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Gap Is Closing Hundreds of Stores as It Focuses on E-Commerce and Off-Mall Sales

Gap Inc. is cutting back on its brick-and-mortar footprint and switching to a business model led by e-commerce and off-mall stores.

During an investor conference yesterday, the retail group announced that it intends to shutter about 30%, or roughly 350, of its namesake stores and Banana Republic outposts in North America by the end of 2023 — leaving a total of 870 locations in its fleet. By that same timeline, it plans to bring in 80% of revenues from the Gap and Banana Republic banners from online and off-mall units, like outlets and strip malls.

The San Francisco-based retailer, which unveiled its new business model at the meeting, shared that 75% of its North American closures are expected to be completed by the end of the 2021 fiscal year. It is also reevaluating its business in Europe and could potentially shut down stores in the market.

The new strategy, explained the company, is meant to help Gap Inc. return to “profitable growth” next year. In the second quarter ended Aug. 1, the group posted a loss of 17 cents per share and an 18% drop in revenues to $3.28 billion. Both figures, however, were still better than analysts’ forecasts of a loss of 41 cents and revenues of $2.91 billion.

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In a press release accompanying the financial results, which were announced in late August, Gap Inc. — also parent to the Old Navy and Athleta labels — attributed the performance to a 95% increase in online sales, offset by a 48% decline in physical store sales, which was impacted by partial closures in the three-month period. What’s more, comps were up 13% as its e-commerce business added more than 3.5 million new customers during the quarter.

The company, like many other fashion, footwear and accessories retailers, was heavily impacted by the coronavirus pandemic, which forced the temporary shutdowns of its stores and led it to furlough or lay off workers. In mid-April, it revealed that it had burned through half of its cash reservoir and warned that it might not have enough money to survive the next year if the health crisis persisted with the same severity. It has also been embroiled in legal battles with some of its landlords, who are demanding that the chain pay the dozens of millions of dollars in rent that it owes under the terms of its leases.

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