Closing the Gap: 189 Locales to Shutter

NEW YORK (AP) - Gap Inc. plans to close stores in the U.S., while expanding in China.

The struggling retailer, which runs the Gap, Old Navy and Banana Republic chains, detailed plans on Thursday to close 189 locations, or 21 percent of its namesake Gap stores in the U.S., by the end of 2013. At the same time, the largest U.S. clothing chain said it plans to triple the number of Gap stores in China from about 15 by the end of the year to roughly 45 by the end of next year.

The moves are related to the company's previously stated goal of reducing its overall square footage in the U.S. by 10 percent from 2007 to the end of 2013, while roughly doubling revenue from outside of the U.S. to 30 percent by the end of the same year.

"The combination of our global strategy and formidable growth platform puts us in a strong position to expand our reach into the top 10 apparel markets worldwide," said Glenn Murphy, Gap's CEO, in a statement. "In North America, we're taking a number of steps to improve sales in the near-term, and I'm confident that with a strong management team in place, we're well positioned for sustained growth across the business."

Like many U.S. companies of all stripes, Gap has been looking overseas for growth as Americans continue to cut back on spending during the down economy in the U.S. But even before the U.S. economy took a turn for the worse, Gap lost its fashion edge. Its sales in the U.S. have eroded considerably since it drove America's love of khakis and all things business casual in the 1990s because of growing competition from specialty retailers like Abercrombie & Fitch and cheap chic merchants like H&M.

In the second quarter, Gap's overall revenue at stores opened at least a year - a measure of a retailer's health - fell 2 percent during the quarter. At Gap's namesake brand in North America, which has posted an annual revenue drop for the last six years, revenue for the quarter was down 3 percent. Banana Republic, which focuses on dressy casual for work, posted a 2 percent decline. North American revenue at Old Navy, which sells low-priced clothing, was flat.

The company, based in San Francisco, has been trying to shore up its business, including shaking up senior management by bringing in a new brand president, chief marketing officer, Gap design director and ad agency. Gap also established a Global Creative Center and consolidated its marketing in New York.

To improve profitability, it has closed or reduced the size of stores over the past few years. And in 2008, it announced plans to reduce overall square footage in the U.S by primarily focusing on cutting the number of Gap stores. But the company never gave details on how many stores that it planned to close.

On Thursday, Gap officials offered more details to analysts gathered in New York for its annual meeting. The company said that it plans to have closed 34 percent of its namesake Gap stores between 2007 and the end of 2013, not including Gap Outlet locations. After the reduction, it will have 700 Gap stores left by the end of 2013, down from 1056 in 2007.

"Over the next 26 months, we'll look store by store at our specialty fleet and determine which stores meet the standards we've set for our brand," said Art Peck, president of Gap North America, who took over the helm of the brand in February. "This is a continuation of our work since 2007."

The company also said it plans to keep the same number of Old Navy stores in North America, but it's cutting down the size of each store. Old Navy had decreased its square footage by 8 percent to 18.5 million since 2007. The company plans to add 50 new Gap Outlet stores by the same period, which will leave 250 stores by the end of 2013.

Gap said on Thursday that it's testing new merchandising ideas and marketing to get shoppers excited. Gap Kids has collaborated with designer Diane von Furstenberg to design a children's line to be shipped to stores next spring.

Overseas, the company said its first Gap flagship in Hong Kong will be opening in a few weeks, as is the first Banana Republic store in Paris later this year. The company also plans to expand Old Navy outside of North America to Japan within the next 18 months.

On the news, Gap's shares rose 11 cents, to $17.96 per share.