Gap Cutting Square Footage By Up to 15%

SAN FRANCISCO-With declining comps but soaring earnings due to cost-cutting, and its real estate analysis now complete, Gap has dropped the number of store openings this year and will cut its overall square footage 10% to 15% over the next three to five years, executives said at the company’s second quarter conference call.

In July, the company completed an analysis of its 3,170 stores, seeking to assess the role of each store in its market and the appropriate size for each unit. The results showed that Gap’s chains had too much space, says Glenn Murphy, chairman and CEO of Gap Inc.

“We’ve never had a clear real estate strategy,” Murphy explains. “We now have that information, and it will allow us to make quick decisions. The real estate comes down to the quality of the mall and the quality of the real estate.”

The company will first approach its landlords regarding dispositions, as they may have knowledge of tenants who will want or need the space, he says. Gap now plans about 100 new stores for the year, primarily in the Banana Republic division, a reduction of 15 stores. Store closings remain steady at about 115. Those numbers include store repositionings, which count both as an opening and a closing. Net square footage is expected to remain roughly flat for the fiscal year.

In other news, the company named Tom Wyatt president of its Old Navy division; Wyatt had been serving as interim president since February. Old Navy will begin a remodel program in 2009.

Second quarter net sales were $3.5 billion, compared with $3.69 billion for the second quarter of last year. Overall comparable store sales decreased 10%, with Gap North America, Banana Republic North America and International reporting 6% comp declines, while Old Navy North America posted a 16% comp drop. Online sales however, rose 11%. Net earnings increased 51% from the previous year to $229 million. The company does not expect a major change going forward, while vowing to be aggressive in efforts to drive more shopper traffic.

“There’s nothing new from our perspective for the second half,” Murphy said. “The environment is still challenging. We see no reason for optimism and are managing our business accordingly.”