Fears for Gap as shoppers stay away

The crisis at Gap, the jeans-and-chinos retailer, swelled yesterday as the company warned that big discounts had failed to tempt shoppers back to its stores.

Investors fear that profits will collapse over the vital Christmas trading period, and there are growing signs that the company is having trouble with its spring collection. An influential Wall Street analyst said yesterday that his own contacts in the clothing supply business had suggested that Gap's planning was in "disarray".

Gap said that group sales fell 8 per cent in November, and that margins would continue to be under pressure in the run-up to Christmas. The company - which owns Banana Republic and Old Navy chains, as well as the eponymous chain - said it was disappointed that new lines and big advertising campaigns had failed to win back customers.

Gap has failed to shake off its fusty image and attract new, younger shoppers. It has swung from offering wardrobe staples to fashionable offerings back to basic jeans and T-shirts, confusing previously loyal customers. Meanwhile, discount retailers are wooing customers with decent designs on cheaper clothing lines.

Todd Slater, retail sector analyst at Lazard Capital Markets, abandoned his buy recommendation on Gap shares yesterday, telling clients to "throw in the towel before losing your shirt".

He wrote: "Channel checks indicate that Gap is cancelling an enormous amount of product, especially denim, signalling a meaningful amount of internal disarray and lack of confidence in its spring merchandising plans."

Gap shares fell more than 2 per cent in early trading yesterday.

Senior vice-president Sabrina Simmons said: "November was a challenging month as negative traffic trends persisted. Promotional and markdown activities at Gap and Old Navy drove total company merchandise margins below last year, and we expect pressure on merchandise margins to continue into December."

Sales in the Gap chain in North America were down 7 per cent in November, and Old Navy stores posted a 10 per cent like-for-like decline. The international business posted a 7 per cent decline in sales.

Other retailers with figures yesterday posted mixed results, with strong department store sales but a disappointing outlook from Wal-Mart, the world's biggest retailer, which predicted that sales in December will be flat or up just 1 per cent.