Gap Is Doubling Down On One Of Retail's Deadliest Mistakes

Gap Is Doubling Down On One Of Retail's Deadliest Mistakes

Gap is a discount haven. In its current sale, customers can get as much as 70% off a wide range of items if bought online.
While some retailers have scaled back on discounting, Gap does not seem to show signs of slowing down.
According to Morgan Stanley, its level of promotions hit a seven-year high in February and March but were down year-on-year in April.

Gap is a discount haven. You can find 50% off "almost everything" online and in-store. If you decide to purchase online, you'll get a further 20% off some items.

It's not unusual for Gap to offer discounts. In fact, 40%-off signs have become a common sight at its stores. According to Morgan Stanley's quarterly discounting index, which tracks discounting activity across several stores, Gap Inc.'s level of promotions hit seven-year highs in February and March but were down year-on-year in April. The report showed that other rival stores such as American Eagle and Abercrombie also ramped up discounting during the first quarter of 2018.

These stores' rampant discounting goes against the grain of what many other retailers such as Michael Kors, Coach, and Ralph Lauren are doing. These stores have been vocal about their commitment to cut back on markdowns, believing that they are detrimental to the brand's perception among consumers.

In August, Ralph Lauren CEO Patrice Louvet said that discounting was threatening the company's brand image and profit margins. He said shoppers would only spend money on "exciting" apparel, and "exciting isn't selling a generic product with more and more discounting."

However, heavy discounting has been the flavour of the past decade as retailers try to appeal to price-conscious consumers scarred by the recession. As a result, consumers have become hooked on discounts and usually aren't willing to pay full price. Gap Inc. CEO Art Peck, who oversees Gap, Banana Republic, and Old Navy, likened reducing promotions to a "game of chicken." One of the main reasons retailers use sales is to clear excess inventory. To prevent this, many of these stores have been looking to streamline and tighten up their inventory levels, including Gap. In an earnings call at the start of 2017, Peck said that the time it takes for certain Gap products to go from the design board to stores had shortened from 10 months to 10 weeks. By speeding up the supply chain, Gap can react more quickly to changing trends. Inventory levels and styles would ideally be better matched to demand, which means less leftover stock to find its way into the discount racks. Whether this will happen remains to be seen.