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Trusted Contributor
Posts: 1,954
Registered: ‎03-10-2010

Another company is ready to bite the dust: Banana Republic

[ Edited ]

Banana Republic this week announced a leadership shakeup, but analysts question whether the Gap’s (GPS) up-market brand, which has struggled with falling same-store sales for the past year and a half, can weather the storm battering much of the retail sector.


As consumer shopping habits have moved increasingly online, Banana Republic has struggled to carve out its niche to drive customers through the door. The biggest problem for the brand is its lack of clear, unique identity -- coupled with the rise of fast-fashion competitors like H&M, Zara, and Forever 21, said New York-based retail consultant, Bob Phibbs, CEO of Retail Doctor.

“The reality is no one has figured out who they are,” he said. “Gap is [a] forgettable brand, and that spills over to Banana Republic...they need to cut the number of SKUs, cut the number of employees, and justify why I should pay $90 for a shirt with something compelling and interesting.”

Despite a bump in sales during November in the lead-up to the end-of-the-year rush, in the all-important holiday season, Banana Republic's sales at stores open at least 12 months plunged 7% from the previous year, while like-for-like sales at the Gap’s namesake store and lower-end Old Navy rebounded significantly from the weak November - December 2015 period.

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Because of the struggles, some retail analysts have suggested Gap stem its losses with Banana Republic by instead focusing on growth at lower price point, family friendly Old Navy.

Jefferies, a boutique investment bank, has gone as far as to say the company should “massively reduce” store footprint or completely jettison the brand altogether. The team, led by equity analyst Randal Konik, said the brand contributes 17% of the company’s sales and is struggling because consumers no longer appreciate its style or price points.

“The concept has struggled regardless of its leadership, and we anticipate ongoing problems if time and resources are dedicated to turnaround efforts as we view Banana Republic as unfixable especially in today’s challenging environment,” the team said.

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A spokesperson for Gap said while the company doesn’t comment on individual executive searches, a hunt is underway for a new leader who can take the helm at Banana Republic with a focus on helping the brand find solid footing.

“Overhauling the fit and quality of Banana Republic’s product, and moving the brand to a full omni-channel assortment were critical steps made over the past two years. That said, there is work ahead in order to bring Banana Republic back to health,” the spokesperson said.

When Gap acquired Banana Republic Travel and Safari Clothing Company in 1983, it dropped the last part of the brand’s name, breathing new life into its look and feel, marketing it to an upscale, luxury demographic. Since that time, though, the brand has lost its originality and appeal as it has struggled to set itself apart in a crowded market, competing with the likes of Ann Taylor (ANN), J. Crew, and White House Black Market.

To some retail watchers like Mark Cohen, director of retail studies at Columbia University’s Graduate School of business, Banana Republic’s woes epitomize a broader struggle for the retail industry as a whole. The same month the brand announced its leadership shakeup, Lane Bryant’s CEO also reportedly departed her company, Abercrombie and Fitch (ANF) revealed plans to lay off 150 corporate workers, mall-based retailer Wet Seal said it will shutter all of its locations after failing to find necessary financing, and The Limited filed for Chapter 11 bankruptcy.

For Gap, a sooner-than-later approach to dealing with the realities of its brand’s decline would help ensure the parent company’s longer-term viability, Cohen said.

“Broken businesses rarely are ever able to be fixed,” Cohen added. “Big retail brands take time to establish and create themselves as equity of consequence. It takes decades to form in customers views as important, but once they get screwed up, they’re brittle, they break easily, and maybe they can’t be glued back together.”

Still, there are dangers to selling or spinning off Banana Republic -- both for the individual brand and its parent company. Examples aren’t hard to find for Richard Baum, managing partner at Consumer Growth Partners who pointed to Limited Brands’ 2007 spinoff of Express. The standalone company has struggled on its own and over the last 52 weeks has seen a 35% decline in its share price. Limited Brands also sold off The Limited, which shut its doors this week, and also let go of New York & Co., which saw a 1.7% decline in holiday sales.

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Baum said the question Gap has to ask itself is: Can someone else run Banana Republic better?

“You never really know the answer until you put it on the market and shop it around. Some of these brands have been around for 20-30 years. If you give it to a different set of owners, are the results any better,” he said.

