Are Old Navy’s issues more about demand than supply?

Shares of Gap Inc. plunged 18 percent on Friday after the mall-based clothing giant announced the exit of Old Navy’s CEO, Nancy Green, and lowered its guidance.

Gap CEO Sonia Syngal said in a statement, “As we look to seize Old Navy’s potential, particularly amidst the macro-economic dynamics facing our industry, we believe now is the right time to bring in a new leader with the operational rigor and creative vision to execute on the brand’s unique value proposition.”

Ms. Syngal, who led Old Navy for four years before being promoted to CEO in March 2020, will work closely with Old Navy’s team as a search for a successor launches.

Citing “macro-economic dynamics as well as the execution challenges” at Old Navy, Gap’s first-quarter sales guidance was lowered to a decline in the low to mid-teens. Gap also cited a need to increase promotions at Old Navy.

Old Navy, the second largest U.S. apparel brand after Nike, had been the darling in Gap’s empire amid Banana Republic’s struggles and that of its namesake chain. A planned spinoff of Old Navy was canceled in early 2000 that some attributed to fashion miscues, including missing the wide-leg pant trend and not stocking enough playful looks. Competitive pressures from discounters and off-pricers as well as a shift away from fast-fashion were also possible contributors.

The current problems are being attributed to port congestion and factory closures that have led to understocks. Fourth-quarter same-store sales were flat at Old Navy compared with 2019 levels.

On its fourth-quarter analyst call, Ms. Syngal said customer preferences had undergone a “pretty radical” shift from “cozy and active and fleece” for much of the pandemic to dressier, back-to-work styles and wide-leg jeans. Logistic bottlenecks have slowed efforts to rebalance assortments.

Inflation also risks reducing the overall spend of Old Navy’s lower-income customers. Jinjoo Lee wrote in The Wall Street Journal that, “Old Navy’s affordable, family-friendly clothes ought to be precisely the kinds of products that inflation-squeezed households will be seeking out today. If they can’t find what they want at Old Navy, they will go elsewhere.”

• Gap Inc. Announces Old Navy Leadership Change – Gap
• Gap Replaces Old Navy Leader, Cuts First-Quarter Guidance – The Wall Street Journal
• Gap stock slides 18% after cutting sales guidance; CEO of Old Navy division to leave – CNBC
• Gap Inc. Names Sonia Syngal Chief Executive Officer – Gap
• Gap (GPS) Q4 2021 Earnings Call Transcript – The Motley Fool
• Old Navy was once Gap’s crown jewel, but a series of fashion misses and growing competition have caused it to stumble – Business Insider