The Gap (NYSE:GPS), the trend-setting store for the cool crowd in the 80s and 90s, has been losing ground for a while now. Reasons are many, and some, like the decline in traffic at malls -- where many of the stores are located -- can't be controlled. But there is one area where The Gap can make positive changes, and it should use rival Hennes & Mauritz (OTC:HNNMY), better known as H&M, as its guide.
In 2019, The Gap lost its CEO, reported declining sales, and ended the year with its shares down 31%. At the same time, shares of H&M, its trendier European peer, climbed 46%, and the retailer reported sales growth. But things weren't always so easy for H&M, which struggled with earnings in prior years until it renewed its strategy and online look. The Gap could benefit by applying some of H&M's tactics to target today's audience where it wants to be: online.
Bells and whistles
Through its e-commerce site, The Gap accepts in-store returns for online orders, and offers customers the opportunity to shop all of its brands in one single shopping bag to cut down on shipping costs. The Gap also encourages customers to sign up for an online account, which lets customers save shipping addresses, track packages, and learn about new product arrivals. That is about where the bells and whistles of the online experience end when shopping at The Gap.
Before looking at what H&M has to offer, a little background: As profit declined in recent years, H&M decided to transform itself, integrating the in-store and online experiences and aiming to personalize its customers' shopping trips -- whether online or in store. The project was costly, resulting in a 9% increase in expenses in 2018, but the effort is bearing fruit. Online sales are growing, with a 27% increase in the second quarter followed by a 30% increase in the third quarter.
The H&M experience starts with the app, which in "in-store mode," allows customers to search the in-store selection. "Scan and find" lets users see whether an item is available in different colors or sizes. And there might be more to come: In Sweden, the company is testing an app that involves a customer creating a digital avatar that will then try on clothing. The idea is to ensure the right fit when shopping online. Aside from the app, H&M's website features a magazine and fashion suggestions based on themes, like a recent one called "The Paris Effect." The retailer also offers a loyalty program and student discounts. It's a complete package, with everything clear and easy to find right on the e-commerce site.
A communication problem
Part of The Gap's problem is linked to communication. The Gap has an app that allows customers to scan barcodes in store to find other sizes and colors and browse through available products. But the company doesn't mention the app on its e-commerce site -- or at least, not in a visible spot. While the company's Old Navy and Banana Republic brands promote the popular "buy online, pick up in store" option on their websites, that option isn't noted on The Gap brand e-commerce site. So without calling a store, it's unclear whether that offer is available for The Gap brand as well.
A call to The Gap's customer service line confirmed that customers can't pick up orders in store. A shame, considering this statistic: According to Invesp, 50% of respondents in a shopping survey said they've decided where to shop online based on whether they can pick up their packages in a physical store.
The Gap also has some work to do on technology. The app has a sizable chunk of one-star ratings on the Google Play Store, with several complaints about it being too slow. And it's clear that in order to compete with the innovation going on at H&M, The Gap must improve its app to include more compelling features instead of just the basics.
With more and more purchases being made online, an e-commerce platform that is clear and progressive is a must for retailers. According to the U.S. Commerce Department in November, the third-quarter estimate for e-commerce retail sales rose about 17% from the same period a year earlier. The Gap can't solve all of its problems by investing in an online revamp, but it certainly is an important piece of terrain in the roadmap that could lead to recovery.