Trying to turn lemons into lemonade, Gap Inc. is using the excess capacity in its distribution centers that supply its slumping retail stores to fulfill orders from online shoppers.
Gap CEO Art Peck told stock analysts last week that the retailer has “the luxury of having large retail distribution centers that are not fully utilized, and the work that we’re doing right now, No. 1, is an investment avoidance issue where we need to continue to add direct distribution capacity. We’re actually doing the work to convert the retail DCs to be able to ship both direct and retail fulfillment out of one pool of inventory and one DC,” Peck said according to a transcript from Seeking Alpha.
The work to convert distribution centers that previously only served stores to also handle online orders will be completed in early 2018, Peck said. Gap, No. 20 in the Internet Retailer 2016 Top 500, operates a total of 10 distribution centers in North America, a spokeswoman says.
Gap, which stopped breaking out its online sales in 2015, is responding to an ongoing slump in bricks-and-mortar store sales. While total sales picked up 1% in the fourth quarter and comparable-store sales were up 2%, total sales and comp-store sales were both down 2% for the all of fiscal 2016 ended Jan. 28.
In his remarks to analysts, Peck reflected on the end of his second year as Gap CEO and emphasized the big changes occurring in retailing. “We knew that we were in an industry that was changing dramatically,” he said. “And looking back on it now, I think we probably all underestimated the magnitude and speed of the changes taking place.”
One aspect of that shift is that customers are shopping in a variety of ways: in stores, online and on their mobile phones. “Our customers are ‘omni’ today and that is a fundamental reality,” he said. “Many of our customers begin their journey with our brands on their phone and they finish it in our stores. Many of our customers begin their journey with our brands in our stores and they finish it on their phone. And we’ve been doing work and we will continue to do work to really line up with where our customers are, not where they’re going but where they are today.”
Peck also touched on other initiatives aimed at bringing Gap and its Old Navy, Banana Republic and Athleta brands more in line with the ways consumers shop. They include:
- Giving store employees mobile devices so that they can check consumers out in store aisles. The company says nearly 20% of Gap Inc.’s 2,400 U.S. stores have that technology. In a total of 2,000 U.S. stores associates have mobile devices that allow them to check the availability of items in other stores and in online inventory, place orders, reserve items for store pickup, and open credit card accounts for customers.
- Recently introducing its first Old Navy mobile app.
- Testing a mobile app called DressingRoom by Gap that allows a consumer to create a three-dimensional avatar, try various apparel items on it and virtually circle the digital model to see the clothing from all sides. To use it, however, consumers need to have a smartphone with Google’s 3-D Tango technology. So far the only phones with that technology are the Lenovo Phab 2 Pro, released in December, and the ASUS ZenFone5.
For the fiscal year ended Jan. 28, Gap reported:
- Net sales of $15.516 billion, down 1.8% from $15.797 billion in fiscal 2015.
- Net income of $676 million, a decrease of 26.5% from $920 million.
For the fiscal fourth quarter, Gap reported:
- Net sales of $4.429 billion, up 1.0% over $4.385 billion a year earlier.
- Net income of $220 million, 2.8% higher than $214 million.