Plans include putting the brakes on new store openings, shuttering some stores, and relocating, remodeling, or reducing the size of others, aiming to keep most stores between 6,000 and 10,000 square feet. Gap will have a particular eye on Old Navy, and will also be saving some rent costs through certain moves, such as tucking some of Gap's baby and kids' chains into regular stores.
These are solid ideas for the struggling chain. However, the long-awaited turnaround still doesn't seem to be right around the corner, and obviously, there's still some painful downsizing to be done for the once-ubiquitous retail chain, which currently has 3,100 stores.
Too much of a good thing?
Gap serves as a great lesson on how companies can over-expand after years of popularity. We can read similar things into other retailers that may have followed in its footsteps.
For example, has Starbucks
McDonald's has 31,000 stores in 100 countries, and, incredibly, has functioned quite well with what might sound like incredible market saturation. On the other end of the spectrum (and a more apples-to-apples comparison), Caribou
While it's certainly food for thought (and disconcerting for Starbucks shareholders), I don't really buy it, since an economic downturn is a near-term event and that doesn't necessarily mean Starbucks definitely over-expanded (unless its brand gets tarnished like Gap's did). Gap's comps have stunk during recent good times too, in the midst of a consumer spending frenzy, no less, and that seems like an extremely ominous sign. Then again, I certainly can't dismiss the risk out of hand, since many people argue that at least part of Starbucks' popularity was faddish (and reliant on the spending frenzy of the last decade or so).
Another possible example that springs to my mind is RadioShack
RadioShack has a whopping 6,950 stores, dealer outlets, and wireless kiosks across the U.S. (and a few in Mexico). I know it has closed a few stores here and there as it has worked on a turnaround (last year, I noticed RadioShack closed about 500), but let’s face it, those are cuts with tiny scissors. Best Buy
Don't underestimate scarcity
One of the things I like best about Urban Outfitters
These concepts (Urban Outfitters, Anthropologie, Free People, and the brand-new Terrain) all give off an air of uniqueness and individuality. Therefore, over-expansion would be the strategic kiss of death. Yep, I'll take the magic of innovation over commoditization any day.
Gap's management has its work cut out for it as it seeks to reverse the problems of the last several years and get back on track again. The way I see it, though, even in reducing square footage, it's still in the midst of a painful process. It still needs to get its merchandise -- and brand -- back in consumers' good graces.
For those of us who have invested in other retail names, while we're all about the great growth possibilities in expansion, we must also hope our companies' managements are well aware of the risks of overly aggressive expansion strategies. We must also be prepared to make difficult decisions with our portfolio if we fear our retailers are getting ahead of themselves and wearing out their welcome by opening more stores than the market can truly bear. After all, over-expansion can have a painful correction period, and that lesson's been amply evident with Gap.
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