GAP Faces Tough "Survival Battles": Frequent Quality Problems, Withdrawal Of Sub Brands

Following the defeat of Foverer 21 in China, GAP, a fast fashion company in Europe and the United States, also faced a tough "survival battle".
Pacific time November 21st, GAP group announced the latest financial results. Wind data showed that in the first three quarters of fiscal 2019, the profit was 535 million dollars, down 26.41% compared to the same period last year, and operating income was 11 billion 709 million US dollars, down 2.07% compared to the same period last year.
Meanwhile, according to media reports, on the same day, GAP group announced that its sub brand Old Navy would withdraw from the Chinese market.
Behind the decline in performance, GAP group also did not adhere to the quality of the "lifeline".
According to the news, in November 19th, Cape (Shanghai) Commercial Co., Ltd. submitted a recall plan for some imported infant T-shirts printed on the chest printed two phthalic acid two nisin content, and the total number of products affected in mainland China amounted to 2749.
In November 25th, the times weekly reporter sent a letter to the relevant person in charge of GAP on the recall and business development in China, confirming the fact that the sub brand Old Navy would withdraw from the Chinese market, but did not respond to other related issues.
Looking back to the GAP group's entry into the Chinese market since 2010, its rapid growth in China during the 2006-2016 years of rapid fashion has been a "bright spot" in its performance in China. But now, under heavy pressure, GAP has to re-examine its layout in China.
　 Revenue and earnings both slipped
The latest quarterly report released by GAP group showed that business revenue and profit fell in the first three quarters of the year, and the performance in the third quarter was also poor.
Wind data showed that GAP group's third quarter profit was $140 million, down 47.37% from the same period last year, and its operating income was 3 billion 998 million US dollars, down 2.23% from the same period last year. The Old Navy store sales for its "cash cow" also fell by 4%.
The decline of performance brings about personnel adjustment.
In November 8th, GAP group announced that chief executive officer Art Peck was leaving. After a brief transition, Art Peck will resign as president and CEO and leave the board of directors of the company. The company's current non-executive chairman, Robert Fisher (Robert J. Fisher), will serve as president and CEO for the time being.
Art Peck has been the CEO of GAP group since 2015. However, in the past few years in Art Peck, the performance of GAP group has not improved.
Wind data show that as of the end of February 2019, in the 2018 fiscal year, the total revenue of GAP group was $16 billion 600 million, an increase of 4.59% over the same period last year, but net profit was only $1 billion, lower than that of 2015's $1 billion 260 million.
TeriList-Stoll, executive vice president and chief financial officer of GAP group, said in a statement announcing the departure of Art Peck. "This is a challenging quarter, with macro impact and slow traffic further reducing performance, and the products and operations of major brands are facing challenges."
Robert Fisher, interim president and chief executive officer of GAP group, said in the earnings report: "we are not satisfied with the third quarter's performance. Now we are also concentrating on solving operational problems. GAP will continue to push forward the Old Navy's splitting plan. Through splitting, we can provide better focus and transformation catalyst for the group."
When GAP group fully meets the current business problems, the product "quality gate" emergent.
In November 19th, Cape (Shanghai) Commercial Co., Ltd. submitted a recall plan to China's State Administration of market supervision, recalling some imported infant T-shirts.
The product of the recall is 293309, the color is navy blue, and the specifications are 100 cm and below. The production date is 1 to May 2018, and the country of origin is Vietnam. According to the company's statistics, the number of products affected in mainland China amounted to 2749.
The main problems of infant T-shirt in this recall range are: chest printed two benzoic acid two nisin content exceeding standard, such as long-term intake, may have potential risks to human health.
In November 23rd, Guo Bin, chief analyst of the Pacific Securities fashion consumption industry, told the times weekly reporter that in fact, these problems are statistical events. In general, GAP and other fast fashion brands are of medium quality. However, the quality of many domestic brands is higher than that of overseas brands.
In November 22nd, Cheng Weixiong, general manager of textile and clothing brand management and Shanghai Liang Qi Brand Management Co., Ltd., told the times weekly reporter that as a global brand, problems in the quality of infant products should not be harmful. This not only damages users' interests, but also damages the reputation of brands.
