Gap Inc. Halts Summer and Fall Orders as COVID-19 Threatens Business

Date: Tuesday, April 7, 2020
Source: Sourcing Journal

Gap Inc. has put a pause on much of the product that would have filled its stores throughout 2020.

The American clothing retailer, which operates the Gap, Banana Republic and Old Navy brands, has reportedly asked its suppliers not to ship completed summer product, save for the items designated for its e-commerce platform, and to hold off on production for fall, Business of Fashion reported Monday. Fabric suppliers were also asked to stop production and keep all goods in their own facilities. Vendors are expected to be updated as to next steps on April 14.

Gap. Inc—which had faced financial challenges before the COVID-19 crisis—has closed all of its company-operated stores in North America and Europe, furloughed the “majority of its store teams in the United States and Canada,” reduced its corporate headcount, and temporarily cut pay for its entire leadership team and board of directors.

“Stores are the lifeblood of our business and while we are still operating our e-commerce channels, they simply cannot make up for having our stores closed,” Gap reportedly said in an email to vendors obtained by BoF. “As much as we want to minimize the impacts to our supply chain, the situation is fluid and we need to remain responsive.”

Gap Inc. could not be immediately reached for comment.

The retailer has thrust itself into a storm of retailers taking similar actions, leaving factories fielding the cancelled orders facing the possibility of permanent closure and an inability to pay workers, who have already taken to strikes and other pleas for aid in Bangladesh, India and Myanmar.

Some retailers—like H&M, Inditex, Marks & Spencer, Kiabi, PVH Corp. and Target—facing public pressure over the position they’d be leaving their vendor partners in, have in recent days committed to take in already-made or work in progress product, though cancellations in countries like Bangladesh are still climbing. According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), order cancellations at factories in the country, had already reached beyond $3 billion last week.

It’s a problematic position for both sides in the supply chain, and one already challenged retailers like Gap Inc. could struggle to see themselves through.

In reporting its fiscal 2019 results in mid-March, Gap said comparable sales were down 1 percent—and even sales at Old Navy, which has been the biggest boon for the group, were flat to the year prior. Net sales were also down 1 percent to $16.4 billion. Projections for comparable sales in fiscal 2020, even before factoring the impacts of the pandemic, were to be down low-single digits.

“These estimates could materially change if there is meaningful deterioration from current trends,” Gap Inc. said at the time.

By all accounts, the deterioration thus far has been meaningful. And with the U.S. coronavirus death toll crossing 10,000 this week, according to a Johns Hopkins University tracker, conditions for retailers in the country likely won’t be returning to any semblance of normalcy in short order.

“Due to the evolving coronavirus situation, we are facing a period of uncertainty regarding the potential impact on both our supply chain and customer demand,” Gap Inc. CEO Sonia Syngal, said in March. “During our 50-year history, Gap, Inc. has weathered many storms. We will benefit from our strong balance sheet and cash generation as well as our important vendor relationships during this current challenging period. We are focusing on decisive actions that will ensure we emerge well positioned to compete in the years ahead…”

 

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