How The Economy Impacts Gap Comp Store Sales

Maybe you've heard about the implosion of capitalism? Banks did wild things, salaries didn't increase, we borrowed against our homes, and now the infection spreads across the globe.

The implosion of capitalism is reflected by the S&P 500 index. We can measure the change in S&P 500, year-over-year, and compare it with the year-over-year change in sales at the company we work for, year-over-year.

Let's use Gap as an example.

The image demonstrates a relationship (not perfect, but directional) between changes in the S&P 500 and Gap comp store sales.

If the S&P 500 drops by 20%, Gap comps drop by an average of 7%.

If the S&P 500 is flat, Gap comps drop by an average of 4%.

If the S&P 500 increases by 20%, Gap comps drop by an average of 1%.

The relationship only has an R-Squared of 31%. But this is good to know, folks!! It suggests that the economy is responsible for about 31% of the change in Gap comps, while issues controlled by Gap employees account for 69% of the change in Gap comps. In other words, Gap management plays a bigger role in the success of the brand than the economy plays.

Ultimately, this lousy economy drags Gap comps down by maybe six points.

As Executives, we have to communicate a message of hope to our employees. The goal should include a ten percent improvement, so that when the economy drives the business down by six points, we still achieve a four point increase. Improvement is achievable!

Every one of us can run this analysis for the businesses we work at. S&P 500 data is freely available, and our own annual sales performance (retail, online, telephone) is freely available. The x/y non-linear regression fitting software (Curve Expert) is freely available. Go analyze your business, and feel comfortable with the notion that you still control the destiny of your brand!

Fixing Gap

The blogosphere has a veritable plethora of folks commenting on the plight that is Gap (see links below).

There probably are constraints that limit the pace at which Gap can change:
*** Shareholders demand an improvement in the average price of a share of Gap stock.
*** For the stock price to rise, sales and profit must rise.
*** Analysts, experts and pundits think Gap must target a niche, and not appeal to the masses.
*** Not appealing to the masses will likely cause short-term sales declines.

Too many stores, too much competition, merchandise that is too basic, not enough advertising with trendy entertainment stars, irrelevant to its target audience, what do you think Gap's problems are, and how would you fix the business, given the constraints listed above?


Recent Gap Discussions In The Blogosphere And The Press:
*** Lightheavyweight: Fixing The Gap Redux
*** NewMarketBuilder's Retail Blog: Gap Is In Need Of A Niche
*** Seeds Of Growth: Fixing The Gap
*** Mish's Playground: Closing The Gap
*** GlobeAndMail: The Decline Of An American Fashion Icon
*** Brand Autopsy: Would You Miss The Gap?
*** Ad Jab: The Gap Thinks Celebrities Will Help Turn Business Around
*** The Runway Scoop: Gap Gets Rid Of CEO
*** USA Today: Can Gap Be Saved?
*** The Rage Diaries: The Gap Post Y'All Knew I Was Going To Write

Your Expectations For A Brand

Friend of MineThatData Chris Baggott tells of his displeasure with Best Buy and their rewards program.

At Hee-Haw Marketing, Paul has an ongoing issue with the sloppiness of a Kohl's store.

John Moore at Brand Autopsy concludes that if Gap went out of business, it would be ok with him.

What is your tolerance level for a brand, before it slips into the 'criticism zone'? When are you willing to forgive a brand, and how many mistakes are required before you throw a brand under the bus?

The MineThatData Honor Roll: John Hagel at Edge Perspectives about The Gap

John Hagel at Edge Perspectives earns an Honor Roll nomination for his strategic discussion of the problems at Gap. I wanted to write about their business all week, John saved me from an hour of work that couldn't possibly measure up to what he wrote.