Brand’s Success in the Retail Apocalypse Leads to Huge Expansion.
While the last few years, and 2019 in particular, have been a disastrous time for physical retail stores, Old Navy has been one of the biggest bright spots. The company has been in a period of strong growth, opening 145 stores between 2016 and 2018.
In February, the brand announced they would be splitting from their parent company Gap, Inc., creating two publicly-traded companies and allowing the brand to grow and move in new directions.
Last week, at their Thursday investor event, Old Navy made a shocking announcement when they said they would be undergoing massive expansion, by opening 800 new stores. The brand, which currently has around 1,200 stores plans to reach 2,000 locations by increasing their presence in smaller, underserved markets.
Old Navy accounted for roughly $8 billion of Gap, Inc’s $16.6 billion in sales in 2018. While they didn’t specify a timeline for the expansion, the rollout is part of a larger initiative to surpass $10 billion in annual sales.
So why is Old Navy succeeding while other physical retailers are hurting so badly? Let’s take a look at 5 things fueling Old Navy’s success.
1. America loves discounted clothing
While full-priced department stores were suffering in 2018, Old Navy grew by 3%, and they weren’t alone. T.J. Maxx, Marshalls and HomeGoods stores grew 6% year-over-year during the holiday shopping season in 2018. While Nordstrom’s full-price line sales fell 1.6%, their discount Rack stores grew by 4%.
“Customers want exceptional value,” Cowen analyst Oliver Chen recently told CNN. According to Chen, the country is gravitating to retailers where “price is part of their DNA.”
2. Perception of high quality
Old Navy carries many of the same styles as its former parent, Gap, but at a lower price. Similarly, discount retailers such as T.J. Maxx and Nordstrom Rack are clearing out high-quality merchandise that once lived a much higher price point.
In a 2018 story on the strong Q3 performance of T.J. Maxx and Burlington, Simeon Siegel, a retail analyst at Nomura Instinet told CNN “Finding sales shifted from something to hide to a source a pride,” said, a. “People don’t see TJX as selling cheap clothing. They see them as selling expensive clothing cheap.”
3. Values aligning with their target demographic
While Gap has struggled to stay connected with the Gen-X’ers who once flooded their stores and has mostly failed to connect with Millennials, Old Navy has connected with their younger demographics of Millennials and Gen-Z brilliantly. How? One important connection point has been in their values.
The retailer has shown strong support for unity and diversity during recent politically divisive times in the United States. The company has been recognized multiple times for diversity in the workplace, and even took some heat on social media for their willingness to show an interracial family in a 2016 ad.
Millennials and Gen Z are the most racially and ethnically diverse generations, and study after study confirms that social issues such as diversity, equality and climate change matter more to them than any generation before.
4. Their target demo really values value
The 2008 financial crisis and subsequent recession were landmark influences that would shape the young lives of Gen-Z’ers. Watching their parents struggle during the financial crisis taught them to value money and price-shopping at an early age, and shaped a generation with a very practical view toward money.
This plays perfectly into the hand of value retailers with young styles like Old Navy. Shopping online or in the retail location, one is hit with multiple discount signs at every turn. A visit to the website results in 5 discount offers before you even hit the homepage where you’re currently greeted with the headline, “Our biggest denim sale ever.” Gen Z’ers, who pride themselves on finding a bargain, have incentives to buy and buy now.
5. Filling in the low and middle-income gap
Old Navy’s expansion into smaller and underserved markets serves as a perfect example of where their strategy diverges from that of many other retailers. While their competitors are moving into spots where people have money to spend, Old Navy is moving into places where money is tighter.
In recent years, low and mid-priced competitors like Sears have moved out of the market completely, while others like JC Penny have shrunk considerably in terms of footprint. The timing couldn’t be better for the youth-centric Old Navy brand, as their Gen-Z customers tend to prefer physical retail and may help lead a post-retail-apocalypse resurgence of physical retail stores in the future. Their growing footprint in these underserved areas may be a critical chess move for future dominance.
What do you think about Old Navy’s stunning expansion? What do you think has been the most critical element to their success? Do you think their plans to expand in underserved markets will work? We’d love to hear your thoughts. Sound off on social media now and join the conversation.