If Gap chooses to keep it on its brand roster, Baum said a better strategy for Banana Republic might be higher price points, fewer promotions, and more clarity around in-store merchandise display and selections.

“You need someone to come into the job with a fresh set of eyes, ideas, and experiences in the retail space so that what they will be doing is restoring the integrity of the brand and going back to what the brand stood for: That modern, refined clothing,” he said.

Gap shares have fallen 0.5% over the last 52 weeks and currently trade around $22.70.

 

Honored Contributor
Posts: 33,228
Registered: ‎05-17-2010

Re: Another company is ready to bit the dust: Banana Republic

@Squirrel Lover. Oh wow!!! BR was (about 5 yrs. ago) my "go to" store for basic jeans, tees and sweaters. Over the last several years, the fabrics and quality have declined and there has been a lot of changes in designers. I've also noticed they went from basic colors to trendy ones...not BR's style and the customers became confused about what to expect. I don't see any difference at The Gap even though their #'s may be up a little. It's so important to find your niche and stay with it. 

 

Esteemed Contributor
Posts: 6,252
Registered: ‎03-16-2010

Re: Another company is ready to bit the dust: Banana Republic

Count me as one of those customers who used to shop Banana Republic frequently and hardly ever go in there now.  As my workplace became more casual in the 90s, the store was a place I turned to for the new business casual apparel.  I continued to shop there until about 5 yrs ago. Retirement was part of my loss of appeal for the store.  I can get a retired lady's casual wardrobe for less at sister store Gap, but truthfully, although the prices may be similar -- even higher, there are simply other apparel speciaty stores I prefer over BR (CUSP, Anthropologie, Urban Outfitters, Free People, to name a few).

Respected Contributor
Posts: 2,522
Registered: ‎11-20-2013

Re: Another company is ready to bite the dust: Banana Republic

Very well written article. Thank you @Squirrel Lover, and can I say I'm not at all surprised based on their inventory over the past several years.

Honored Contributor
Posts: 8,599
Registered: ‎03-10-2010

Re: Another company is ready to bite the dust: Banana Republic

I'm not surprise about this.  I stopped going there a few years ago.  Their prices are insane and when they do have sales it's still to high. 

Super Contributor
Posts: 293
Registered: ‎02-06-2013

Re: Another company is ready to bite the dust: Banana Republic

What a shame! Banana Republic has great products just like Ann Taylor Loft. Too bad they are going under.

Honored Contributor
Posts: 24,685
Registered: ‎07-21-2011

Re: Another company is ready to bite the dust: Banana Republic

I use to shop BR all the time but not in recent years.  I guess they miss my business. lol   I hope they stay open.  Cat Very Happy

kindness is strength
Honored Contributor
Posts: 10,211
Registered: ‎07-29-2014

Re: Another company is ready to bite the dust: Banana Republic

Wet Seal also.

Frequent Contributor
Posts: 83
Registered: ‎03-10-2010

Re: Another company is ready to bite the dust: Banana Republic

I think some of the problem is that individual stores don't carry entire collections.  I've never been a Banana Republic fan.  I'd see things in magazines I liked, but when I went to the store at my local mall, they never had the really interesting clothes.  I remember a few years ago they did a Mad Men collection with a belted jacket skirt suit to die for.  I'd have to go into the big Boston store to try it.  Hassle, parking, trains, bus, not worth it.

 

Of course I've been buying work clothes for 30 years now, so I'm probably not the easiest customer.

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Esteemed Contributor
Posts: 5,891
Registered: ‎03-10-2010

Re: Another company is ready to bite the dust: Banana Republic

It's not surprising really. I never visit Banana Republic as the closest store is an outlet store that one has to drive through a traffic nightmare to get to. It's overpriced and the clothes are unappealing.

 

But let us also talk about the Gap stores. The mall one closest to me is empty of shoppers. I would think that a lot of Banana Republic and Gap stores would be on the chopping block in Canada due to declining sales.

 

Only Old Navy is busy. I haven"t stepped inside the Gap store since fall. My last purchase there was 2 years ago. I have never bought clothes from Banana Republic. But I bought my husband some performance athletic long sleeve shirts at half price a couple of weeks ago at Old Navy. The shirts were $12 each and the material was nice and soft.