by: David Polinchock
I started to write about this article to focus on this the headline of this article TV Ads 'a Waste of Money' for the Back-in-Black Gap, 40% Jump in Profits Indicates Merchandising Initiatives Are Paying Off -- when I got to the bottom of the article where they had this to say:
During the quarter ended May 3, Gap reported a 7% slide in North American stores open at least a year, compared with an 18% tumble for Old Navy and a 4% decrease at Banana Republic. Across Gap Inc., sales at stores open at least a year dropped 11% -- a worse performance than rival retailers JC Penney, Macy's and Kohl's -- yet its 40% profit boost left in the dust Penney (down 50%), Kohl's (down 27%) and Macy's, which posted a $59 million loss.
It's the eternal battle these days, isn't it. Do you provide for your audience or your investors. Do they have to be mutually exclusive? Yes, profits are up, but that's kinda' easy the way they did it. Just don't spend as much. Following that logic, if they closed all of their stores, they'd probably show a great quarter. Unfortunately, they'd be out of business the next quarter.
Their sales are down. Way down. They can keep making these incremental changes and maybe squeeze out a few more quarters of being profitable, but they could also be killing their business. Let me repeat, sales are down 11% across all Gap brands. Now, I don’t think that TV advertising is always the answer, so I’m cool with them cutting it out. But they’re not doing anything to make any real changes to their business. They didn’t cut back on advertising and create a better store experience, did they? Did they give their employees raises to help create a better interaction with their guests? No, they created a short term increase in profits by simply eliminating one single expense.
Could it be that financial measurement is always going to be at odds with other measures of success? Should companies be looking to boost short term shareholder value even when they know it's doing long term damage to their brand?
In the end, it’s always going to be about creating compelling, authentic and relevant brand experience for your audience. Plenty of companies, big & small, do that without using TV. But Gap isn’t really fixing their problems. They just got investors off their backs for one quarter. But without really re-thinking what they stand for, they’re going to have to just keep cutting expenses to keep those investors happy — and that’s not usually a recipe for success.
The brand once known for its peppy, elaborate commercials has struggled in recent years to attract consumers in an increasingly competitive retail environment. But now that it's shelved TV advertising -- the brand has been off the airwaves for several quarters -- and is focusing on merchandising initiatives, Gap seems to be on the right financial track.
Marketing expenditure at Gap Inc. was trimmed 18% during the quarter, driven by the absence of TV ads for the Gap brand, company executives said. That contributed to a 40% jump in profits at Gap Inc., compared to the same period a year ago.