But now the plot thickens and the Gap widens. March has brewed a bit of calamity for the once awe-inspiring specialty retailer. We had a recall of some tainted body lotions earlier this month. The Burkholderia cepacia bacteria found in some of the Gap Outlet lotions could infect anyone with a weak immune system. The old "fall into the Gap" ad campaign never rang truer.
Then Gap decided to approach Chrissie Hynde for the right to use her Pretenders remake of The Kinks' classic "Stop Your Sobbing" for a new "Everybody in Leather" ad campaign. Hynde is a vocal animal rights activist. Leather, for the fabric uninitiated, comes from animals (in this case, slaughtered cows). How can a company supposedly so in sync with trends be so out of touch with reality to not see this train wreck in the making. Needless to say, an infuriated Hynde refused the $100,000 offer. She was later arrested as she and a few other protesters marched into a Gap and began knife-shredding the merchandise.
Then again, I guess Gap should be happy that at least someone was walking into its flagship stores. While the non-Gap chains seem to be humming along -- for now -- the domestic namesake stores are in a rut.
Same-store sales were flat last year for the stateside Gap stores. So far this year, they are trending negative. It's not a good sign when the biggest piece of Gap's 3000-unit portfolio is tanking. It's a pretty darn spooky sign when you consider how easy it is for the rest of the stores to follow suit.
Afflicted optimists, like my fellow Fool Barbara, are probably too impressed with the company's past to consider the future implications here. That is not a healthy stance to take. For lack of a better bacteria, I will call this ailment Stockholderia.
No, this is not a sickness for long-term investors. That will always be applauded. However, one should always be ready to move on when the fundamentals of any company begin falling apart.
In leatherspeak, Gap was once a cash cow grazing away all cheery-like in India. Cows are sacred there. Then, along came some smugglers who snatched up this green-fed bovine and headed to the border. Where cows aren't sacred. Where the slaughterhouse awaits. Jump, Clarabell! Make a run for it, Elsie!
I know I'll get my knuckles rapped for saying this, but making money on Gap stock has had more to do with vision than past perusal. Let's go back in time to prove my point about tomorrow's significance (as twisted as that might sound). Five years ago you could have picked up shares of the company at just 15 times trailing earnings. Sales, comps, and earnings were about to come in strong over the next few years. Today? The stock is trading at 2 1/2 times that multiple in a fickle apparel retailing environment. Shoppers are already set on hammering away at comps. That is obviously going to eat away at earnings. Sales growth is also bound to mature, as even with 600-660 new stores this year it will only make it harder to grow the existing base at recent percentage levels. Those three factors clearly spell...
What's with Banana Republic? I'm sorry, I had to cut myself off there because I'm just floored by this concept. It started out as some Indiana Jones-inspired version of Ron Jon's Surf Shop on safari. Now it's like an outlet for chinos and housewares. It's become a Martha Stewart picnic for mallrats.
Meanwhile, the Gap itself has set its sights on pastel capri pants and blasted denim this season. If I were young and hip I'd brand this "tired." I'm not, but I imagine I might be a bit more fashion-conscious than the analysts who expect Gap's earnings to slow this year but still grow at a naive rate of 23%.
Today's youth can see through the hype. When Gap picked a peck of PETA peppers in the recent leather fiasco, it only opened the door to a more critical fallout. Consider that the company doesn't actually make any of its clothes. It outsources production to factories in more than 50 countries. Despite its anti-sweatshop stance, isn't the primary purpose of third-world outsourcing to shave costs? That, folks, is another public relations train wreck just waiting to happen.
So when fed up young adults become parents, will they dress their infants in babyGap gear? Will they graduate to Gapkids? Will they embrace whatever Banana Republic evolves into?
One simple faux pas can snowball. I know a few people who refuse to pump gas at Exxon only because of the Exxon Valdez mishap. An isolated incident so many years ago and it still lingers. Hey, not me. I patronize Exxon. But I certainly wouldn't wear an Exxon-branded shirt. I'll make the move based on convenience but not to the point of making a pro statement. The problem with Gap is that in the retailing world a purchase becomes a statement.
So when you watch the new West Side Story Gap ads, forget about the Jets-powered stock flight the company provided in the past. Consider the Sharks. They smell blood in the water. The curtain's about to rise on this South Side Story.
So maybe Gap should approach Chrissie about singing at next year's shareholder meeting. Chrissie probably won't mind then. This time, with meaning.
"It is time for you to stop all of your sobbing."
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