Old Navy: Low Prices not Appealing during the Recession

In response to the article, “Gap tries to boost branding sales”
Website:http://money.cnn.com/2009/02/27/magazines/fortune/old_navy_ad_campaign.fortune/index.htm?postversion=2009022714

Old Navy has recently seen a large decline in their sales; this is not surprising considering we are in the midst of a recession but is very surprising in comparison to the rest of their parent company’s brands. Gap Inc has seen a decline in all their stores (Gap, Old Navy and Banana Republic) but the company is the most shocked by the poor performance of Old Navy. This is because the low prices at Old Navy usually attract consumers during an economic slow-down. Old Navy has always done particularly well during peak season times like Christmas and back-to school as parents/students can get a lot for a reasonable price. However that was not the case at Old Navy this year. Even with massive sales with reduced items it’s hard to know what the company is doing wrong.

The layout of Old Navy makes it clear that it is a discount store, shoppers do not expect to get a different quality of product than the one they receive. The clothing is cheap but the store fits that expectation with unfinished ceilings, sparse change rooms and plain displays. The signs are just sheets of paper in a metal holder and folded clothing is on plan wooden and metal stands. The sale section is always at the back of store, strategically placed so you have to walk through all the neatly laid out, higher margin items at the front to get to the chaotic sale section at the back. All the sale items are pretty much located in one section, none are hidden throughout the store and while the sale items provide lower margins for Old Navy, they are a major draw for most customers. Knowing this, Old Navy constantly keeps their sale area stocked and usually will do multiple mark-downs so that customers can see the consistent reduction in prices so they feel that they are getting a good deal. This allows shoppers to buy more since they feel they are getting a good deal and can get more for their buck. While the sale area is crammed, it is still somewhat organised organized, clothing is divided by sizes making it easier for shoppers to stick only to their section, therefore they do not waste browsing time looking in other sections and are more likely to find more items to purchase. This set-up seems to have worked extremely well for Old Navy in the past and it is surprising that even during the recession, they have seen such poor results.

Old Navy is currently undergoing product revamp to try and bring customers back to the store. However, while people may be shopping less, they are expecting more. All retailers have seen a major downturn in their sales and have had to massively cut back on prices. Because of this, Old Navy’s prices no longer seem as attractive as they once were and the quality in comparison to other stores is not equivalent. Old Navy is not meeting customer expectations, customers can go to a nicer store, and receive similar prices so they begin to expect even lower prices from Old Navy or higher quality product. Even Old Navy’s parent company Gap is offering huge sales and since they are usually located in the same locations its not surprising those consumers will opt for higher quality. Old Navy’s RVP of low prices, affordable trendy clothing has thus begun to deteriorate as other retailers have begun to adopt this RVP to weather the economic downturn.
Old Navy has relied on catchy and fun advertising during peak times in the past, but again that has failed to bring customers to their stores. The new “modelquins” advertising looks cheap and it screams discount clothing. It is targeted at women aged 25-35, usually young moms. Old Navy will not be able to appeal to these consumers with a discount approach since consumers are not buying disposable clothing the way they used to. If consumers can get clothing that will last longer for the same or a similar price they will since their financial future is unknown and they cannot afford to buy something that will not last. As well, these consumers are probably the least concerned with being fashionable at this time, they are more concerned with being practical and spending money on the necessities. Unless Old Navy can increase the quality of their products or begin to appeal to a new target which is interested in disposable, cheap, trendy clothing their sales will continue to fall.