Gap Finds Missing Shoppers, Along With The Right Strategy

Gap (NYSE:GPS) seems to have found all those missing shoppers. When the largest U.S. specialty apparel retailer reported last week that same-store sales were up 6 percent at its Gap and Old Navy stores and profits jumped by 25 percent, lots of retailers who aren't Gap heaved a sigh of relief. Every customer isn't staying home after all.

Those customers just aren't spending their money at Walmart (NYSE:WMT), Macy's (NYSE:M) or Nordstrom (NYSE:JWN), which saw same-store sales drop by 0.3 percent, 0.8 percent and 0.7 percent, respectively. Those chains also all lowered their forecasts for profits for the rest of the year. Gap didn't. In fact, it raised its profit forecast.

What's Gap doing so right? CEO Glenn Murphy has worked to improve product selection, drawing customers in with denim lines, new athletic wear and low prices, Bloomberg reported. Having multiple brands (Gap, Old Navy and Banana Republic) helped too. "Given how fragmented the apparel business is, coming to the market with different brands and unique brands and multiple brands into different channels and into different geographies is paying off, as evidenced by this quarter," Murphy told analysts on an earnings call.

Gap wasn't completely alone. Ann Taylor's (NYSE:ANN) same-store sales jumped 3.1 percent and its stablemate, Loft, saw comps rise 2.5 percent. Foot Locker's (NYSE:FL) same-store went up by 1.8 percent. Target's (NYSE:TGT) were up 1.2 percent.

This is all beginning to show a pattern that's good news for some—but not all—retailers. That convenient down-the-stack theory that economists love (Nordstrom shoppers will go downscale to Macy's, Macy's shoppers to Target, Target shoppers to Walmart) isn't holding up. Instead, the shoppers who are spending are shifting to specialty retailers, and the specialty stores that are trimming prices and adjusting for current demand (more denim, more athletic wear) are pulling them in.

If that theory is right, department stores and discounters (and other specialty retailers) have their work cut out for them. And if it's not—well, at least now we know customers are going somewhere.

For more:

- See this Bloomberg story

Related stories:

Target's Same-Store Sales Up, But The Outlook Is Shaky
Nordstrom, Walmart Grab Bigger Piece Of E-Commerce While Stores Lag
Macy's Bad News Hints At A Rough Season For Other Retailers