Whether The Gap Inc. is shifting downscale into polyesterland or whether it is adroitly adapting to economic trends is one of those glass-half-empty, glass-half-full questions. But there's little doubt the concept of a Gap Warehouse discount chain would have been nearly unthinkable in the rosy flush of the late 1980s, when The Gap was the lord of specialty retailing and discounting was something Sam Walton did.
It's thinkable now. Sales and profits at The Gap are long stalled. Ditto on the stock price, sagging near a one-year bottom at about 29, while the Dow dances up to all-time highs. So President Millard S. "Mickey" Drexler and his merchandising mavens figure it's again time to try something new.
The latest experiment: Convert some of The Gap's poorest performing stores into discount centers called Gap Warehouse. The process of switching over 48 stores nationwide is under way. Gap Warehouse will sell new, separate lines of clothes that are similar to The Gap's basics--blue jeans, khaki pants, T-shirts, and the like--but carry significantly lower everyday price tags. They'll go straight up against traditional discounters such as Kmart, Target Stores, Wal-Mart Stores, and Mervyn's that have with some success copied the Gap style while seriously undercutting it in price.
LESS COTTON. "Good style, good quality, good value" is the mantra Gap managers intone to describe what their customers want. Gap Warehouse will put extra weight on the third virtue. "Times change in terms of what people shop for," says Warren R. Hashagen, The Gap's senior vice-president for finance.
Gap Warehouse clothes generally will be made with lighter-weight fabrics, with less stitching detail than is common in Gap stores. Jeans will undergo lighter sandblasting and stone-wash treatments, to keep prices down. The Gap has long been a cotton-lover's haven, but Gap Warehouse won't flinch from polyester (table). Its sweatshirts, for example, will contain 59% polyester, compared with 15% at The Gap. While most Gap stores cater to adults, Gap Warehouse will sell clothes for children as well.
A canvas Gap Warehouse banner has been draped on the wall outside the Gap store at the Vallco Fashion Plaza in Cupertino, Calif. Moms and mall rats comb through the new, lower-priced merchandise that carried such brands as Denim Supply Company, Kids Clothing Corporation, and Athletic Department. Although Gretchen Lamoreaux of Sunnyvale just bought a $22 pair of Gap Warehouse jeans for her 14-year-old daughter, Emily, she's reserving judgment. "I have five kids, and they share the clothes," she says. "If they don't last, I'll stop buying them."
Other shoppers like the styles and say the quality seems good. If The Gap can maintain its quality image, says apparel consultant Alan G. Millstein, it could lure a lot of bargain-oriented shoppers into the Warehouse who find The Gap too high-priced: "It's got to be sending shivers down their spines at Kmart." The Gap is opening the Warehouses to boost sales and margins in its bottom-tier stores. If the concept catches on, Gap Warehouse could become a growth vehicle for a company that hasn't had a new hit store since GapKids debuted in 1986. But for now, there are no major expansion plans. "We're obviously testing something here," says Hashagen.
Because the conversions affect so few of the company's 1,350 stores, including Gap, GapKids, and Banana Republic, the Warehouse news has had little effect on Gap stock. Stock analysts want to wait and see. "It shows that this is a company that doesn't stand still," says Karen Sack at Standard & Poor's equity division. "My concern is how it's going to affect the regular Gap shopper." The Gap says the effect will be small. Thomas Tashjian, an analyst at First Manhattan Co., notes that the growth in apparel retailing today is at strip-shopping centers, outlet stores, and on TV.
To really excite Wall Street, The Gap needs to boost profits throughout its operations. It recently reshuffled its division heads, partly to freshen up their merchandising approach. Executives acknowledge Gap stores have lacked a sense of "newness" of late but have high hopes for its collection of fall women's wear, in the stores now. The Gap made its name by offering great-looking basics. Now, it's hoping to recapture some of its stature by pitching basics to customers who need basics most.