Old Navy faced assortment imbalances and lower-than-anticipated demand © Photo by Drew Angerer/Getty Images
Old Navy faced assortment imbalances and lower-than-anticipated demand © Photo by Drew Angerer/Getty Images

How Old Navy's inventory strategy contributed to $162m loss

20 June 2022

Attempts to solve extended delivery times by agreeing longer pipelines with suppliers backfired after Gap’s Old Navy brand misjudged fashion trends.

Old Navy changed to a longer inventory push model when “supply chain challenges and persistent delays significantly limited the brand’s responsive abilities”. However, this left them with excess inventory that was “out of sync” with consumer preferences.

Sonia Syngal, CEO at Gap, said in a first quarter investors’ call: “Reverting to a longer inventory push model not only diluted economic value but meant we were defining customer trends too early in the process and were unable to chase into the right fashion choices closer in.

“This resulted in excess inventory and less relevant styles that will pressure sales in the short term while we rebalance the assortment going forward.”

Gap’s first quarter results left them with a $162m loss. Total sales were $3.5bn, down 13% year-on-year. Old Navy saw net sales of $1.8bn, down 19%.

Syngal told investors the majority of sales reduction was due to Old Navy’s assortment imbalances and lower-than-anticipated demand for categories which had grown during the pandemic, such as fleeces and activewear.

They also suffered from “product acceptance issues” following attempts to tackle extended lead times by agreeing inventories further in advance. Additionally, Old Navy purchased more inclusive-size inventory than needed. “We overplanned larger sizes with customer demand under-pacing supply, leading to an excessive inventory across stores,” Syngal said.

She continued: “This issue was exacerbated by the out-of-stock in core sizes due to the continued supply chain disruption and inventory delays… This has resulted in a negative impact on demand and traffic from our core customers as the product they were looking for wasn't available.”

Katrina O'Connell, executive vice president and CFO, added: “Our inventory levels at the end of the quarter were higher than we had hoped. I would say a third to half of that is transit times, which continue to be very long.”

O’Connell told investors the company was taking measures to repackage and hold inventory it thought would see more popularity in future.

Gap also saw weakness in North America due to the rising inflationary environment and in Asia due to Covid lockdowns.

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