Performance Decline Gap... Workforce Restructuring of 500 Employees

Comeback Attempt 'Easy Gap' Also Fails...Urgent Need for Cost Reduction

(Photo by Bloomberg)

[Asia Economy Reporter Yujin Cho] Gap, a major U.S. fashion company facing management difficulties due to deteriorating performance, is implementing layoffs. After years of stagnant sales growth and rising costs due to inflation, the company is taking workforce restructuring as a self-help measure.

On the 20th (local time), major foreign media including The Wall Street Journal (WSJ) reported that Gap, struggling with declining sales, plans to lay off about 500 employees. A Gap official stated that employees from all departments at the San Francisco headquarters, as well as the New York and Asia headquarters, will be subject to these layoffs.

Bob Martin, Gap’s interim CEO, explained the background of the layoffs to employees, saying, "Recently, the company's expenses have been increasing faster than sales, which is also affecting profitability."

Gap has experienced stagnant growth for years, and even its flagship brand Old Navy, which accounts for half of total sales, has recently reported worsening results. Old Navy’s performance has declined sharply after expanding women's clothing sizes, which led to a surge in inventory.

Gap posted a net loss of $49 million (approximately 68.3 billion KRW) in the second quarter of this year, turning from a net profit of $258 million in the same period last year.

Gap aimed for a comeback with the brand 'Yeezy Gap,' created in collaboration with globally renowned rapper and influential fashion figure Kanye West, but has faced setbacks including the premature termination of the contract.

However, Gap clarified that the current layoffs are not related to the termination of the partnership with Yeezy Gap.

Gap also announced plans to reduce various costs, including halting new hires. The company has a total of 97,000 employees, including part-time store staff, with about 8,700 employees working at headquarters.

Earlier in August, Chairman Martin announced that the company would not provide annual guidance due to macroeconomic uncertainties and the search and replacement of new executives.

At that time, Chairman Martin said, "The company will soon take measures to optimize profitability and cash flow, reduce operating costs, and decrease unproductive inventory."

David Swartz, an analyst at global research firm Morningstar, pointed out the reason behind the withdrawal of guidance, stating, "The company promised margin improvements that realistically cannot be achieved in the coming years, but cost reductions do not seem easy."

Besides Gap, more U.S. companies are conducting layoffs due to worsening external business environments such as inflation and economic recession.

Walmart, the largest employer in the U.S., plans to reduce more than 5% of its workforce excluding store employees, and Bath & Body Works aims to cut 20% of its total staff. Ford has also announced a reduction of 3,000 employees to reallocate resources and improve cost structure.