Easy come, easy go.
Gap (NYSE:GPS) has decided to shutter its Forth & Towne concept after a mere 18 months. Given Gap's continuing challenges, a shift in focus seems like a wise strategy, although some of us probably wonder why such "growth initiatives" were attempted in the first place.
Change is afoot. The retailer recently jettisoned CEO Paul Pressler, for one thing. Shutting down Forth & Towne sounds like an exercise in the adage "a good run is better than a bad stand." After all, Gap said in its press announcement that its analysis of the concept revealed that it didn't look like it would deliver an acceptable return on investment. Given recent history, it seems pretty clear that shareholders wouldn't be too terribly thrilled with that idea. (I doubt private equity investors would, either, although Gap-related buyout speculation has quieted down lately.)
Gap said it will close down all 19 of its Forth & Towne stores. The retailer said it plans to refocus its energies on its core brands: Gap, Banana Republic, and Old Navy. Although cutting this concept certainly will save Gap money over the long haul, it will result in $40 million in expenses related to the closures over the short term, to be recognized during the first and second quarters this year.
Gap's original logic in launching Forth & Towne made sense -- female Baby Boomers have plenty of disposable income for apparel, and there were arguments that it was an underserved market. On the other hand, that logic certainly wasn't lost on major competitors in the space, and there are plenty of them, like Chico's (NYSE:CHS), Ann Taylor (NYSE:ANN), Talbots (NYSE:TLB), and Coldwater Creek (NASDAQ:CWTR). Way back when Gap first announced this new concept in 2004, I wondered if the retailer was truly up to the competitive challenge, and in 2005, my Foolish colleague Nate Parmelee looked at several of Gap's growth initiatives and considered Forth & Towne a risky one.
The last couple of years were tough, culminating in a miserable 2006 for Gap. Backing off untried growth concepts while refocusing on getting things right at its established brands sounds like a step in the right direction. Could Piperlime get the ax as well? Launching an online shoe store last October made little sense given Gap's many other looming challenges, not to mention the competition from Zappos.com and Amazon.com (NASDAQ:AMZN).
I've long thought Gap's brands were broken, and getting customers back and willing to pay full price would be a serious challenge. However, given this latest piece of news, it appears that the need for serious strategy change -- in other words, focus -- at Gap is well recognized at this point in the game.
For related Foolishness, see the following articles:
- Gap and Paul Pressler recently parted ways.
- Piperlime? Seth Jayson said Gap needed a dope slap for that one.
- 2006 in Review: Gap.
Gap has been recommended by both Motley Fool Stock Advisor and Motley Fool Inside Value. Amazon.com is also a Motley Fool Stock Advisor pick.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy will be happy the day nobody ever wears a shrug again.
