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Will Gap Stock Get Crushed by a Recession?

By Jennifer Saibil – Aug 18, 2020 at 8:42AM

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The apparel retailer was getting back on its feet before COVID-19 knocked it down again. It's benefiting from a recovering economy, but can it withstand a recession?

Once one of the top U.S. retailers, Gap (GPS 1.74%) has been struggling over the past few years as styles have changed and malls have suffered from less traffic. While Gap has launched a successful digital program to combat slowing store sales, its business hadn't fully regrouped before the pandemic hit.

Sales plunged 43% during the first quarter and Gap seemed in danger of following clothing retailers such as Brooks Brothers, J.C. Penney, and Lord and Taylor in filing for bankruptcy. So where's the company now?

Gap sales associate in store.

Image source: Gap.

Surviving the market crash

Under the leadership of CEO Sonia Syngal, who arrived at the top job in February after Art Peck resigned in November, Gap was laying out a new strategic plan to leverage its strong brand names into a new era of higher sales. That all came crashing down when the pandemic hit, but Gap survived and stayed solvent through a series of cash-protecting initiatives such as selling debt, cutting costs, and focusing on e-commerce. While e-commerce was up 13% for the quarter, it reached a 100% year-over-year increase in May.

Gap's brands are still lucrative, and according to management, its online channel is the second largest apparel e-commerce site in North America, with annual revenue before the pandemic totaling $4 billion. If Gap finds its identity and the company manages to make its stores more relevant, or if it scraps enough of them and successfully expands it digital platforms, it might survive a recession. But if its actions don't coalesce around a compelling message to customers, Gap might find itself in a precarious position.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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