Gap knocks off Gap - copies discount house pricing policies - AM Apparel Merchandising

Discount Store News, Sept 6, 1993

Although it might not rip the seams out of the discount retailing of jeans and other basic fashions, The Gap Inc.'s new strategy is remarkably close to the apparel game plans at stores that range from Kmart to Bradlees.

The Gap, after years of watching discount stores knock off its trendy marketing of basic fashions, is knocking off the discounters' successful pricing strategy with a new Gap Warehouse collection of men's, women's and children's clothing. The merchandise consists of a broad selection of basic jeans and pocket T-shirts as well as more fashion-oriented items. These include denim vests with striped, woven cotton backs merchandised with denim skirts and all-cotton blouses, and coordinated children's sets of embroidered knit sweaters and printed shirts.

Gap Warehouse carries four labels: Denim Supply Company, Khaki Corporation, Athletic Department and Kids Clothing Corporation. The pricing strategy is being sold through 48 of the company's poorest performing stores in a dual effort to revive their fortunes and attract price-conscious customers.

The Gap's success in expanding its market--as well as its net income, which fell 15 percent in the first half ended July 31, to $70.2 million from $83 million in the year-ago period--depends on how well it can offer discount merchandise without hurting its premier lines.

"There are three main factors: style, quality and price" that attract Gap customers, says Gap vice president of finance Warren R. Hashagen. "Having all those three together is value, and that's why Gap has been successful. But there is always a segment of the population for whom price is more significant, and this is the way for us to better serve that market in our lower volume stores."

In-store comparisons by AM in the New York area suggest Gap Warehouse is offering competitive discount prices. Men's cotton pocket T-shirts sold for $7 under the Gap warehouse line, $7.99 or two for $13 for a pre-shrunk version under a Kmart private label, and $7.99 at Caldor, where they were on sale for $4.99 in private label and Brittania models.

Relaxed-fit women's jeans were tagged by Gap Warehouse at $22. They ranged from $17.88 (on sale) to $22.99 in branded and private labels in Kmart and Caldor. Unisex Athletic Department sweatshirts, made of a 59/41 polyester-cotton blend go for $15; but a lighter weight Gap Warehouse ladies sweatshirt in a 65/35 blend goes for $8, compared to a Hanes Her Way brand 50150 blend in Caldor at $7.99.

Although it's a potentially formidable competitor for discounters, The Gap may be doing discount stores a favor by lending its name to--and, in effect, legitimizing--the offering of low-priced basic fashions. Moreover, Gap Warehouse may pose more of a threat to other outlet stores and to The Gap itself than to discounters--though it may also stem what may be a tide of Gap shoppers headed toward the improved apparel lines in discount stores.

"Gap Warehouse is an attempt to keep some of the traditional Gap customers" who have been finding acceptable quality at lower prices in Kmart and other discounters," says Joel Evans, co-director of the Retail Management Institute at Hofstra University in Hempstead, N.Y. He adds that it will be critical for The Gap to differentiate its full and discount price lines. He says Gap Warehouse is also a reaction to the nationwide encroachment by manufacturers' outlets onto traditional retailers' turf.

Hashagen says The Gap will forego an outward marketing campaign to lure customers out of the general public, relying instead on in-store merchandising and Gap's pace-setting display techniques. The current tactic of keeping existing store names and using Gap Warehouse as a collection title "is what we'll use until we figure out what we'll go with," says one store manager.

Promotion of the new line is subdued. In a Gap outlet in Huntington, N.Y., store passersby are greeted by a black-and-white Gap Warehouse logo pasted on a front display window. Inside, toward the rear of the store near a dressing room, a simple lettered sign says: "Welcome to a whole new way of shopping for your family. Great quality clothing. Great-looking colors. All in fabrics and styles that cost you less. Gap Warehouse."

Unless The Gap works out a broader marketing strategy for Gap Warehouse, consumers may not recognize the new niche that the company appears to be carving out.

"People have an image of The Gap, and I would imagine that people would view it as the same unless told differently," says Karen Olshan, vice president and director of research for ad agency BBDO. Olshan recently completed a study that indicates consumers choose retail destinations by their perception of a store's image rather than by its merchandise.

In essence, Gap Warehouse is a test for the 1,350-store chain. If the concept pans out, president Mickey Drexler and company will undoubtably attempt to expand the format. The challenge will be to do so without jeopardizing their core Gap business.