff into the store and it tends to be what the consumer is craving," Bridget Weishaar, an analystat Morningstar, told Business Insider.
Old Navy has a system in place to trial products in smaller batches in order to see how successful they are before rolling them out on a larger scale, a spokesperson for the brand told Business Insider. This helps them to gauge what sells well.
In the men's section, there was a lot of variety. The colors and patterns were bolder and brighter than the clothing at Gap, which might appeal to younger shoppers.
In Gap, you typically see plain colors and a lot of denim.
Old Navy also has their own cheaper versions of popular products. These Vans-style shoes cost $29.94 (at Vans, a similar pair costs $55).
But while turnover is important, Old Navy is also valued for its staple items. "Their 'Rockstar' jeans are very consistent. When they come out with new colors, I can buy them and I am going to be happy with them," McKay said.
Though they change the colors and styles of their products frequently, the shape often remains the same.
Old Navy's women's pixie pants, which were launched in 2014, have become one of the brand's most popular products. Stefan Larsson, the former president of Old Navy, told The New York Times in 2015 that when the pants were first tested, they sold 2.4 million pairs in a year.
"It's one of the biggest revenue-generating styles that we have," he said.
The store has consistently low prices across all of its departments.
We noticed a big difference in prices in the baby clothing section. At Old Navy, it cost $24.95 for a pack of three "Babysuits."
At Gap, it cost $29.95 for one. The items at both stores were 100% cotton, though at Gap, the cotton is organic.
The issue is that some consumers are unwilling to spend money on clothes that are unlikely to fit them for much longer than a few months.
The same can be said for maternity clothing.
"You're only wearing them for five or six months so I liked that I could get a bunch of stuff and only spend $100 instead of going to Gap where they are going to be double the price," said McKay.
Old Navy is also trying to improve the shopping experience. The amount of discounted labels can make it confusing to know how much you can expect to pay. But there are stations throughout the store where you can scan and check prices.
We tried the scanners out, and they worked well. This shirt, which scanned for $21.55, was originally marked at $26.94.
Old Navy also had a separate line for shoppers purchasing items with a credit or debit card, which sped up the process.
Overall, the shopping experience seemed just as good as at Gap, but the prices were considerably more reasonable.
