Clothing retailer Gap is set to lay off 1,800 employees, more than three times the number it announced in September 2022, as part of a broader effort to cut costs and streamline operations. The layoffs will affect roles at Gap’s headquarters and upper-field positions. The move comes as the company struggles to return to profitability amid a slump in sales. The layoffs are expected to result in annual savings of $300m, with Gap set to complete the cuts by the end of July.
Gap’s interim CEO, Bob Martin, said the job cuts were necessary to “reshape Gap Inc. for the future,” including simplifying and optimizing the operating model, elevating creativity, and improving the quality and speed of decision-making while reducing overhead expense.
“These changes include the consistent brand leadership structures we announced last month aimed at flattening the organisational structure to improve the quality and speed of decision-making,” he said. However, the layoffs will also “release untapped potential” across Gap’s brands, including its namesake line, Old Navy, Banana Republic, and Athleta, Martin added.
The retailer has struggled in recent years with losses, inventory woes, and the absence of a permanent CEO. In the three months ending 28 January, Gap posted $4.24bn in sales, a 6% drop from the previous year, and a net loss of $273m, or 75 cents a share. It reported annual net losses in both 2020 and 2022.
Three-Wave Plan of Gap for Layoffs and CEO’s Statement on Restructuring
The layoffs are part of a three-wave plan, with employees laid off from the international sourcing division notified in mid-April. Staff in headquarters and upper field roles will be informed on Thursday and Friday, while staff who will be cut from the finance division will be notified in the last week of May. As of late January, Gap employed about 95,000 staff members, 81% working in retail locations and 9% in headquarters.
Martin said the layoffs were necessary to address the complications of Gap’s organizational structure, bureaucracy, and outdated processes that had held the company back. “My commitment and my ask of all of you is that we move through this difficult but necessary process, treating each other with respect and compassion,” he said in a memo to employees.
During an earnings call in March, Martin said the company planned to decrease management layers but did not say how many positions would be cut. Gap’s layoffs are part of a wider trend across the retail industry, which has seen companies struggle to adapt to changing consumer habits and the shift to online shopping.
According to a recent securities filing, the gap is set to incur $100-120 million in pretax costs due to layoffs. The expenses are expected to be allocated towards employee-related costs ($75-85 million) and consulting and other associated expenses ($25-35 million). At the end of January, the company employed roughly 95,000 staff members, 81% working in retail locations and 9% based in headquarters.
Challenges Faced by retailers amid the Covid-19 pandemic
For the three months leading up to Jan. 28, Gap reported a 6% decline in sales from the previous year, amounting to $4.24 billion. Additionally, the company reported a net loss of $273 million, equivalent to 75 cents a share, and annual net losses for 2020 and 2022. The retailer has encountered several setbacks, including inventory issues and the absence of a permanent CEO.
The layoffs will be conducted in three waves, as communicated in a memo by Gap’s leadership. The first two waves have already occurred, with international sourcing division employees being notified on April 18th and 19th and headquarters and upper field roles being informed on April 28th and 29th. The third and final wave, including layoffs from the finance division, will occur during the last week of May.
The Covid-19 pandemic has accelerated these changes, with more people shopping online and fewer visiting physical stores. Retailers have had to invest in their online operations and pivot towards digital sales while cutting costs and streamlining operations to remain competitive. The gap is one of many retailers to announce layoffs in recent months, with Macy’s, JCPenney, and Kohl’s cutting jobs as they struggle to adapt to the changing retail landscape.
However, some retailers have managed to thrive despite the challenges of the pandemic, including Amazon, which saw a surge in demand for its online services, and Walmart, which invested heavily in its e-commerce operations and expanded its grocery delivery service.