July 30, 2014

Gap Annual Report

You read these things, don't you (click here to read Gap's Annual Report for 2013)?

Here's how Gap views what they call "omni-channel":
  • "Omni-channel helps create one experience - starting online and finishing in the store - for the customer."
The vendor community will hate the one-directional theme of what Gap calls "omni-channel".

Later in the document, Gap outlines business risks. You'll enjoy this one:
  • "Our investments in omni-channel shopping initiatives may not deliver the results we anticipate."
Did you notice that about half of Gap employees earn the minimum wage? So kudos to Gap for deciding to increase the minimum wage. But we wonder why retail is failing? We make sure that the most important piece of the omnichannel puzzle, the folks who actually interface with customers, get paid nothing (I'm not pointing at Gap here, I'm pointing at our industry). And we wonder why retail is failing? We'll happily spend tens of millions on technology, stuffing profit into vendor coffers, technology that pushes a customer into a store to chat with somebody that the retail industry rewards with a minimum wage. Not everybody does this, you know. We had numerous sales associates during my time at Nordstrom who earned more than $100,000 a year. And Nordstrom somehow belts out 13% pre-tax profit margins on very average gross margins. Think about it. Humans > Omnichannel. Humans > Marketing.

By the way, across all Gap brands, e-commerce is about 14% of total net sales. I consistently observe three trends in retail.
  • E-commerce is 30% to 40% of total sales, in large part because the online experience is so much more convenient than the in-store experience.
  • E-commerce is 5% to 15% of total sales, in large part because the retail experience is so entertaining that online pales in comparison.
  • E-commerce is 5% to 15% of total sales because the retail brand has yet to acquire the direct marketing skills necessary to grow online sales.
You can measure this dynamic by analyzing e-commerce penetration by store distance ... the whole story will simply fall into your lap.

Here were comp store sales increases in 2013, by brand.
  • Gap Global = +3%.
  • Old Navy Global = +2%.
  • Banana Republic Global = -1%.
  • Gap Total = +2%.
When you see retail comps in the +5% to +10% range, you'll know that omnichannel is working. This data provides a great lesson ... in the retail in-store environment, omnichannel is not working.

You need to read these documents, folks. You hear so much from the vendor community, frequently negative and bitter and attacking in nature. You need to educate yourself on what folks on our side of the fence have to say about retail.