Sailing into the mass market: discount rivals stand at attention - Old Navy Clothing Co. offers competition - includes related article on comparison shopping - Apparel Merchandising

Discount Store News, March 4, 1996 by Shari Sanders

"Regionals will definitely be the most affected of the discounters because they have more apparel in their mix," says Baum. But regional chains also hold the most promise to successfully complete because of their efforts to revamp their marketing and merchandising.

While their apparel-heavy plans brew, regional merchants are stealing notes from Old Navy. "Old Navy's strongest categories are also ours--denim and other casual apparel," says one gmm from an East Coast store.

A closer look into how Old Navy performs should be instructive to mass merchants.

Like discounters. Old Navy leases stores in strip malls. The difference is it makes more efficient use of its space. Warehouse-inspired layouts interiors with pipe racks and high ceilings accommodate much more merchandise than discount floor plans.

Old Navy employs a low everyday mark-up structure, making up for lower margins just like discounters. Where old Navy steers itself ahead is in sales per square foot, which is estimated to be in excess of $300. Typical discounters' apparel departments bring in less than $200.

"Old Navy should send a wake-up call to discounters," says Baum. "Price, quality and service are givers. Customers are looking for fun. Discounters and chains cannot beat Old Navy on the fun factor, but they can give their customers equivalent merchandise and equivalent prices and try to add some excitement to their retail environment."

Fun is just what Old Navy delivers, especially in its 30,000-sq.-ft. flagship on Manhattan's Ladies' Mile (lower Sixth Ave.) Neighboring other non-traditional city dwellers T.J. Maxx, Today's Man, Burlington Coat Factory and Bed Bath & Beyond since November '95, this store boasts two floors of retail entertainment. Printed T-shirts are shrink-wrapped and displayed in 1950s dairy cases and freezers, while fashion basics are merchandised on dry cleaners' moving racks. The Old Navy Coffee Shop serves healthy-but-hip nosh and Starbucks coffee.

Discounters should be most concerned that with all of Old Navy's in-store hoopla comes apparel price points that are close to their own. Produced in the Philippines, five-pocket, stone-washed jeans in three fits sell at Old Navy for about $22.00, in the same price range as such discount brands as Chic and Riders. In some instances discounters undercut Old Navy prices, but rarely on apples-to-apples merchandise.

Maximizing their assets while Correcting their shortcomings will help discounters compete with Old Navy. Their advantage over such apparel-specific specialty stores is the diversity of a hard lines and soft lines mix. They must work to draw the hard lines customer and the important cross-shopper into the apparel departments. Refining their replenishment programs is a must. Giving consideration to making apparel a separate entity from hard lines is the kind of forward-thinking they need to adopt.

Excuses can't cut it anymore. If Old Navy can captivate and sell the value-minded customer, why can't discounters? *

Comparison Shopping