Can The Gap Get Back On Track?

March 12 -- Not only is Gap promising consumers a hip spring clothing line, it's also promising Wall Street a complete makeover.

Changes are needed. After achieving stunning growth in the mid- to late-1990s, the clothing retailer's recent sales figures have been disappointing. While February sales were up 8 percent from a year ago, same-store sales — a key benchmark that looks at sales at stores open for at least a year — declined 11 percent.

That's after a 4 percent increase in February 2000, and follows a 12 percent decrease in same-store sales in January.

In Gap's favor are its powerful brand and dominance as the No. 1 apparel retailer in the United States, its proven ability to regain its footing after other fashion gaffes and a new slate of top executives. These factors lead several analysts and mutual fund managers to conclude that Gap is capable of regaining its footing.

Skeptics, on the other hand, wonder if the khakis king has overextended itself and is headed for the same fate as The Limited, which was all the fashion rage in the 1980s but has had to close a quarter of its stores over the past six years.

Whichever side they're on, experts agree that for the Gap to even come close to its stunning 138.4 percent stock run-up in 1998 and 23.2 percent rise in 1999, the company will have to deliver exciting goods, improve same-store sales and grapple with inventory overhang.

A cumulative 83 percent increase in the chain's square footage over the past three years was the primary driver behind the stock's tremendous ascent, they agree, but now that Gap has nearly saturated the country with more than 3,700 stores, it cannot continue to rely on a bigger footprint to perpetuate its average 26 percent sales growth of the past four years.

Got To Be Cool Again

The company faces much stiffer competition from both casual dresswear and upscale sportswear retailers like Abercrombie & Fitch and AnnTaylor.

For shoppers to once again "fall into the Gap," analysts say, Gap clothes have simply got to become cool once again.