Where did US retailer Gap go wrong?

At 8:50 on a Wednesday morning, nearly two dozen shoppers hovered in front of H&M's new global flagship store on the corner of West 34th Street and Avenue of the Americas in Manhattan, eager to get inside as soon as the doors were unlocked at 9. Directly across the street, a Gap store was also preparing to open. A lone woman stood in front. She was handing out fliers for a Cuban restaurant as pedestrians hurried by. The contrast summed up the state of US retailing. One by one, iconic brands like Gap, J. Crew, American Apparel and Abercrombie & Fitch have reported slumping sales, while chic and cheap foreign fast-fashion brands like H&M, Uniqlo and Zara are opening bustling stores and luring away customers once devoted to a more basic US style.

US midmarket fashion has lost its way, and no other company epitomises that as much as Gap. The company announced last week that it would close a quarter of its 675 North American stores over the next few years.

But the closures represent just the latest in a decade of stumbles for a brand that was once so cool, actress Sharon Stone wore one of its turtlenecks, with a Valentino skirt, to the 1996 Oscars. In 1998, its “Khaki Swing” television commercial, all smiles and US optimism, aired to 76 million viewers during the final episode of “Seinfeld.”

The brand also became seared in popular consciousness that year as the maker of Monica Lewinsky’s infamous stained blue dress. In a presentation to investors last week, Art Peck, Gap’s chief executive, spoke somewhat poignantly about the brand’s downward trajectory. When Gap’s latest round of store closures is done, its footprint in the United States will fall to just two-fifths of its peak in 2000.

“We had our moments of glory, but they’re not followed with consistent moments of glory,” Peck told investors at Gap’s corporate headquarters in San Francisco. “None of us are happy with our performance now.”

Stuck in the Middle

Once the master of casual, supplying Americans with staple khakis, denims and button-down shirts, the company is finding that its once-stable U.S. customer base has splintered. Luxury is booming; at the other end of the market, discount retailers like T.J. Maxx and Burlington Stores are seeing robust gains. Gap, Abercrombie and their peers are stuck in the middle.

But they have also faltered at a game they once dominated: being the go-to destination for the legions of teenagers and young adults with money in their pockets and time on their hands. That role has fallen to juggernauts like H&M, based in Sweden, and Zara, owned by the Spanish company Inditex, which turn out cheaper versions of runway trends in weeks.

H&M’s 368 stores in the United States, set to grow by 65 this year, get a fresh shipment of styles daily. Uniqlo, owned by the Japanese giant Fast Retailing, is most like Gap in that it sells basics. But Uniqlo markets basics at cheaper price points, in dozens of colors in high-tech fabrics, and offers midprice collections by designers and celebrities, including Jil Sander and Pharrell Williams. The company’s footprint here has grown to 42 stores in four years, and more are planned.

In September, yet another foreign fast-fashion brand is set to land on US shores. Primark, based in Dublin, plans to open 20 locations and will sell items for even less than H&M: Its latest catalog features $8 halter neck dresses and $10 bikinis.

US retailers still outnumber the upstarts, but they are locked into outdated formulas. “Back in the ‘80s and ‘90s, there wasn’t real access to higher-level fashion,” said Kate Davidson Hudson, co-founder and chief executive of Editorialist, an online fashion magazine. “It was the heyday of business casual, and stores did well selling core staples.” “But now, everybody sees what’s on the runways on social media and on blogs, and everybody’s a critic, and shoppers want it as soon as they see it,” she said. “Brands like Gap just feel very dated.”

Sales at Gap stores open for at least a year, a closely watched figure in the retail industry, have fallen for 13 straight months. The company's upmarket brand, Banana Republic, has also stumbled, although Gap's cheaper Old Navy label has done well. At Abercrombie & Fitch, comparable sales have fallen for three straight years, and the brand is in the midst of an overhaul, which includes covering up the hunky shirtless male models who functioned as something of a corporate logo. Last week, the brand confirmed that Katia Kuethe, formerly of Lucky magazine, would be its new creative director.

Even J. Crew, long a retail darling with a fiercely loyal following, has suffered from an increasingly stale formula of print, sequins and basics. J. Crew announced early this month that it would eliminate 175 jobs and replace the head of women’s design at its namesake brand.

Lagging in speed and flexibility

But in reality, it will be difficult for Gap and other US brands to catch up to the likes of Zara, for example, which owns garment factories around the world, giving it a measure of control that permits a quick response to emerging trends. That “vertically integrated” setup lets fast-fashion brands constantly deliver new styles to stores, often in small batches. Fast-fashion retailers have come under increased scrutiny, however, for their heavy reliance on low-wage factory workers, many of whom labor in dangerous, grueling conditions, as well as for the environmental toll of throwaway fashion. Nevertheless, it takes far longer for Gap, which does not own any factories, to source new designs and get fresh styles on its racks. The company hired new design chiefs this year, but in a telling sign of just how much it lags in speed and flexibility, Peck said that their new products would not show up until next spring, because the brand had already bought the bulk of its stock for the rest of this year.

US brands are also saddled with the remnants of a shopping mall culture that is fast vanishing. Many of Gap's coming store closures are expected to be at malls that have suffered from declining foot traffic and slumping sales. The national retailers that once anchored those malls, like J.C. Penney and Sears, also are floundering, at the same time as e-commerce is picking up steam.

By contrast, the foreign labels setting up shop in the United States are getting their pick of the best real estate, said William Susman, managing director at Threadstone Partners, a New York consumer and retail advisory firm.

New York Times