Gap Inc. is closing the Forth & Towne chain that was supposed to help the struggling retailer sell more clothes to older women, aborting the 18-month expansion so management can concentrate on reviving the company’s more established brands.
The decision announced Monday affects all 19 Forth & Towne stores opened since Gap unveiled the concept in West Nyack, N.Y., north of New York City in August 2005. Forth & Towne’s other stores are located in Atlanta, Chicago, Houston, Seattle, San Francisco, Los Angeles, San Diego, San Jose and Santa Barbara.
The store closures are expected to be completed by the end of June, jettisoning about 550 jobs. Some of the affected employees may be transferred to one of the San Francisco-based company’s other chains — Gap, Old Navy and Banana Republic.
Signaling that some layoffs are likely, Gap is budgeting $7 million to cover severance payments and other benefits for former Forth & Towne workers, according to a filing with the Securities and Exchange Commission.
Gap hoped to develop Forth & Towne into a specialty channel catering to women older than 35 who grew up in Gap jeans but found themselves sized out in the market in middle age. When it launched Forth & Towne, Gap estimated it only held a 3 percent share of over-35 female market compared to an 8 percent share of women shoppers under 35. Gap had hoped to woo boomers — who are at the peak of their earnings and spending power — back with a store that combined the service of a boutique, the broad offerings of a department store — and a more forgiving fit.
“Forth & Towne was a great test of a promising concept and an illustration of the innovative risks you need to take in our business,” said Gap Chairman Bob Fisher. “We made the tough decision to close the brand and focus our efforts on stabilizing the existing businesses.”
Fisher has been Gap’s interim chief executive officer since last month when the retailer ended the nearly 4½-year rein of Paul Pressler after a dismal holiday shopping season that represented a new low point in a prolonged sales funk.
In a key measure of a retailer’s health, Gap’s same-store sales fell 7 percent last year, deteriorating from a 5 percent decline in 2005. The closely watched yardstick measures sales at stores open at least a year.
Despite its troubles, Gap intends to continue investing in other promising concepts, including a recently launched online shoe store called Piperlime, company spokesman Greg Rossiter said.
Although abandoning Forth & Towne will drive up Gap’s expenses by about $40 million during the first half of this year, industry analysts believe the company will be better off without the potential albatross.
“This brand never gained much traction, suffered from fit, style, and image problems and became a big distraction,” Lazard Capital Markets analyst Todd Slater wrote in a Monday research note.
Retail analyst Jennifer Black said the expansion never made much sense, given Gap’s troubles connecting with shoppers of all ages. “The landscape is so competitive that each retailer has to have a clear reason to be (in existence) and Forth & Towne, never had that,” she said.
Gap shares fell 16 cents to $19.65 during Monday’s late afternoon trading on the New York Stock Exchange.
Scrapping Forth & Towne also may free up some merchandising talent to help with the turnaround efforts at the Gap and Old Navy chains. Analysts are particularly intrigued with the possibility that Forth & Towne’s current president, Gary Muto, might now return to Gap, a chain that he led from August 2002 through September 2004.
Gap’s sales improved during most of Muto’s tenure at the chain. “If he were to return to the Gap brand, (it) would be a positive influence on the division,” Stifel, Nicolaus & Co. analyst Richard Jaffe wrote in a Monday research note.
If Muto were to come back to the Gap, it probably wouldn’t be as president because the company just promoted Marka Hansen — the former head of Banana Republic — to that job earlier this month.
Muto also once ran Banana Republic, making him a possible candidate to return to an upscale chain that has emerged as the best-performing of Gap’s three brands.
Gap and Muto haven’t agreed on a new assignment yet, Rossiter said. The company is expected to discuss the ramifications of the Forth & Towne closure Thursday when it reviews its fourth-quarter results in a conference call with analysts.
Forth & Towne’s closure underscores the challenges facing clothing retailers catering to the graying baby-boom generation. Many merchants like Gap recently have been intensifying their focus on the niche, inspired by Chico’s FAS Inc.’s successful formula for targeting boomers.
But now even Chico’s is hitting a rough patch, having registered a 2.2 percent gain last fiscal year in its same-store sales. Chico’s slowing same-store sales growth followed double-digit increases in the previous two years.