Everyone who has been to a mall -- which includes almost every American who's drawing breath -- knows that Gap is the leading retailer of high-quality sportswear, which is sold through its Gap, GapKids, babyGap, Banana Republic, and Old Navy concepts. They operate 3,018 stores: 1,767 Gap Domestics, 393 Gap Internationals, 345 Banana Republics, and 513 Old Navys.
This year, however, has not been a good one on Wall Street for the retail industry, as I'm sure my bearish foe will overbearingly mention. Retail stocks are currently the must-NOT-own sector on the block. Our fashion-unfriendly Fed may keep raising interest rates until consumer demand cools down, in turn slowing down sales growth. And once consumers experience the increasing costs for clothing, the general perception is that they will be unlikely to buy that sixth pair of blue jeans anytime soon.
For investors with a long-term outlook, this may just be the golden opportunity to jump aboard the Gapwagon and ride the elusive bull.
Reason No. 1: Gap is one of the top 60 worldwide brands. Long-term stock market value correlates very highly with brand recognition. The company has worked long and hard to successfully develop the simple formula that drives its brands. Everyone knows that if you want casual, comfortable clothes, head to Gap.
Reason No. 2: As the trend toward more casual clothing in the workplace becomes the norm, Gap stands to be a huge beneficiary. Eighty-five percent of human resources managers surveyed said that casual dress improves morale. Good morale equals good business. And Gap, always on the forefront of a trend, dressed the New York Stock Exchange in khakis on September 2, 1997, the first casual day in its history (but definitely not the last).
Reason No. 3: My bull's eyes brighten as I contemplate the benefits of international expansion. According to Gap's February sales release, the international division experienced the most growth. At the moment, they have stores only in Japan, Germany, France, the UK, and Canada. That leaves the rest of the world open for Gap-loitation. So long saris; hello capris.
Reason No. 4: "Gap's marketing is so prevalent that it has been credited with starting or encouraging many of the recent fashion trends." This point is from the wonderful TMF research report written by Bob Fredeen. If Gap can continue to create trends, they'll always be one step ahead of the fashion-conscious by having the desirable merchandise before it becomes hot. A satisfied customer is a returning one, which is necessary for continued growth and expansion.
Their most recent marketing seduction (a.k.a. commercial) premiered during Sunday's Academy Awards show and is destined to become an advertising classic, as two teams of dancers compete in a modern rendition of West Side Story. Instead of the Jets and Sharks, the opposing gangs are the Jeans and the Khakis. No matter which side you identify with, there's a "clothing" place for you, and you can find it -- you know where!
Reason # 5. Gap has the bullish edge on the Internet. Gap.com is the second-largest apparel site, with 1999 estimated sales of $80-100 million. Consumers feel comfortable shopping online when they know they can easily return unsatisfactory merchandise (as if!) at a bricks-and-mortar location without having all the hassles of using the mail.
Overall, Gap has already proven its ability to grow sales steadily, even though styles have come and gone since they began in 1969. Their newest concept, Old Navy, has become one of the most successful brands in history, reaching $1 billion in annual sales in less than four years of operation, and breaking the $3.5 billion level in 1999. Always able to capitalize on opportunity, Gap plans to open 120 new Old Navy stores in fiscal 2000.
Shareholders will win as the company focuses on strengthening its brand, expanding internationally, and staying on the cutting edge of style. When it comes to success, for Gap, there's no gap.
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