Gap (GPS) Begins B2B Product Program as Latest Survival Hack

The Gap Inc. GPS is among the few retailers that are leaving no stone unturned to come out strong of the coronavirus crisis. Amid other strategies, the company has begun a new business-to-business (“B2B”) product program to supply cloth face masks to companies and organizations as they open up.  The masks are high-quality reusable, non-medical grade, which can provide protection to employees as they return to work.

Gap was quick in responding to customers’ need for masks amid the pandemic by using its large-scale capabilities to produce masks in bulk. The company’s latest move for the B2B program comes from the growing demand for masks from organizations like Gap itself to ensure a safe working environment for employees. It has so far sold nearly 10 million non-medical grade masks as part of the B2B program to employers in the City of New York and the State of California. Also, this includes the sale of masks to Kaiser Permanente and a leading consulting firm.

Last week, the company signed a long-term agreement with Kayne West to bring the YEEZY fashion label to its stores and the website for customers across the world from 2021. Post the deal, Kayne West will retain the sole ownership of the YEEZY brand.

The YEEZY brand, which was worth $2.9 billion as of April 2020, will offer affordable clothing for men, women and kids. Going forward, Gap is targeting $1 billion in sales in the first five years after the YEEZY deal.

As is clear, the company has been making efforts to recover from the losses suffered by closures due to the coronavirus outbreak in the past few months. Notably, Gap witnessed significant a decline in in-store sales for all formats, with Old Navy down 60%, Gap down 64%, Banana Republic down 61% and Athleta down 50%, in the first quarter of fiscal 2020.

Nonetheless, the company witnessed strong online demand and leveraged its omni-channel capabilities to fulfill online orders and serve customers, even though stores remained closed since mid-March. This resulted in a 13% increase in online sales in the fiscal first quarter. Moreover, the company recorded online sales growth of 40% in April alone due to increased online demand. Brand-wise, there was a significant acceleration in the digital business for Old Navy and Athleta brands, recording increases of 20% and 49%, respectively.

After a splendid show in the fiscal first quarter, Gap notes that the momentum in online sales continued in the fiscal second quarter, recording nearly 100% online sales growth in May. Also, it is moving ahead of the track with its store-reopening plans, and expects to witness strong online and in-store momentum in the second quarter.

Notably, the company had been witnessing robust store traffic and productivity at stores reopened through Jun 5, 2020, particularly Old Navy and Athleta. Moreover, it is operating more than 2,100 stores as mini fulfillment hubs through the ship-from-store facility and more than 500 stores as curbside pickup locations, a capability launched during the COVID-19 crisis.

We note that this Zacks Rank #3 (Hold) stock gained 35.5% in the past three months compared with the industry’s growth of 12.8%.

3 Better-Ranked Retail Stocks

Big Lots, Inc. BIG has a long-term earnings growth rate of 7.1%. The company currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation DG has a long-term earnings growth rate of 12.3% and sports a Zacks Rank of 1 at present.

The Kroger Co. KR, also a Zacks Rank #1 stock, has a long-term earnings growth rate of 5.5%.

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