In fact, this is not the first time GAP has been exposed to quality problems.
In July 2018, the General Administration of Customs announced the safety information on imports of industrial products in June 2018. 5 batches of imported products and 10917 Cotton Knitted Baby Garments imported from Cape (Shanghai) Commercial Co., Ltd. were destroyed due to quality problems.
In August 14th of that year, the General Administration of Customs released the information on the safety risks of imported industrial products released in July 2018. The 7 batch of clothing of the GAP brand was found at the entry port customs for inspection and quarantine, including a total of 570 pieces of baby hoodies, girls' underwear and baby vest.
According to the information from the sky eye, there were 7 administrative penalties from 2015 to 2018 during the period from year to year 2018, and 4 of them came from quality problems.
"GAP should strengthen the quality control of production and procurement process, do quality standardization before production, do spot checks in production, and need to strengthen the quality requirements after entering the warehouse." Cheng Weixiong thinks.
Its brand will be withdrawn from China.
As we all know, the Chinese market has always been the "battleground" for every fashion brand. Faced with the difficult performance, GAP group has to reduce its business scope in China.
GAP group's first "knife" brand is the former performance leader Navy Old.
According to media reports, Old Navy will withdraw from the Chinese market in 2020 and will focus its efforts on the North American market in the future to maximize its efficiency.
As early as February 28th this year, GAP group announced that its board of directors approved a plan to divestiture Old Navy and become an independent company. Another company, GAP brand, Athleta and other smaller brands, is scheduled to be completed in 2020.
Nowadays, Old Navy needs not only to split up, but also to "lose China".
The Old Navy brand was founded in 1994, mainly based on the price of the southern California style casual wear. According to the official website of GAP group, Old Navy is one of the fastest growing clothing brands in the United States, with an annual revenue of about $8 billion.
However, the performance of Old Navy in the Chinese market was mediocre. Old Navy's first flagship store in Nanjing West Road, Shanghai, in 2014, has now been closed.
According to its official website, as of now, Old Navy only has 19 stores in the Chinese mainland market.
In the 2018 fiscal year, the number of stores in UNIQLO China, Inditex China, H&M China and GAP Asia was 633, 593, 530 and 372, respectively, and GAP was obviously lagging behind.
According to relevant media reports, at the November 21st performance meeting, GAP group chief financial officer Teri List-Stoll described Old Navy's withdrawal from China as a "difficult decision".
He said that business development needs huge investment, and the group will focus on other strategies with higher returns, such as digital business.
But Teri List-Stoll reiterated that the overall strategy of Old Navy remains unchanged. The brand is still the second largest clothing brand in the United States and the ninth largest apparel retailer, occupying 3% of the apparel market in the United States, and still has great potential.
Guo Bin said, fast fashion in recent years in China's ebb tide has the cause of consumption environment, in addition, the rise of the country of goods, the fast fashion brand in young group influence has declined.
"Clothing in essence is to enhance products, marketing, channel business, better grasp young people's consumer demand and fashion requirements, enhance terminal shopping experience and service capabilities, rather than eating brand old." Guo Bin added.
State Securities Research Report commented that in recent two years, GAP's Asian business has also been stagnant or even negative growth, like global business. This may not be the problem of China's fast fashion environment, but GAP's problem. As Asian business slows down, GAP's future is showing a more difficult situation.
However, GAP group did not abandon the Chinese market entirely, but betting on the main brand GAP.
According to public reports, GAP group said it will continue to expand its Asian markets such as China and Japan. In April this year, 11 new stores were opened in Sanya, Haikou and Kunming, of which 10 were GAP brand stores.
Up to now, GAP group has nearly 200 stores in Greater China, and its main store is GAP brand.
However, compared to UNIQLO, Inditex and H&M, the pace of GAP group's layout is obviously slower.
Guo Jin Securities Research Report shows that from the growth rate of stores in China (Asia), in the 2008-2018 fiscal year, UNIQLO China stores grew from 13 to 633, an increase of 48 times; the growth rate of Inditex stores in China was 41 times; the growth rate of H&M stores in China was 40 times; while that of GAP Asian stores increased from 131 to 372, an increase of 1.84 times.