Recession helps Old Navy stage a comeback

Old Navy was the toast of the retail community after its parent company, Gap Inc., reported first-quarter earnings Thursday.

Did the cheap-basics chain post a surge in net sales? No. But in this economy, single-digit drops are the new black. And while its more expensive and buttoned-up sisters, Gap and Banana Republic, reported 12% and 13% same-store sales declines respectively, Old Navy reported it was down just 3% -- and helped mitigate the parent company's overall losses.

It was a good day for Gap Inc., but a real victory for Old Navy, which has long been the company's money-bleeder. Now the store is being hailed as Gap Inc.'s savior from the recession, but it's actually just the opposite -- the recession has saved Old Navy from extinction.

The warehouse-style peddler of $20 jeans has undergone an arduous makeover in the past two years. First, tailored tops and trendy accessories started showing up among the offerings, which have long been staunchly tonedeaf to fashion (Old Navy traditionally relied on customers who wear simple, monochromatic polos in the summer and simple, striped sweaters in the winter).


Then they brought on a legitimate fashion designer -- Todd Oldham -- to take things to the next level. Oldham's collections were solid, but sales didn't reflect that, and he was forced out after 17 months. In his absence, Old Navy's attention to fashion has more or less continued, albeit with a bit less imagination.
So what suddenly transformed Old Navy from problem child to role model? Shoppers' wallets took a beating, and people who would have normally skirted Old Navy's fluorescent-lit entrances on their way to the Gap and Banana Republic decided to stop in for the first time in years.

See, apart from a softly-lit, indie-vibe television campaign that ran two years ago and showcased the store's newfound style sensibility, Old Navy has basically abandoned the promotion of its more savvy collections. Now, as the downturn forces a new influx of traffic, shoppers finally know they can actually find decent work and going-out wear at the store -- and they can still stock up on dirt-cheap flip-flops and tees.

Gap and Banana, meanwhile, are experiencing the opposite of Old Navy's perfect storm. They obviously can't match Old Navy's price point, but at this moment, they're overpriced for their customer. Banana seems to know this -- why else would it be workshopping a cheaper mini-store format? They, at least, have a loyal customer in a certain type of sophisticated businessperson who likes to pick up suits and cocktail dresses in one place and on the one night a month they don't work until 10 p.m.

Gap is a more worrisome prospect. The store is chameleonic to the point of looking schizophrenic, partially because the hiring of designer Patrick Robinson as fashion director has hurt the company as much as it has helped. When you walk into a Gap store, you can almost feel the struggle between Robinson's often-brilliant brainstorms and the company's perceived pressure to sell the historical Gap staples (even in the face of death, they will never admit that no one wears khakis anymore).

So don't be surprised if Old Navy carries Gap and Banana through the next quarter, too. After all, with temperatures rising and budgets falling, would you rather pay$98.00, $59.50, or $10 for a little summer sundress?

This time last year, it seemed that Old Navy's ship may have sailed -- but thanks to the economic collapse, the waters are looking smoother.