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Gap's Trap

San Francisco-based Gap Inc. has done it again: another month in which same-store sales declined. The company reported that its July sales dropped 8%, and the rut has now persisted for 28 months.

The sorry news can be attributed to lower inventories following clearance sales, as well as an unexpected dip in traffic in the latter half of July. The month’s sales did not meet the company's expectations.

With more than 4,200 Gap, Banana Republic and Old Navy stores throughout the country, this is news that nobody — real estate owners in particular — wants to hear. But today’s figures also hint at a moral to the story. July same-store sales by division were worst at Gap domestic, which fell 19%. Old Navy posted the only increase at 6%.

In other words, consumers have (continually) driven home the point that Gap’s attempts at fashion do not work, at least not at its price point. Old Navy’s strategy of offering fashion at a similar quality and lower price, however, is right on. Perhaps signaling that it learned its lesson, the specialty retailer kept inventories extremely low in July prior to its unveiling a new merchandising strategy focused on basics, such as denim.

Meanwhile, Gary Muto, formerly president of Banana Republic, was installed as president of the domestic Gap division, a role previously held by departing Chief Executive Mickey Drexler. With a return to fundamentals and the infusion of new blood, the folks at Gap Inc. may be swing dancing in their khakis once again.

And which may also explain why it raised its earnings forecast for the quarter, from 4-5 cents per share.

TAGS: Retail
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