Gap is considering closing hundreds of stores in Europe in order to focus on reviving its US business and expanding its Athleta and Old Navy brands, putting up to 3,000 UK jobs at risk.
The US-listed company is looking to operate more through franchises in Europe in the future.
“Franchisees already operate in 35 countries through 400 stores and we believe there is significant room to expand our franchise footprint,” said chief financial officer Katrina O’Connell at a virtual investor event on Thursday.
Franchises have become an increasingly attractive route to market for companies wanting to avoid the burden of a store estate. Last year Mothercare, the babywear retailer, said it would offer its products in the UK mainly through branches of Boots after closing its own stores.
Ms O’Connell added that if it were not possible to transfer operations to franchisees, then owned stores in Europe would most likely close. “This comprehensive review has already begun,” she said, with the process due to complete by the middle of next year.
Gap is also reviewing its distribution and ecommerce operations in Europe. “A possible outcome is the closure of our EU distribution centre in Rugby,” it acknowledged.
The San Francisco-based company, which specialises in jeans, khakis and signature logo sweatshirts, entered the UK market in 1987 and its 70 owned stores in the country represent more than half of the company’s European store estate. It also operates in France, Ireland and Italy.
By the turn of the millennium, its all-American style was at its peak and it had a UK market share of just over 1 per cent, according to GlobalData — about the same as Primark at that time. But it has struggled in the highly promotional UK clothing market.
$62m
Net loss for group in most recent quarter
Sales at Gap’s European business in the year to February 2020 fell to $525m from $589m the year before. Banana Republic, a more upmarket brand owned by the group, closed its stores in Europe two years ago.
Ms O’Connell said the changes, along with proposals to close 350 stores in North America by 2023 and invest heavily in ecommerce, would result in lower capital commitments, improved profitability and less volatile earnings.
The strategic review in Europe is the latest restructuring initiative from the group as it struggles to improve its profitability.
The retailer had planned last year to break itself up, separating the better performing Old Navy business from the rest of the group. But it scrapped the plans in January after Old Navy went on to produce weaker results than had been hoped and Wall Street’s enthusiasm for the plan faded.
Gap, which reported a net loss of $62m in its most recent quarter, has been reducing its physical presence for several years. By February, the company had 3,345 company-operated stores globally, down from 3,709 five years earlier.
Investors welcomed the review on Thursday, sending shares in Gap up 5.6 per cent, giving it a market capitalisation of $7.6bn.