Gap: Kanye West offers no fashion fix for sales

In 2020, when Gap announced its collaboration with music mogul Kanye West, the news sent shares soaring. Having defined American casual cool in the 1990s, Gap had faded into irrelevance. The tie-up with West and his popular streetwear brand Yeezy suggested it might recapture its buzz.

Nearly two years on, West is mired in controversy and Gap sales remain downbeat.

Full-year net sales of $16.7bn — up 21 per cent versus 2020 and 2 per cent compared to pre-Covid 2019 levels — may look like a reason for applause. But the bulk of this was driven by its value priced brand Old Navy and athleisure label Athleta. Worse, a post-lockdown spending spree has faded, with like-for-like sales at Old Navy dropping 6 per cent in the fourth quarter.

Tellingly, full-year net income of $256mn remains well below the $1bn pulled in just three years ago. Gap hopes Yeezy Gap will be a billion-dollar brand as early as 2023. That looks like a stretch, considering the slow pace of product rollout so far.

Instead, Gap’s challenge remains the same as it was two years ago. It has to regain its rhythm by reinvigorating the Gap brand while luring more customers back to Banana Republic, its office-apparel brand. After seemingly perennial cost-cutting, supply chain woes and rising wages still hurt.

Operating margin has steadily shrunk, halving in six years to under 5 per cent. Gap’s forecast that this will improve to as much as 6.8 per cent this year only restores the pre-pandemic level, and looks optimistic. A business whose return on equity once easily doubled its cost of capital, barely covers it today.

At its peak in 2000, Gap boasted a market valuation of nearly $45bn. Today it is worth just a tenth of that. To boost that number, Gap needs to offer up more than a $200 Yeezy puffer coat.