Like the old Macy's and Gimbels department stores from Miracle on 34th Street that had employees send away customers to shop at their competitor's stores, Gap (NYSE:GPS) is experimenting with rewarding holders of its Visa Signature credit card if they shop at Amazon.com (NASDAQ:AMZN) or Target (NYSE:TGT).
While many branded credit cards offer cash back on purchases made at a variety of merchants, the Gap promotion seems unique in that it is pushing its customers to shop at two of its competitors.
An essential difference
During the months of October and November, Gap customers can earn 10 points for every $1 spent on "everyday essentials" at either Amazon or Target while earning three points for every dollar spent at stores other than its own Gap, Old Navy, Banana Republic, and Athleta chains, according to RetailWire. Gap customers typically earn five points for every dollar spent at its own brands, so it is definitely incentivizing cardholders to visit Amazon and Target.
The catch is the promotion seems limited to everyday essentials, typically things like soap, body wash, toothpaste, etc., not clothing. Target recently launched a new line of products that fits into this category called Smartly, some 70 low-cost products that cover not only personal care items but also household goods like paper plates, toilet paper, and laundry detergent.
Gap may be hoping its customers will go to these other retailers to stock up on goods that it doesn't sell, and then come back at Christmas to use the points to purchase Gap clothing.
But there is risk that, while shopping for moisturizer and shaving cream on Amazon, customers will also check out the e-commerce giant's selection of jeans, khakis, T-shirts, and other clothing items.
It's a bold strategy. We'll see if it pays off for them.
Looking for a spark
Gap's performance has been mixed, with strong sales at Old Navy but the namesake Gap stores continuing to be weak. Second-quarter revenue and earnings actually beat analyst expectations, posting a 7.5% increase in sales to $4.09 billion and a near-12% jump in per-share profits to $0.76, but overall comparable-store sales came in at a lackluster 2% gain.
That was predicated on the 5% increase seen at Old Navy and a 2% bump at Banana Republic, but Gap stores tumbled 5% from the year-ago period, which was an awful performance considering in 2017 comps had already set the bar low, with same-store sales falling 1%. Since Gap couldn't step over that easy hurdle, it's a signal that its position is in trouble. CEO Art Peck may say that the worst is behind them with the Gap brand, but it hasn't shown that to be the case yet.
This may be why Gap is trying this "bold strategy." Consumers are already shopping at Amazon and Target, and recognizing this by piggybacking on it could be the next best way to capitalize on that reality.
Sales at Amazon surged 39% last quarter to $53 billion while Target sales were up 7% to almost $18 billion, but it had strong comps growth, too, up 6.5% on an "unprecedented" 6.4% surge in traffic. By limiting customers to a narrow selection of merchandise they're probably already buying at those retailers anyway, Gap may just get them to come back to its stores to use the points they've collected and boost its sales as well.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.