Gap Launches Growth Initiatives

In the past few years, Motley Fool Stock Advisor selection Gap (NYSE: GPS  ) has done a phenomenal job of improving its overall financial condition. Its balance sheet is proof enough of that. Growth, on the other hand, has been tough to come by.

The company is looking at several ways to restore growth to its brands, but the two that have me the most curious are the launch of its Forth & Towne stores and the debut of Banana Republic in Tokyo and Yokohama, Japan.

The Banana Republic openings in Japan are all in high-profile shopping areas, with plenty of other attractions to draw in the foot traffic. While the rents are likely to be quite high and the area is filled with competition, I think it's an experiment worth the effort. The Banana Republic stores should be able to piggyback on some of the existing infrastructure that supports the Gap stores in Japan.

Based on the information the company has provided, the Forth & Towne effort seems a bit more risky to me. First, this area is loaded with competition from the likes of Chico's FAS (NYSE: CHS  ) , Ann Taylor (NYSE: ANN  ) , and Federated (NYSE: FD  ) . The pictures of the stores on the Gap website do make me think that the company put a lot of thought into the customer experience, but I question the company's strategy of including the Gap Edition brand as one of Forth & Towne's offerings. I think the association with a lower-priced and more basic set of stores may put customers off. After all, if customers can get similar items at the Gap for a lower price, why go to Forth & Towne? Conversely, if Forth & Towne strips sales away from the Gap, it's tough to see what is gained.

The Forth & Towne openings and Japanese Banana Republic openings are important to watch, because they may indicate the entire company's potential future growth. However, with a total of nine stores announced between the two, it will be quite some time before either expansion has a material effect on Gap's numbers. That's not necessarily a bad thing. It allows the company time to see what is working and change course before getting in over its head. In the meantime, investors still have that solid balance sheet -- and a stock that isn't priced anywhere near perfection -- to fall back on.

For related Foolishness see:

• Back-to-School's Not Canceled
• A J. Crew Review
• That Disappointing Gap

Gap is a Motley Fool Stock Advisor pick. For more stylish companies from Tom & David Gardner's wardrobe of outstanding stocks, try a free 30-day subscription on for size.

Nathan Parmelee beneficially owns shares in Gap but has no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.