so are banana and old navy doing badly too?...
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From last I read in WWD Banana is the only one of the 3 that is profitable.
To me, the problem with the The GAP and Old Navy is that the retail scene has come under drastic changes since the late 90's and the company has failed to keep up. The GAP was known for basic, fashionable, and slightly preppy/classic clothing. It was a combination that worked but one they no longer have a grip over.
American Apparel has done a far better job of translating a wardrobe made up of basics into something desirable. They've put consideration into their fit and silhoutte, something GAP has failed to do over the years.
As far as fashionable clothes go, H&M has really got the market cornered and with Zara's, Uniqlo, and now Topshop spreading through the U.S., GAP's offering seems only more obsolete and juvenille.
And The GAP did have a very classic American appeal which is now almost completely monopolized by Abercrombie & Fitch who have branded and marketed themselves superbly. Their elitist "casual luxury" schtick earns them billions.
What these companies have been able to do that the GAP hasn't is to keep up with trends in consumer buying, not just design. Look at the fast fashion phenomenon, why didn't they position Old Navy for this? Look at the appeal of forward thinking design at low prices which H&M offers. It was an oversight on GAP's design department, they played it way way way too safe. You can't survive being the default for a generic pair of jeans or a gray sweater, not when people cram into A&F for a sweater with a moose on it or into H&M for skinny jeans.