Gap to shutter many stores, lay off staff in effort to regroup

Gap plans to eliminate 175 of its 675 Gap stores in North America, with about 140 closing this fiscal year. Gap plans to eliminate 175 of its 675 Gap stores in North America, with about 140 closing this fiscal year. Photo: Craig Warga Photo: Craig Warga Image 1 of / 5 Caption Close Gap to shutter many stores, lay off staff in effort to regroup 1 / 5 Back to Gallery

There is going to be a lot less Gap at the Gap.

Faced with rapidly declining sales at its flagship store brand, the San Francisco apparel maker, which also owns Old Navy and Banana Republic, said Monday that it will close about 25 percent of Gap stores — 175 of them — in North America over the next few years. The company also said it will eliminate about 250 positions in San Francisco and New York relating to the Gap store brand. A Gap spokeswoman declined to disclose the number of employees to be laid off in San Francisco.

Following the cuts, which will cost $140 million to $160 million, the company will operate about 500 specialty locations and 300 outlet stores.

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The closings are the result of both broader economic factors and Gap’s missteps. With more people opting to shop online than visit stores, it does not make sense for a specialty retailer like Gap to operate so many locations, said Carol Spieckerman, president of the consulting firm Newmarketbuilders.

“Five years ago, closing that many stores would be a death knell for any retailer,” Spieckerman said. “But retailers today just don’t need as many stores as they used to because of digital sales.”

Like many retailers, Gap has enjoyed robust growth in online and mobile sales. Indeed, CEO Art Peck oversaw Gap’s digital businesses before the board promoted him to run the entire company earlier this year.

Traffic light

At the same time, Gap stores are simply not attracting foot traffic. As a result, Gap’s sales per square foot, a key way for retailers to measure store performance, fell to $361 last year from $376 in 2007.

“Customers are rapidly changing how they shop today,” Peck said in a statement Tuesday. The store closings “will help Gap back to where we know it deserves to be in the eyes of the consumer.”

Closing stores, though, is the easy part. Ever since Gap fired merchandising whiz Mickey Drexler as CEO in 2002, the brand has struggled to regain its fashion touch with consumers. Last month, the company said, sales at global Gap stores open for at least a year fell 6 percent, the 13th consecutive month of similar declines.

To be sure, other fashion retailers have struggled to grow sales of late, including J. Crew, American Eagle and Abercrombie & Fitch. But Gap faces an existential crisis of sorts: Though 60 percent of Gap’s employees are Millennials, the company hasn’t been on trend for a long time.

Old Navy continues to be the sole bright spot for Gap: It has seen steady growth, with 6 percent comparable store sales last month. But the company must first revitalize its namesake brand, Spieckerman said.

“Gap is the corporate brand,” she said. “Gap stores has to be their top priority right now.”

Selling off brands

That means in addition to stores, Gap might need to shed a few other assets. The retailer could kill off minor brands like Athleta and Intermix. Last year, Gap discontinued its women’s Piperlime business.

Or the company could take more drastic action, like putting Banana Republic and Old Navy on the selling block.

Either way, Gap needs to fix Gap.

“These decisions are very difficult but we are confident they are necessary to help create a winning future for our employees, our customers, and our shareholders,” Jeff Kirwan, global president for the Gap brand, said in a statement.

Thomas Lee is a San Francisco Chronicle staff writer. E-mail: tlee@sfchronicle.com

Twitter: @ByTomLee